Corporate Net Income Tax Cut among Many Pro-Business Actions Adopted in Harrisburg This year,Corporate Net Income Tax Cut, Other Legislation Favor Business

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HARRISBURG -- Pennsylvania's corporate net income tax, the highest flat rate in the nation, might become more palatable with legislation lawmakers approved as part of a package of business friendly-bills.

Gov. Tom Corbett signed into law or has pending on is desk 18 bills aimed at improving the job climate in the state, a review of the 2011-12 legislative session shows. The two-year session ended last week.

Among the bills is one that received little attention when approved along with the tax code and state budget in June. It establishes a single factor -- sales -- for calculating corporate income taxes. Before, the state based net income taxes on sales, property and payroll.

"It's something we've been fighting for for years," said David Taylor, executive director of the Pennsylvania Manufacturers Association.

The so-called single sales factor "is really important to members of the Pittsburgh Technology Council," said Brian Kennedy, the council's vice president of strategic services and government relations. It's particularly important to advanced manufacturers and technology companies, which sell all over the globe."

Kennedy said most states are following this trend. "The one that does it last will get no economic benefit," he said.

Gene Barr, president of the Pennsylvania Chamber of Business and Industry, said the state "penalized companies for hiring our citizens and establishing facilities" before deciding to calculate the tax 100 percent on sales.

That "makes us a more competitive and attractive option for business," Barr said.

Pennsylvania's corporate net income tax of 9.9 percent, typically is the nation's highest, though at times it might be eclipsed by Iowa's graduated tax of 6 to 12 percent.

House Majority Leader Mike Turzai, R-Bradford Woods, said the move becomes a tax reduction for Pennsylvania employers. The state would collect about $12 million less in 2012-13 and $48 million less when it is fully phased in, but Turzai said more jobs as a result -- and more Pennsylvanians paying taxes -- would make up for that.

"Instead of taxing companies for having assets here or employing people here, which is the way it's been done in the past, we are solely focusing on the business activity," Turzai said.

Lawmakers' overall business agenda included bigger-ticket items than the tax calculation change: the Fair Share Act, which allows lesser defendants in civil judgments to pay based on their degree of culpability; unemployment compensation reform that included tightening eligibility and capping benefits, plus developing a formula to pay down Pennsylvania's $3.9 billion debt to the federal government; expanding tax-free Keystone Opportunity Zones; and developing regulations and an impact fee for the shale-gas industry.

About 20 percent of companies in Pennsylvania -- usually larger companies and industries -- pay the corporate net income tax. It provides the state about $2 billion annually. Many other businesses pay the personal income tax.

Pennsylvanians overall carry the 23rd-highest state and local tax burden in the nation: 10.2 percent of their income. New York ranks first, where residents pay 12.8 percent of their income for state and local taxes, according to a study released on Wednesday by the Tax Foundation. Alaska has the lowest amount.

In Pennsylvania, such taxes in addition to the corporate income tax include a 3.07 percent personal income tax, a 6 percent sales tax and an average of $2,625 in property taxes.

For that reason, business groups hailed the relief on corporate income tax.

"It's a much more fair way of taxing," said Kevin Shivers, executive director of the National Federation of Independent Business in Pennsylvania.

Not everyone is happy with it.

"It was supposed to be part of comprehensive tax reform that included closing loopholes," said Sharon Ward, director of the liberal-leaning Pennsylvania Budget and Policy Center. …