Pennsylvania Budget To Include Ongoing Corporate Tax Reductions

Date March 8, 2022
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On February 8, Pennsylvania Governor Tom Wolf issued the final budget proposal of his two terms as the state’s top elected official, which included a corporate net income tax rate reduction to 7.99 percent from the current 9.99 percent as of January 1, 2023.

State Sen. Steven Santarsiero (D-Bucks) and Rep. Mary Jo Daley (D-Montgomery) are now preparing to formally introduce the plan to the legislature and seek support. In addition to next year’s rate reduction, the proposal calls for reducing the rate further to 6.99 percent in 2026 and 5.99 percent in 2027.

Proponents of the corporate income tax rate reductions contend they will effectively produce tax cuts in the range of $1.3 billion over five years. The legislation is intended to place Pennsylvania on an eventual path to a corporate tax rate of 4.99 percent, a rate that would be more competitive with other states.

The proposed legislation is also intended to:

  • Strengthen the Commonwealth’s add-back provisions by including intercompany management fees, royalties, and interest;
  • Codify economic nexus rules, as described in the Department of Revenue’s Corporation Tax Bulletin 2019-04, that require out-of-state businesses operating in Pennsylvania to be subject to the same rules as Pennsylvania-based businesses; and
  • Seek to align current sourcing

The proper interpretation and application of a state’s apportionment methods can often be complex with substantial financial consequences. In today’s complex multi-state landscape, it’s important to surround yourself with trusted State and Local Tax advisors. If your business has questions about the new regulation, HBK’s SALT practice can assist you. Please contact HBK’s SALT Advisory group at HBKSalt@hbkcpa.com with questions.

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