Corporate income tax rate is worst in the nation
By Stacy Brown | PA Independent
HARRISBURG — For the manufacturing industry, Pennsylvania’s tax rate is among the friendliest in the nation, but its high corporate taxes rank the commonwealth among the worst for new businesses.
The Tax Foundation
, a Washington, D.C.-based tax policy center, determined that Pennsylvania, overall, had the highest tax burden of all 50 states surveyed in a study released last week.
Pennsylvania offers manufacturers a tax rate of 6.1 percent, which is 52 percent below the national average, giving the state fifth best overall ranking, while other businesses shoulder tax rates as high as 9.99 percent, placing Pennsylvania last in the rankings.
But the state achieved high rankings for its heavy reliance on corporate income taxes and its sales tax exemption for manufacturing machinery, the report said. With the revenue from the corporate income taxes, the state has invested in new business, according to the report.
Manufacturers applauded the state, under Gov. Tom Corbett
's leadership, as holding to its mission of being fiscally responsible. This boost to business is due to Corbett holding the line on taxes.
"Fiscal discipline is the first and most important step toward returning Pennsylvania to stronger economic growth and a better competitive position relative to other states," David Taylor
, executive director of the Pennsylvania Manufacturers Association
, a trade organization representing the manufacturing sector in Pennsylvania's public policy process, said in a statement.
The state has protected "Pennsylvania’s overburdened taxpayers, and (has) made additional improvements to our economic competitiveness," Taylor said.
Since 2008, the state has proposed eliminating the cap on net operating losses and implementing a Single Sales Factor apportionment formula for the corporate net income tax, which would help improve the economic competitiveness for manufacturers in Pennsylvania, said Jim Byrdak, operations manager for Matric Manufacturing in Venango County.
The Single Sales Factor allows corporations to pay the 9.99 percent tax on profits, but only based on the percentage of their business in Pennsylvania since they will be subject to the same tax in other states. The percentage of their business in Pennsylvania is calculated based on sales, property, and payroll in the state.
"Not limiting losses that companies can claim against their current tax liability is beneficial to
start-up businesses, particularly those who often lose money in their first years of operation," Byrdak said.
The implementation of a Single Sales Factor allows Pennsylvania-based businesses to no longer be penalized for increasing investments in capital and hiring employees, he said.
"It removed a disincentive to attracting new businesses to Pennsylvania, as out-of-state companies that only sell in the state have an advantage over local firms under the old formula," Byrdak said.
However, other business groups see the report as a deterrent for economic growth in the state.
"I think we all have some issues and some room for improvement," Layo said. "I believe some of the issues are trying to get addressed with lawmakers trying to make headway on getting rid of the Capital Stock and Franchise Taxes.
But, anytime you get negative publicity, such as this report, you have to look for ways to counter that."
The Capital Stock and Franchise Taxes are imposed on corporations with capital stock, joint-stock associations, limited liability companies, business trusts and all other entities classified as corporations for federal income tax purposes that were formed or do business in the state.
The state does offer incentives to new businesses, such as the tax-free Keystone Opportunity Zones
program where businesses are not required to pay taxes for 10 years, Layo said.
"An advantage we have in Pennsylvania is that we educate, I think, more out-of-state students than anyone. So, those who need skilled workers, skilled craftsmen, will consider us," Burke said.
"A business would have to consider the entire matrix of costs and taxes are just one if dozens of items in that matrix," he said.
"Pennsylvania has some of the more diverse education institutions and we have great park space and the quality of life is good," Keefer said. "While it won't mitigate the (bad news from the study)
because businesses are concerned with the bottom line, it definitely helps."
Locally, the study did have naysayers.
The center is a policy research project that provides independent analysis on state tax, budget and related policy matters.
"Here we go again. Every year we get a different ranking from business groups like the Tax Foundation, and they are wildly different each time," Ward said. "People should ignore these rankings and focus on what really attracts businesses to a state: a highly qualified workforce, well-maintained roads and bridges, and a good quality of life."
A comprehensive breakdown of each of the 50 states can be found by clicking here
The study examined the impact of state taxes on corporate income, sales, property, unemployment and gross receipts, among other factors.