Earlier this month, Gov. Tom Wolf released his proposed 2017-2018 budget for the Commonwealth of Pennsylvania. Several taxes and other business-related items are addressed that could force business owners to dig deeper into their pockets. In this blog, we give an overview of four (4) specific items business owners should continue to watch during the legislative budget process.
Corporate Net Income Tax:
Continuing the trend from his past budgets, Gov. Wolf proposed a decrease in the Corporate Net Income Tax. It is his belief this reduction will encourage business investment in the state.
The proposed diminishing rate schedule is as follows:
January 1, 2019 to December 31, 2019 ................... 8.99%
January 1, 2020 to December 31, 2020 ................... 7.99%
January 1, 2021 to December 31, 2021 ................... 6.99%
January 1, 2020 and thereafter ................................ 6.49%
There is a caveat to his proposed reduction in the rate. The base of the taxable income would be changed by mandating unitary combined reporting, effective for tax years beginning January 1, 2018. This means Pennsylvania could tax a multistate corporation that is comprised of two or more corporate entities on its total taxable income, instead of only the corporation’s entities with nexus revenue earned in Pennsylvania. This could constitute a significant increase in the amount of money a large corporation pays. Combined reporting could also put a final nail in the coffin of the so-called “Delaware Loophole,” which many governors have attempted to eliminate.
Sales and Use Tax:
The governor proposes expanding the list of businesses subject to sales and use tax to include: 1) commercial storage; 2) computer services; 3) aircraft sales, use, and repair; and 4) airline catering, effective July 1, 2017. The revenue from this expanded list of taxable services would be used to reduce school property taxes and provide renters with a rebate.
Severance Tax on Natural Gas:
To help fund public education in Pennsylvania, the governor proposes taxing natural gas drillers 6.5% of the value of natural gas. This was a major campaign promise of the governor’s. The unconventional gas well impact fees can be taken as a credit to offset the severance tax. This tax would be effective July, 1 2017, if passed.
A proposed minimum wage increase from $7.25 to $12.00 per hour is included in the governor’s budget. This is another proposal that could significantly impact businesses in Pennsylvania, particularly small businesses.
The debate in the public realm and the state legislature had already begun. Lobbyists and special interest groups are positioning their constituents’ side of the issues with key law makers. The Tax Warriors® at Drucker & Scaccetti will watch the budget process and report its tax-related outcomes to you. In the interim, contact us with questions about the governor’s proposals and how they may impact your business. We are always prepared to help you or your business with tax matters.