Wolf Seeks to Halve Corporate Tax Rate, Broaden Its Reach

Gov. Tom Wolf will urge lawmakers to cut Pennsylvania's major corporate income tax rate by half, while broadening how it is applied, to make the state more attractive to employers, he said Wednesday.

Against the backdrop of gigantic, rusty smokestacks of the former Bethlehem steel mill, Wolf unveiled more of the proposals he will present to lawmakers next week before a group of Lehigh Valley business leaders in Bethlehem.

His plan would reduce the corporate net income tax to 4.99 percent, down from the current 9.99 percent, taking the rate from one of the nation's highest corporate income rates to one of the lowest, he said.

The reduction would occur in three steps over two years- to 5.99 percent in 2016, 5.49 percent in 2017 and 4.99 percent in 2018.

A companion proposal would institute a practice called combined reporting in an effort to crack down on companies that shift profits earned in Pennsylvania to lower-tax jurisdictions through the so-called "Delaware loophole." That would effectively broaden the income subject to the corporate income tax.

Both steps would require approval from the Republican-controlled Legislature.

"It's time for pragmatism," the Democratic governor said. "We've had enough ideology out there."

Wolf told reporters after his speech that he believes that corporate taxpayers would save money overall under the two proposals, but said did not know for sure.

"I think this is a real tax reduction," he said, adding that he would know for sure by Tuesday, the day he is scheduled to present a joint session of the Legislature with a 2015-16 state budget plan- his first- for the fiscal year beginning July 1.

The new governor also said he will not stand in the way of the scheduled Jan. 1 expiration of the Capital Stock and Franchise Tax, which is levied on corporations' assets and property.

"We've been talking about phasing that out since the Ridge administration," he said.

Wolf also said he is proposing $5 million in tax credits for employers that create good-paying jobs, including a "clawback" provision to allow the state to recover the money if the jobs do not materialize.

Combined reporting is a method of taxation that effectively treats a parent company and its subsidiaries as a single corporation for state tax purposes.

The state Revenue Department has described the loophole as an artificial payment- or a "sham transaction"- by one arm of a large, multistate company to another arm of the same company that is located in a lower-tax or no-tax state, like Delaware. The end result is to lower the amount of the company's profits that are taxable in Pennsylvania.

Last fiscal year, the corporate net income tax raised $2.5 billion for the state, about 9 percent of the state's total tax collections of $28 billion.

Supporters, including Democratic lawmakers, say the change would reap hundreds of millions of new tax dollars from transactions that currently escape taxation in Pennsylvania. However, business advocacy groups say it is heavy-handed, administratively complex and can lead to double taxation and lawsuits.

Senate Majority Leader Jake Corman, R-Centre, said he would wait to see more details of Wolf's plan before rendering an opinion. Some Republicans say a 2013 law effectively closed the loophole. It gave the Revenue Department the power to count what it viewed as a sham transaction toward a company's tax liability without undertaking a full audit of the company's books.

Efforts by former Gov. Ed Rendell, also a Democrat, to institute combined reporting failed amid Republican opposition in the Legislature.

Copyright AP - Associated Press
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