Pennsylvania's economic growth is woefully inadequate compared to other states. Pennsylvania’s Gross Domestic Product continues to trend below the US average rate and the Commonwealth continues to lose its working population as other states gain job creators and workers. We need to keep jobs and job creators in Pennsylvania! Tax rates and tax regulations affect job creator’s ability to sustain a business and individuals wallets. In fact, you may not realize it, but the corporate taxes that are invisible to the average taxpayer, quietly tap family pocketbooks for nearly $3,190 per American household per year.

States with more competitive tax structures are attracting jobs while Pennsylvania continues to lag behind the opposition:

• Pennsylvania ranks 46th in economic performance as measured by the ALEC-Laffer State Economic Competitiveness Index
• Pennsylvania ranks as the 39th best state for business by Forbes Magazine
• Pennsylvania ranks as the 25th-best environment for entrepreneurship by the Small Business and Entrepreneurship Council
• Pennsylvania has the 27th best business tax climate according to the Tax Foundation.

Pennsylvania would have nearly 700,000 more jobs today if the economy had grown at the national average since 1990. Job Creators consistently cite the corporate net income (CNI) tax as a major contributor to the poor business climate and a red flag that warns away companies that might otherwise consider locating or expanding in the Commonwealth.

Policymakers need to attract and retain Pennsylvania jobs by implementing a multi-year stimulus package:

1. Stop penalizing companies for locating and having employees in Pennsylvania

• Adopt a Single Sales Factor (SSF) – many other states have changed their Corporate Net Income (CNI) tax apportionment of taxable income to be determined solely by the ratio of sales in the state to total sales. Pennsylvania’s apportionment is based, in part, on asset and payroll ratios, in addition to the sales ratio (the sales ratio is weighted at 70 percent). The Commonwealth is penalizing companies for investing and hiring in Pennsylvania by basing the Corporate Net Income tax on sales, property and payroll.

2. Stimulate entrepreneurship and create new jobs:

• Implement a 100 percent Net Operating Loss (NOL) Carryforward – An NOL deduction that is free of any uncompetitive restrictions is an important way to help start-up companies and balance the effect of volatile economic conditions on cyclical businesses. Forty-eight other states and the Federal government allow a business to deduct 100 percent of its losses in the following tax year subject only to the limitation of taxable income. Pennsylvania limits the NOL deduction to the higher of $3 million or 12.5 percent of the loss.
  
  By way of background, the vast majority of new start-up companies today are companies employing 100 or fewer employees. Due to the various components of start-up costs, these businesses tend to record significant losses in the first few years of operation. Likewise, cyclical businesses face regular fluctuations in income as part of their business operations.

3. Make Pennsylvania's tax laws competitive with other states

• Lower the Corporate Net Income (CNI) Tax Rate - at 9.99 percent, Pennsylvania has the highest flat rate CNI in America. (Iowa has a higher marginal tax bracket for its graduated CNI.) CNI tax rates are the most straightforward measure that businesses use when comparing states’ business climates. While a reduction of just one percentage point to 8.99 percent would improve Pennsylvania’s ranking by eight places, the Commonwealth still would remain well-above the national average of 6.80 percent. Furthermore, changes in the CNI would impact approximately 45,000 companies. A 1 percent reduction to the CNI (to 8.99%) would inject approximately $210 million into Pennsylvania’s economy (2004 PA Tax Commission revenue estimates) and create 1,903 additional private sector jobs,
       
• Continue the Phase-out of the Capital Stock and Franchise Tax - In May of 2000, the General Assembly recognized that Pennsylvania’s Capital Stock and Franchise Tax represented an unfair, burdensome tax on Pennsylvania businesses. Subsequently, in May of 2000 the General Assembly initiated a 10-year phase-out of the CSFT. This phase-out was slowed in 2002 and 2003. Business urges the continued planned phase-out to ensure that this repressive tax is eliminated by January of 2011. According to 2003 Department of Revenue figures, every one mill reduction would inject approximately $80-$90 million back into the economy, increasing funds available for business expansion and job creation.

Additional resources:

• PA Chamber response to pension re-amortization, H.B. 2497, June 11, 2010
• Memo to state Senate on combined reporting, June 4, 2010
• Senate Finance Committee Hearing Testimony for Mike Cortez Vice President and General Counsel Sheetz, Inc.
• Opposition memo to House lawmakers regarding Tax Code bill (H.B. 325)
• Memo to Senate Finance Committee urging advancement of S.B. 1255, single monthly sales tax returns, April 28, 2010
• Coalition letter opposing elimination of vendor sales tax discount, March 29, 2010
• Opposition letter to governor's sales tax expansion proposal, March 5, 2010
• Combined reporting testimony before House Democratic Policy Committee, Jan. 20, 2010
• Oppose House Bill 1489 - 09/30/09
• Letter urging advancement of Business Privilege Tax reform legislation, S.B. 601 -9/22/2009
• Letter of support for Managed Care Organization extension, H.R. 333 - 06/09/2009
• Public Hearing on Pennsylvania's Economic Competitiveness & What Can Be Done to Improve Pennsylvania's Business Climate
• Letter to state House opposing proposed "trash tax," H.B. 1069 (05/04/2009)
• Letter to General Assembly opposing repeal of sales tax vendor allowance 03/05/2009
• Joint Letter to the General Assembly Supporting CompetePA and Opposing Combined Reporting 4/27/2007