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House Co-Sponsorship Memoranda
House of Representatives
Session of 2013 - 2014
Regular Session
MEMORANDUM
| Posted: | January 9, 2013 09:21 AM |
|---|---|
| From: | Representative Phyllis Mundy |
| To: | All House members |
| Subject: | : Reintroduction of Legislation – Closure of Corporate Tax Loopholes (i.e, “Delaware Loophole”) & Reduction of Corporate Net Income Tax |
| I will soon reintroduce legislation to reform Pennsylvania’s antiquated business tax structure by implementing unitary combined reporting. The bill would level the playing field for home-grown, Pennsylvania-based businesses by requiring corporations and their related subsidiaries to file taxes as a single company for state Corporate Net Income Tax (CNIT) purposes. Doing so would not only close the infamous “Delaware loophole” (see explanation below) but would nullify a wide array of tax avoidance strategies that large foreign and multistate corporations use to avoid paying their fair share of taxes to Pennsylvania. According to the Pennsylvania Department of Revenue statistics, over 70% of corporations that filed paid zero CNIT in 2008, while an additional 12% paid $1,000 or less – about as much income tax as a family earning $33,000. In 2009, the department estimated that the Commonwealth loses approximately $500 million annually using the current CNIT filing methodology. Combined reporting will make it easier for the Department of Revenue to collect taxes due on corporate income earned in Pennsylvania. The majority of the 45 states with corporate income taxes have adopted combined reporting. Implementing combined reporting would not be a hardship on corporations operating in Pennsylvania, as 30 of the Commonwealth’s largest private sector employers already operate in states with combined reporting and prepare single company tax returns. In the spirit of tax fairness, my legislation would also reduce the CNIT rate from the current 9.99% to 6.99%, giving us one of the lowest corporate income tax rates of the surrounding states. The reduction would be phased in during the next three years, beginning with a 1% decrease in 2014. This is a change from my previous legislation, which reduced the rate to 7.4% over three years. Enacting unitary combined reporting would close an egregious loophole we can no longer afford and create greater tax fairness for Pennsylvania businesses and taxpayers. I encourage you to join me in support of this vital legislation. Here is how the Delaware loophole works: A corporation operating in Pennsylvania sets up a shell company in Delaware, a state that does not tax royalty income. The parent corporation transfers ownership of its trademarks, patents, or other intangible property to the shell company. The shell company then charges the parent corporation a royalty for using the trademarked name or patent. This allows the corporation in Pennsylvania to treat the payment as a business expense, which it then deducts from its income in the Keystone state, reducing its tax burden here. PRIOR CO-SPONSORS: Santarsiero, K. Boyle, V. Brown, Caltagirone, Cohen, Fabrizio, Freeman, George, Gergely, Goodman, Harkins, Kortz, Mullery, Murphy, M. O’Brien, Pashinski, Roebuck, Staback, Sturla, Wagner, Youngblood, Readshaw, Josephs, Haluska, Mirabito, DeLuca, Briggs, Samuelson, Brennan, Hornaman, D. Costa, Donatucci, Deasy, Waters, Murt, Thomas, Ravenstahl. |
Introduced as HB638