Newly permitted PA funds contains historic company web income tax reduce

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The $45 billion 2022-23 state budget passed by the Pennsylvania General Assembly this week will provide an historic cut to the Corporate Net Income (CNI) tax, reducing it from 9.99 percent to 8.99 percent next year, a move that could jumpstart economic growth across the Commonwealth. 

“Big news – PA has enacted game-changing tax reform! This opens the door for more businesses to locate and expand in our state. It’s a great example of how legislative bipartisanship can benefit all citizens,” tweeted the Pennsylvania Chamber of Business and Industry on Friday following approval of the budget by the state Senate. The state House of Representatives passed the budget on Thursday. The budget now goes to Gov. Tom Wolf’s desk for enactment into law.

The reduced CNI tax is part of the budget’s tax code reform package, which also encompasses solutions to many other issues, including caps on tax credits, deductions and deferrals for like-kind exchanges of property, and exempting Gold Star families from inheritance taxes, among other items. 

“The state is in a position where it can return taxpayer investments,” said State Rep. David Rowe (R-Snyder/Union). “This tax code bill would do that by providing relief to Pennsylvanians and reversing decades of harmful tax policies that hinder economic growth.”

PA House Bill 1342 also would benefit small businesses impacted by pandemic-era shutdowns and tax policies by allowing them to defer tax liabilities on gains from similar property exchanges, which is permitted in 49 other states, said Rowe, who added, “I was very happy to support this bill.”

Specifically, the measure also will provide for an additional 0.5 percent reduction in the CNI tax rate each subsequent year until the rate reaches 4.99 percent by 2031.

“Based on current state corporate tax rates, the full reduction takes Pennsylvania from the highest CNI tax rate in the country to the sixth-lowest by 2031 and is the first change in the rate since 1995 — giving our economy a vigorous boost in our post-pandemic recovery,” said PA Chamber President and CEO Luke Bernstein.

The benefits of a more competitive business tax code, Bernstein said, go far beyond just improving the state’s business climate.

In fact, according to the PA Chamber, studies have shown that a decrease in the CNI tax rate leads to increased GDP, higher wages and increased home values, all of which create family-sustaining jobs and attract and retain new talent.

The reduced CNI tax rate is its first reduction since 1995 and the first significant tax cut in Pennsylvania since the decision to phase out the Capital Stock and Franchise Tax in 2002, according to the PA House GOP members who supported the bill.

“We must enhance our economy,” State Rep. Marci Mustello (R-Butler) said. “Pennsylvania’s current CNI tax rate — the second highest in the country — has been punitive and a giant stop sign to businesses looking to come to Pennsylvania.”

Pennsylvania Rep. Chris Quinn (R-Delaware) agreed, saying he’s proud to have accomplished a reduction in “the job-crushing effect of the second-highest CNI tax in the nation.” 

In addition to serving as a barrier to growth, the current high CNI tax rate has also led to the state government picking winners and losers through an unbalanced scheme of individual tax packages to encourage growth and investment when the current tax climate would otherwise prohibit it, said the PA House GOP.

But with the House voting 180-20 to approve the budget, House GOP leaders hailed the spending plan as historic in its investment in Pennsylvania that includes fiscally responsible provisions that would provide stability in future years.

Importantly, they said, the fiscal year 2022-23 state budget uses state funds to responsibly meet the immediate needs of Pennsylvanians while setting up the Commonwealth for solvency and making the state competitive with other states to attract job creators that will drive long-term growth.

“At a time with so much at stake and taking a realistic view of our future economic outlook, this budget delivers for the people of Pennsylvania today while setting us up for a stable Commonwealth tomorrow,” said PA House Majority Leader Kerry Benninghoff (R-Centre/Mifflin). 

“The budget that we passed (July 7) is the most comprehensive budget-related legislative package I have experienced in a long time. It is a budget that puts the needs of the people before the needs of the government,” added PA House Appropriations Committee Chairman Stan Saylor (R-York).

The budget includes a version of a proposal introduced by Sen. Ryan Aument (R-36) to cut the CNI tax rate. “Lowering our Corporate Net Income Tax will bring more high-quality jobs to our state, raise worker wages, elevate home values, and increase economic opportunity for Pennsylvanians in every class, sector, and corner of the Commonwealth,” Aument said.

Additionally, the tax reform package also includes more relief for small businesses, affording them the opportunity to defer personal income tax liabilities through like-kind exchanges of certain property — another long-sought-after member-centric goal of the PA Chamber, which said this provision allows employers to invest in the job-creating assets that businesses need to stay competitive.

Previously, Pennsylvania was the only state in the country that did not offer this type of deferral, according to the chamber. 

An additional component of the package aligns the state Tax Code with federal tax law by allowing small businesses to deduct qualifying equipment purchases from personal income tax liabilities, just as federal tax law provides for under Section 179. This change makes it easier for employers to buy equipment and invest, which in turn promotes job growth.

Sen. Camera Bartolotta (R-46) said, “This budget rightly prioritizes initiatives to benefit Pennsylvania’s workers, who were hurt by Gov. Tom Wolf’s pandemic closures and still have not recovered. From being displaced from their industries to struggling to find affordable child care, people need help. This funding will better position them for long-term success and financial independence.”

Bartolotta, who chairs the Senate’s Labor and Industry Committee, also said she was pleased to see the budget included important investments to boost the state’s workforce. “This budget includes more funding dedicated to apprenticeship training to continue a proven job training model that allows individuals to earn while they learn on a pathway to family-sustaining careers. It invests more in New Choices/New Options, a program designed to help individuals re-enter the workforce.”

Pennsylvania’s new fiscal year began July 1.