Pennsylvania Looking To Raise Small Businesses' Taxes To Lure The Big Fish

The Patriot News (12/1/04) reports that Pennsylvania is looking for ways to reduce state corporate net income taxes by 30%. The proposed tax cut for corporations would include a provision that increases the Pennsylvania small business tax rate by roughly 33% for many small businesses.

Currently, Pennsylvania's corporate tax rate is 9.99%, the third highest in the nation. In hopes of attracting more corporations to the state, Pennsylvania is looking to reduce the corporate rate to 6.99%. Gov. Ed Rendell requested that the plan be revenue neutral. Thus, to make up for the revenue shortfall, Pennsylvania is looking to raise the small business tax rate from 3.07% to 4.07%. Yet, such a maneuver still creates a $49million shortfall. (The proposal also includes a provision that would eliminate the cap on operating losses that businesses can write off in order to attract high tech firms.)

The reason small businesses currently get preferential tax treatment in Pennsylvania stems from a law adopted two decades ago to boost the growth of small businesses. Under that law, certain smaller companies are permitted to pay taxes at the state's personal income tax rate of 3.07%. Therefore, Pennsylvania is looking to shift away from being a pro-small business state in an attempt to lure large corporations to the state.