Last week, the Senate Finance Committee advanced S.B. 771, legislation that would gradually reduce the state’s Corporate Net Income Tax.
The bill calls for an annual one percentage point reduction of the CNI rate over three years from 9.99 to 6.99 percent and thereafter instituting a revenue based trigger providing that further reductions can only occur if state tax revenues hit specific targets.
At 9.99 percent, Pennsylvania’s CNI tax rate has the unfortunate distinction of being second highest in the nation and serves as a major red flag to potential investors. The state’s employer and economic development communities has long advocated for a reduction in the rate to make the Commonwealth more competitive with other states.
The PA Chamber, along with The Greater Pittsburgh Chamber of Commerce and The Chamber of Commerce of Greater Philadelphia issued a joint press release commending the Senate Finance Committee members for passing the legislation. The bill will now go before the full Senate for a vote.
A reduction in the rate has garnered traction in recent months with lawmakers on both sides of the political aisle supporting the concept. In his 2022-23 budget address, Governor Tom Wolf also called for a CNI rate reduction. His proposal, however, includes an excessive expansion of the state’s taxing authority to audit and assess certain businesses without an objective standard or evidence, shifting the burden of proof to the taxpayer to prove the “department” unreasonable. Business leaders from across the state have cautioned against this expansion, citing the need for clear, predictable standards for employers to follow.
As part of a Small Business Tax Package, both the House and Senate advanced companion bills, H.B. 333 and S.B. 349, related to Section 179 Expense Deductions.
Section 179 of the Federal Tax Code allows owners of a pass-through business to deduct the full purchase price of qualifying equipment. The Tax Cuts and Jobs Act increased the limit for Section 179 expenses from $500,000 to $1 million. While PA law allows those subject to state corporate net income tax to take the full deduction, it limits deductions for businesses subject to the state personal income tax to $25,000. Both bills would provide equity for small businesses by increasing the deduction during the current year from $25,000 to $1.05 million, or consistent with the federal limit, allowing businesses to reinvest capital back in themselves and in the Commonwealth.
The Senate Finance Committee passed H.B. 333, which recently passed the House 125-75 with significant bipartisan support. House Bill 333 is now before the full Senate. The House Finance Committee this week passed its companion bill, S.B. 349 which also passed the Senate with bipartisan support.
Finally, the House Finance Committee passed House Bill 2277, which would repeal the requirement for businesses with over $25,000 in tax liabilities in the 3rd quarter of the previous year, to remit prepayments for their sales tax collections. Under the new legislation the complicated “pre-payment” requirement would be eliminated, allowing businesses to simply remit their collected sales tax revenues in accordance with their filing period.
Applauding the legislature’s action on significant tax reform measures, PA Chamber President and CEO Gene Barr said, “All of these bills speak to the simplification of the tax code, aligning state and federal tax law, and ultimately improving Pennsylvania’s competitive standing, a top priority of the PA Chamber.”