Pennsylvania Businesses Might Be Split Over Wolf's Tax Plan

Gov. Tom Wolf's budget proposal is giving Pennsylvania business owners and executives a lot to think about.

Wolf said in an interview Wednesday that his proposal to make Pennsylvania's scheme of taxation and school funding fairer will create winners and losers among businesses, in part depending on where they own property or how they pay income to the state.

In large part, Wolf wants to increase state sales and income taxes while cutting corporate and school property taxes.

Most businesses are organized as S corporations — named for a subchapter of the federal Internal Revenue Code — and would pay more under Wolf's proposal to raise the personal income tax from 3.07 percent to 3.7 percent.

"If you are a pass-through and you pay at the personal income tax level and I'm proposing to raise that, that would be true," Wolf said. "On the other hand, if your business is in a certain ZIP code, and your property taxes are going to go down substantially, you may actually have a net savings. And if you switch from an S-status to a C-status and it relieves you of paying earned income taxes at the county level, plus you get the property tax reduction, you may end up with lower taxes."

That means different businesses will be affected differently. Wolf's plan is complicated enough that some major business advocacy groups are still trying to assemble a policy position more than a week after Wolf first proposed it, since it will render a different outcome for many of their member businesses.

Other elements of Wolf's tax plan include extending the state sales tax to more items that currently are exempt and reducing the amount of operating losses that corporations can write off. Meanwhile, Wolf wants to impose a new system of collecting the corporate net income tax, which could result in the state taxing billions of dollars in corporate profits that are theoretically earned in Pennsylvania but taxed elsewhere.

Warren Hudak, whose suburban Harrisburg accounting firm has small business owners as clients, said Wolf's plan would cut taxes for Pennsylvania's largest corporations, but raise them on small business owners.

"The winners are going to be large corporations and the guys who are going to be stuck with the bills are working families and small businesses," Hudak said.

Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry, said C corporations that pay the corporate net income tax may not realize the full value of Wolf's proposal to halve the rate. Some may not profit in a given year, and some could pay more under Wolf's other proposals to scale back loss write-offs, Barr said.

Plus, Wolf's proposal to change how corporate taxes are collected could mean that Pennsylvania tries to tax profits that are already being taxed by other states or jurisdiction, leading to lawsuits, Barr said.

"The bottom line is that this total package ... is probably more a negative than positive for businesses," Barr said.

The majority of the $3.2 billion in Wolf's school property tax relief plan would go to homeowners to reduce taxes on the home in which they live.

Wolf's press secretary, Jeff Sheridan, took issue with the notion that small businesses would suffer, while only big corporations would benefit.

The tax relief package will be enough to deliver cuts to business property taxes in a number of school districts — the administration is still determining which ones — and the budget carries extra money for job training and low-interest loans that help small businesses.

Also, the Wolf administration's bid to deliver tax cuts to homeowners whose incomes are below $100,000 — those who earn more would pay more — would flush more money into the economy and help small businesses, Sheridan said.

Copyright AP - Associated Press
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