By Melissa Daniels | PA Independent
HARRISBURG — Pennsylvania’s tax climate could be better.
But compared with other states, it could also be much worse, according to a new Tax Foundation study.
The annual State Business Tax Climate Index from D.C.-based tax research group the Tax Foundation ranks Pennsylvania 19th in the nation for tax competitiveness. The position is unchanged from the previous year.
States surrounding Pennsylvania have worse overall tax climates, according to the study, including Ohio, Maryland, New York and New Jersey.
But broken down by types of taxes, the Keystone State is one of the worst for corporate taxes, ranking 46th.
The state’s 9.99 percent corporate income tax rate, the highest effective tax rate in the nation, is one factor dragging it down, according to study authors.
For property taxes, Pennsylvania ranks 42nd. A group of lawmakers, buoyed by efforts throughout this past session, are focused on reforming property taxes come January, and a report is due in November.
But reforms that replace the majority of school property-tax revenue with increases in other taxes may only go so far toward improving the situation. Joseph Henchman, vice president for legal and state projects at the Tax Foundation, said, in general, efforts such as tax swaps can complicate tax structures and increase compliance costs.
“A lot of these swaps that reduce property taxes while increasing other types of taxes, many of them haven’t been done very well,” he said.
Gene Barr, president of the Pennsylvania Chamber of Business and Industry, said the state would do well to look at school and municipal cost drivers as a way to reform property taxes.
One example is prevailing wage laws, which require all government contracts to pay average union wages, thus increasing project costs, Barr said.
“Paying an inflated wage by state law, that’s detrimental on our property taxes,” Barr said.
Efforts to improve Pennsylvania’s property-tax competitiveness have already occurred on the business end, such as the phase-out of the capital stock and franchise tax, for example.
The tax, applying to a corporation’s net worth outside of its profits, is scheduled to be fully eliminated by 2014. But because it still exists, the phase-out is not considered in the Tax Foundation’s report for this year.
The phase-out in the past was delayed to keep revenue flowing, but Gov. Tom Corbett continued with the move in this year’s budget, which went unchanged by the Legislature and is noted as a recommendation from the Governor’s Manufacturing Advisory Council in September.
Pennsylvania’s personal income tax rate is low compared to many other states, with a single flat rate contributing to 12th-best ranking. Individual taxes are weighted heavier than corporate taxes in the study.