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CORPORATE NET INCOME TAX
Corporations doing business in Pennsylvania are subject to
Pennsylvania's Corporate Net Income Tax at a rate of 9.99%. This tax is levied on federal taxable income, without the federal net operating loss deduction. Pennsylvania allows a ten-year net operating loss carry forward of up to $1 million a year. To arrive at Pennsylvania taxable income, all taxes imposed on or measured by net income which are expensed on the federal corporate income tax return are added back, while the foreign dividend gross-up and net interest income and gains on United States government securities are deducted. In addition, consolidated or combined reporting is not allowed. Pennsylvania views each company as a separate company for Corporate Net Income Tax purposes.
For corporations whose entire business is not transacted in Pennsylvania, the income base may be allocated and apportioned to determine income subject to taxation in Pennsylvania.
For corporations which
conduct activity in more states than Pennsylvania, a three factor apportionment method is used to apportion corporate net income. Pennsylvania uses property, payroll, and sales in its apportionment formula and double-weights the sales factor. The formula follows:
- [(PA Property/Total Property) + (PA Payroll/Total Payroll) + ((PA Sales/Total Sales) x 2)]/4
CAPITAL STOCK AND FRANCHISE TAX
The Capital Stock and Franchise Tax is imposed on corporations with capital stock, joint-stock
associations, limited partnerships, business trusts and other companies doing business within Pennsylvania. Domestic corporations are subject to the Capital Stock Tax, while foreign corporations are subject to the Foreign Franchise Tax on capital stock apportioned to Pennsylvania. The tax is imposed at a rate of 11.99 mills on capital stock value, as determined by the following formula:
[0.5 x {(Average Net Income/ 0.095) + (0.75 x Net Worth)}] - $125,000
Net worth is defined as consolidated net stockholders' equity as of the close of the year. Average net income is defined as a five-year average of unconsolidated net income.
A statutory exemption is provided for manufacturing, processing, research and development, and air or water pollution control assets.
The minimum tax is $300.
For more information contact the Department of Revenue-717-787-8210
For corporations which
conduct activity in more states than Pennsylvania, a three-factor apportionment method is used to apportion capital stock value. Pennsylvania uses property, payroll, and sales in its apportionment formula which follows.
- ( (PA Property/Total Property) + (PA Payroll/Total Payroll) + ( PA Sales/Total Sales) ) / 3
Corporations whose business is transacted both within and without Pennsylvania are permitted to choose between a single "exempt assets" factor and a three-factor apportionment formula to
determine the portion
of capital stock value attributable to Pennsylvania and thus subject to Commonwealth taxation. (Corporations whose entire business is transacted within the Commonwealth may use the exempt assets factor to exclude nontaxable assets.) The exempt assets factor is based on the ratio of book value of taxable assets to book value of total assets.
The
Research and Development Tax Credit piggybacks the Federal Tax Credit providing companies that perform applied research in Pennsylvania with a credit to offset the cost of research. For more information, contact the Department of Revenue at 717-783-6035. The Job Creation Tax Credit is available to eligible businesses that, within three years from a negotiated state date, create 25 or more jobs or increase employment by 20%. Every new full-time job will result in a $1,000 tax credit that businesses can use against most business taxes. For more information, contact the Grants Office in the Department of Community and Economic Development at 717-787-7120. A Neighborhood Assistance Credit is allowed for up to 70% of the amount invested in programs which help families or communities in impoverished areas. For more information, contact the Community Empowerment Office-717-787-1984 The Employment Incentive Payments Program provides credits to employers who hire welfare recipients. The credits are given to employers to offset a portion of the payroll cost for qualifying employees on the first $6,000 of wages paid. For More information contact the Department of Labor and Industry information-717-787-8851. The Enterprise Zone Credit Program allows corporations a tax credit of up to 20% on investments to rehabilitate or improve buildings or land in an Enterprise Zone. For more information contact the Community Empowerment Office at 717-787-1984.
Corporations organized for manufacturing, processing, or research/development purposes may claim an exemption for capital stock invested in such activities within Pennsylvania.
Corporations may deduct $125,000 from capital stock value.
Equipment, machinery, facilities and other tangible property used during tax year within Pennsylvania for water or air pollution control or
abatement devices are exempt from the Capital Stock and Franchise Tax.
Corporations may use the exempt assets factor to exclude nontaxable assets. The exempt assets factor is based on the ratio of book
value of taxable assets to book value of total assets.
SALES AND USE TAX
The Sales and Use Tax is imposed at a rate of 6% on the retail sale, consumption, rental or use of tangible personal property within Pennsylvania and a limited number of business services relating
to such property and on the charge for a limited number of business services.
A Sales Tax exemption is available for most purchases made by producers of full-length feature films in Pennsylvania. The producer is considered the purchaser who is responsible for the production of commercial motion pictures.
Major items exempt from sales tax include food (not ready-to-eat), most wearing apparel, textbooks, drugs, sales for resale and residential heating fuels such as oil, electricity, gas, coal, and firewood.
Business exemptions exist for computer services and machinery and equipment directly used in manufacturing, processing, farming, dairy
farming, public utilities, mining, printing, photography, and photo finishing.
For more information call the Department of Revenue, tax payer service and information center-717-787-1064.
CREDITS AND EXEMPTIONS
Corporations defined as S Corporations
for federal tax purposes may elect to be treated like a partnership for Pennsylvania tax purposes and pay the 2.8% Personal Income Tax rather than the 9.99% Corporate Net Income Tax.
Limited Liability Companies
which qualify as partnerships for federal tax purposes are treated as partnerships for Pennsylvania tax purposes and pay the state 2.8% Personal Income Tax rather than the 9.99% Corporate Net Income Tax.
Restricted Professional Companies (limited liability companies
performing restricted professional services) are taxed like limited partnerships and pay the 2.8% Personal Income Tax rather than the 9.99% Corporate Net Income Tax.
Financial institutions, insurance and surety companies and nonprofit corporations without authority to issue stock are exempt from the Corporate Net Income Tax.
The Research and Development Tax Credit
piggybacks the Federal Tax Credit providing companies that perform applied research in Pennsylvania with a credit to offset the cost of research. For more information, contact the Department of Revenue-717-783-6035
The Job Creation Tax Credit is available for eligible businesses that, within three years, create 25 or more jobs or increase employment by 20%. Every new full-time job will result in a $1,000 tax credit
that businesses can use against most business taxes. For more information, contact the Grants office in the Department of Community and Economic Development-717-787-7120.
A Neighborhood Assistance Tax Credit
is allowed for up to 70% of the amount invested in programs which help families or communities in impoverished areas. For more information, contact the Community Empowerment office-717-787-1984.
The Employment Incentive Payments Program
provides credits to employers that hire welfare recipients. The credits are given to employees to offset a portion of the payroll costs for qualifying employees on the first $6,000 of wages paid. For more information, contact the Department of Labor and Industry-717-787-8851.
The Enterprise Zone Credit Program
allows corporations a tax credit of up to 20% on investments to rehabilitate or improve buildings or land in an Enterprise Zone. For more information, contact the Community Empowerment office-717-787-1984
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