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State chamber urging Pa. tax reforms in 2019

//September 5, 2018//

State chamber urging Pa. tax reforms in 2019

//September 5, 2018//

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The prospects for reform are uncertain. But the Pennsylvania Chamber of Business and Industry on Wednesday offered up some proposals based on a report that it commissioned from the conservative-leaning Tax Foundation, a research organization in Washington, D.C.

The chamber’s wish list largely targets Pennsylvania’s corporate net income tax, as well as state and local income taxes. The group argues that reform is needed to make the state more attractive to businesses.

“Pennsylvania’s tax structure leaves a lot to be desired,” said Sam Denisco, the chamber’s vice president of government affairs. “For too long, our state’s uncompetitive tax structure has caused the commonwealth to lag behind other states, missing out on economic opportunity and growth.”

The goal of the report, chamber and foundation officials said, is to spark a conversation ahead of the start of the new legislative session in 2019. This year also is a gubernatorial election year.

“The purpose is to come up with outside-of-the-box proposals where we can look at the corporate net income tax not in a vacuum but with other parts of the tax code,” Denisco said.

The Tax Foundation report — titled “Pennsylvania: A 21st Century Tax Code for the Commonwealth” — lays out three proposals for Pennsylvania lawmakers to consider. All three packages would reduce the corporate net income tax to 6.99 percent or lower, while other parts vary.

Business leaders have long pushed for a reduction in the state’s 9.99 percent corporate net income tax. But proposals by the current Wolf administration to cut the rate have been linked to what is known as combined reporting, a policy business leaders oppose.

Combined reporting would require multistate corporations to add together into one tax report the profits of all of their subsidiaries, regardless of their locations.

Among other recommendations, the report suggests increasing the percentage of net operating losses that businesses may carry forward each year and deduct. Most states do not cap the amount.

In addition, the report said the state could consider reducing reliance on corporate tax credits, including film tax credits. The report also highlights incentive programs like Keystone Opportunity Zones, which the foundation said often just relocate economic activity within the state.

“Pennsylvania would do well to scrutinize and scale back its economic development tax credits,” the report said.

On the personal income tax side, the foundation recommended eliminating the state’s eight classes of income and eliminating most or all business credits that can be claimed by owners of pass-through businesses against their personal income tax liability.

Pennsylvania also could consider taxing retirement income. The commonwealth currently exempts all retirement income, a policy that turns away $3.4 billion a year in potential revenue.

The report also looks at sales and local taxes that could be changed, as well as property and related taxes.

The report, for example, recommends broadening the sales tax to cover clothing, household utilities, nonprescription drugs, motor fuels and burial services. Part of that shift also could include reducing the state sales tax to 5.6 percent from its current level of 6 percent.

The foundation also recommends the state government share revenue from the state income tax with local governments. The shift could help municipalities reduce or eliminate other local taxes, including business gross receipts and nuisance taxes such as per capita taxes. The report also recommends that local tax collections be consolidated at the county level.

On property taxes, the report recommends adopting mandatory countywide reassessments and consolidating property tax administration at the county level, rather than having separate bills for counties, municipalities and school districts. It is unclear how much money consolidation would save.

In addition, the report recommends repealing the inheritance tax because of the financial burden it can place on owners of small businesses.