Capitol Report

Corbett Insists on Prompt Phase Out of Franchise Tax

The Legal Intelligencer

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Harrisburg Capitol Building

Gov. Tom Corbett's pledge not to slow down the demise of the capital stock and franchise tax, or CSFT, has been applauded by the state's business community. The tax was scheduled to be phased out in January, but lawmakers extended its life as part of the current year's budget until 2016.

The tax has long been a major gripe of the business community because it is levied even if a business makes no profit. It was originally scheduled for elimination in 2005, but has been extended many times since, although at successively lower rates.

President and CEO of the Pennsylvania Business Council David W. Patti said he was grateful Corbett committed to make no further extensions.

"We have to recognize that Pennsylvania's business tax climate is among the worst in the nation," Patti said. "We won't attract business investment or create new jobs without addressing the state's tax structure in coming years."

But a spokesman for the state House of Representatives' Democratic caucus, Bill Patton, said elimination of the tax was unwarranted given the still precarious economic times.

"We face a $1.3 billion deficit at the end of the fiscal year," Patton said. "That's just about the same amount the capital stock tax would have brought in if it hadn't been reduced over those years."

The Pennsylvania Department of Revenue website explains that the CSFT is a tax on out-of-state joint-stock associations, limited liability companies, business trusts and entities organized as corporations or considered corporations by the federal government for the privilege of doing business in Pennsylvania, rather than on property. The tax is imposed on a corporation's capital stock value, as derived by the application of a formula.

The CSFT rate in 2013 was 0.89 mills. It dropped to 0.67 mills this year and will drop to 0.45 mills in 2015. It is scheduled for elimination Dec. 31, 2015.

— J.L.K. •
 

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