Pennsylvania has the highest corporate net income tax rate in the nation, 9.99 percent.
But almost nobody pays the maximum rate.
However, businesses in other states often don’t take the time to understand that fake ceiling when deciding whether to put new or relocated factories, offices or stores somewhere in Pennsylvania.
So Pennsylvania loses some potential new business that otherwise might come here because we are not called the “Keystone State” for nothing. Locating within Pennsylvania provides genuine advantages in transportation costs and delivery times to the Boston-to-Baltimore megalopolis and all along the I-95/I-81 corridors that link Maine to Florida.
But we lose because, when corporate bean-counters compare locations in several states, they look at corporate tax rate comparison charts, see “9.99 percent” for Pennsylvania — and strike us off the list at the first go-around.
So why don’t we have a realistic corporate net income tax rate, somewhere around 6 or 7 percent, without all the loopholes and deductions that enable companies already in Pennsylvania to lessen their tax costs?
Think “Delaware Loophole.”
For decades, until 2013, corporations doing business in Pennsylvania were able to transfer revenue and assets to other states where the tax burden is less. Delaware gets the lion’s share of that transfer because its business taxes are very low.
In 2013, ordinary Pennsylvanians were told that the Legislature and then-Gov. Tom Corbett would close that “Delaware Loophole.” A bill to do just that was signed into law.
The loophole remains. The law doesn’t require reporting for tax purposes of lucrative corporate assets such as patents and trademarks, said Sen. John Blake, D-Archbald, in a story in the Citizens’ Voice newspaper of Wllkes-Barre.
Gov. Tom Wolfe is suggesting another version of “combined reporting,” an accounting practice that would force companies doing business in Pennsylvania to pay taxes on all profits earned within Pennsylvania.
Blake proposes to make a gradual transition to mandatory combined reporting and a corporate tax rate of 6.99 percent over six years.
The Pennsylvania Manufacturers Association, not coincidentally, strongly opposes combined reporting — but not just because it would mean higher taxes for some members.
Combined reporting, coupled with a reduction in the corporate tax rate to realistic levels, would bring more manufacturers into Pennsylvania — where they could compete with existing firms for business, and for skilled workers.
Pennsylvania is $3 billion or so in “structural” (every year) debt, plus $70 billion or so in pension liabilities.
We need the money.
Let’s move to true combined reporting and reduce our top corporate tax rate to realistic, competitive levels.
— Denny Bonavita