Making Southwestern Pennsylvania
One of the World's Greatest Regions

Questions About Business Climate

Are business taxes really important to business and job growth? Hasn't research shown that tax rates and tax incentives play a minor role in business decisions about where to locate and expand?

The differences in tax rates and incentives between most states is relatively small, so the differences in costs represent a small proportion of the costs of a business expansion project. However, Pennsylvania has the second highest corporate income tax rate in the country; unlike every major state, it limits the ability of companies to carry forward losses from previous years; and unlike most states, it imposes a high capital stock tax in addition to the corporate net income tax. The combination of these factors mean that Pennsylvania's state business taxes are significantly higher than in competitor states. In addition, Pennsylvania is so unusual in having these problematic provisions that it sticks out like a sore thumb on national rankings of business taxes and business climate, making businesses and site selection consultants cross it off the list before trying to evaluate the actual tax burden compared to other states or regions.

Aren't most big corporations using loopholes in the tax law to avoid paying business taxes in Pennsylvania?

Governor Rendell and other state officials often cite a statistic that "73% of all businesses subject to the Corporate Net Income (CNI) tax report zero tax liability," implying that these businesses are using tax loopholes to escape legitimate tax liability. What they fail to explain is that most of these businesses have no income at all (e.g., they may have no employees or sales), which means they would not pay taxes no matter how few loopholes there were. In fact, IRS statistics indicate that approximately half of corporations nationally have no income - in other words, most of the 73% non-tax payers in Pennsylvania probably have no income which would be subject to tax. Moreover, surveys by the Pennsylvania Department of Revenue show that the 73% figure is comparable to other states, and is actually lower than in some states that supposedly have fewer tax loopholes.

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