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State Business Tax Policy

Few issues draw as much attention as state business taxes for businesses seeking to locate or expand operations. So in 1991, when the Commonwealth levied the largest tax increase on businesses in Pennsylvania's history, Pennsylvania's ability to compete for jobs in a global marketplace was severely crippled. Arguably, Pennsylvania's business climate has never recovered.

Despite positive changes to the Commonwealth's business taxes over the last few years, the economic boom of the mid-to-late 1990s and increased international competition allowed most of Pennsylvania's competitors to reduce their business tax burdens significantly. As a result, the Commonwealth's business tax structure continues to have some of the highest rates in the nation and is more burdensome than most others. While the progress on business taxes in Pennsylvania was constructive, it did little to improve our overall competitiveness in the nation and around the world.

The Chamber supports a thorough review and analysis of the current tax structure that includes dynamic econometric modeling. The process for review should be well-balanced in its representation of the business community and designed to make changes to the tax structure that are based on the principles of competitiveness, predictability, fairness and simplicity.

In the absence of such broad-based structural recommendations, the Chamber supports specific tax changes that encourage companies to locate and expand in Pennsylvania, including:

• Elimination of the capital stock and franchise tax;
• Reduction of the corporate net income (CNI) tax rate;
• Elimination of the net operating loss cap;
• Establishment of a full single sales factor for CNI apportionment purposes;
• Establishment of destination sourcing on services revenues for CNI apportionment purposes;
• Administrative reforms that promote timely, efficient and independent tax dispute resolution;

Similarly, the Chamber opposes tax policy options that hinder a company's ability to compete in today's global market. Specifically, the Chamber opposes:

• Unreasonable restrictions on passive investment companies;
• Increases in the tax burden on pass-through entities;
• Mandatory Unitary Combined reporting;
• Throw back/throw out rules;
• Changes that exacerbate tax pyramiding in the imposition of a sales and use or some other consumption tax;
• Adoption of a new or expanded gross receipts or business receipts tax;
Broad, subjective Department of Revenue powers; Increases in the tax burden on targeted industries.

Approved by the Board of Directors on 6/8/07.