Pennsylvania Governor Signs 2012-2013 Budget – No New Taxes

Governor Tom Corbett signed Act 9A into law on June 30, 2012, implementing a budget for 2012-2013 which reduces state spending from $28.0 to $27.6 billion, resulting in a reduction in state spending of 1.4%. The budget includes no new taxes for Pennsylvania businesses or individuals, as well as, expansion of several favorable tax credit programs.

Highlights include the following:

Adoption of Single Sales Factor:
Included in the budget is the adoption of the single sales factor method of apportionment for PA Corporate Net Income (CNI) taxpayers for tax years beginning January 1, 2013. Current law had used a factor equal to 90% sales, 5% payroll and 5% property. The single sales factor is not applicable for the PA Capital Stock/Franchise tax or for personal income taxes.

Expansion of Tax Credit programs
The budget increases the funding for the Educational Improvement Tax Credit (EITC) from $75 to $100 million. The maximum amount that a company may contribute under this program will also increase from $300,000 to $400,000 in 2012-2013, and will rise to $750,000 in 2013-2014.

The Jobs Creation Tax Credit will allow a tax credit of $2,500 for hiring previously unemployed individuals while maintaining the previous $1,000 tax credit for other jobs created.

The Pennsylvania Research and Development tax credit, which had been scheduled to sunset in 2015, has been extended indefinitely.

The budget establishes a $3 million per year Historic Preservation Tax Credit equal to 25% of qualified expenditures incurred from rehabilitating historic commercial property, as well as, a new Community-Based Services Tax Credit available to businesses donating funds to an approved nonprofit organization that provides services to individuals with intellectual disabilities or mental illness. This credit is capped at $3 million per year.

Other items of interest:
Capital Stock phase-out: It should be noted that the current planned phase-out of the capital stock/franchise tax was left intact. Under current law the capital stock/franchise tax is scheduled to phase-out as follows:

• For tax year 2012, the rate of tax is 1.89 mills;
• For tax year 2013, the rate of tax is .89 mills; and
• For tax year 2014 and beyond the capital stock/franchise tax will not be imposed

Delaware Loophole:
Certain versions of the budget were aimed at closing the “Delaware Loophole” under the current Pennsylvania code. Pennsylvania will continue to prohibit the filing of combined or consolidated returns for CNI purposes, making the use of Delaware Holding Companies a continuing planning item for Pennsylvania taxpayers.

Extensions:
Automatic extensions of tax reports will now be granted for a period of 30 days after the termination of a federal extension.

Changes in federal taxable income:
The new budget grants taxpayers a period of six months after the receipt of a change or correction of federal taxable income by the IRS to report such change on an amended return to the Department of Revenue. The previous period to report such changes was 30 days.

Should you have any questions about the new Pennsylvania budget please contact your Marcum SALT professional.