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The largest tax cut in Pennsylvania’s history was signed into law in 1999 reducing PA taxes by $400 million. The following is a brief summary of some of the changes.
Passive Income for S Corporations - For 1999 and after, S Corporations are no longer required to meet the passive income limitations in order to retain their S Corporation status for PA. Corporations disqualified due to this limitation prior to 1999 may elect subchapter S status for tax years 1999 and after if their elections are filed before September 16, 1999.
Income Apportionment - Sales Factor - For taxable years beginning on or after January 1, 1999 the fraction for income apportionment will be as follows: numerator: the property factor, plus the payroll factor, plus three times the sales factor; denominator: five. The provision changes the weighted sales factor to 60%, an increase from 50%. Prior to 1999 the apportionment fraction numerator applied a factor of two, instead of three, to the sales factor, and the denominator was four.
Net Operating Loss Recovery Cap - For taxable years beginning on or after January 1, 1999, the net loss deduction from taxable corporate net income is the lesser of $2 million or the amount of the net loss carryover. The deduction limit was formerly $1 million.
Auto Clubs - For taxable years beginning on or after January 1, 1998, nonprofit auto clubs are only subject to corporate net income (CNI) on their income derived from their insurance and travel agency business. All other income earned by auto clubs is exempt from tax.
Homeowners Associations and Membership Organizations - For taxable years beginning on or after January 1, 1998, nonprofit homeowners associations and membership organizations, as defined under IRC Section 528 and IRC Section 277, are specifically recognized as nonprofit organizations that are not subject to the Pennsylvania corporate net income tax, capital stock tax, or franchise tax.
Capital Stock/Franchise Tax - For taxable years beginning on or after January 1, 1999 the capital stock/franchise tax is reduced to 10.99 mils (.01099) from 11.99 mils (.01199). Additionally the minimum capital stock/franchise tax is reduced to $200 from $300.
Out-Of-State Vendors - For taxable years beginning on or after January 1, 1999, the minimum capital stock/franchise tax is eliminated for vendors of flea markets or trade shows that spend no more than seven consecutive days doing business in Pennsylvania. The former limit was five days.
Quarrying Industry - For taxable years on beginning on or after January 1, 1999, the processing exemption for the Capital Stock/Franchise Tax is extended to firms that refine, blast, explore, mine and quarry limestone, sand gravel, or slag from the earth or stock piles, and clean, crush, grind, pulverize, size, or screen of limestone, sand, gravel, or slag.
Coal Waste Removal and Ultraclean Fuels Act - Beginning July 1, 1999 a credit against sales and use tax, corporate net income tax, and capital stock/franchise tax will be available to developers of new facilities for the production of one or more qualified fuels. The credit is 15% of the capital cost of the facility used to produce qualified fuels. The credit is only applicable to property purchased after 1999 and before 2013.
Estimated Payments - Beginning January 1, 2000, individuals, estates and trusts must make estimated payments if income for the tax year that is not subject to tax withholding is expected to exceed $8,000. Currently the amount is $2,500.
Dependent Allowance for Tax Forgiveness - Effective January 1, 1999, the dependent allowance for Special Tax Forgiveness is increased to $6,500 for each dependent. Under this change, a family of four earning up to $26,000 annually, and a family of five earning up to $32,500 would have their PA personal income tax liabilities totally forgiven.
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