United States

Pennsylvania: Governor Wolf Releases Specific Budget Details

Mar 09, 2015
From KPMG TaxWatch

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As anticipated (and mentioned in last week’s TWIST), Pennsylvania Governor Tom Wolf released his full fiscal year 2015-2016 budget on March 3. On the corporate net income tax side, Governor Wolf proposes to reduce the tax rate from 9.99 percent to 5.99 percent for tax years beginning on or after January 1, 2016. The rate would be further reduced to 5.49 percent for tax years beginning on or after January 1, 2017, and then again to 4.99 percent beginning in 2018. To fund these changes, the Governor proposes to adopt mandatory unitary combined reporting and to cap net operating losses for each combined group member at the greater of $3 million per year or 12.5 percent of taxable income. Currently, for taxable years beginning after December 31, 2014, the NOL cap is the greater of 30 percent of taxable income or $5 million. Another provision affecting corporations is that the capital franchise/stock tax would be allowed to sunset, as scheduled, for tax years beginning on or after January 1, 2016. The budget proposal also includes certain personal income tax changes, most notably an increase in the flat rate from 3.07 percent to 3.70 percent effective July 1, 2015.

Governor Wolf’s budget proposal would also make sweeping changes to the Commonwealth’s sales and use tax regime. Effective January 1, 2016, the sales and use tax rate would be increased from 6.0 percent to 6.6 percent, and the base would be broadened by eliminating certain existing exemptions (other than those applicable to food, clothing and prescription drugs), and imposing sales and use tax on certain currently untaxed services. It has been suggested that the proposed sales and use tax base expansion will be based on legislation considered by the General Assembly last year that would have imposed tax on almost all services, with several exclusions, including an exclusion for professional, technical, and business services rendered to another business. Currently, Pennsylvania allows a one percent vendor discount for timely remitting sales and use tax. Under the proposal, the vendor discount would be capped at $25 per month for monthly filers ($75 for quarterly filers and $150 for semi-annual filers).  

The budget also proposes adoption of a new natural gas severance tax imposed at a rate of five percent of the value of the natural gas at the wellhead, plus 4.7 cents per thousand cubic feet of natural gas severed. This tax would be effective beginning January 1, 2016. Finally, the proposal would increase the bank shares tax rate from to 0.89 percent to 1.25 percent effective retroactively to January 1, 2014 and would revise certain bank tax apportionment rules. The funds raised from the new and increased taxes would provide property tax relief, increased funding for education, and new incentives for companies that create jobs, notably manufacturing companies. Please stay tuned to TWIST for future updates on Governor Wolf’s budget proposal.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.