Sunday, August 30, 2015

House passes bill to close "Delaware loophole," reduce business taxes

The Pennsylvania House approved a bill to cut business taxes, while increasing revenues by closing the so-called Delaware loophole.

House passes bill to close "Delaware loophole," reduce business taxes


The Pennsylvania House approved a bill to cut business taxes, while increasing revenues by closing the so-called Delaware loophole.

The bill, which passed 129-65, sparked heated floor debate over Gov. Corbett's record on jobs creation with Democrats pointing to an Arizona State University study that ranked the Pennsylvania 49th in job growth and Republicans pointing to the declining unemployment rate.

HB 440 would reduce the corporate net income tax rate from 10 percent to 7 percent over 10 years beginning in 2015, while at the same time eliminating the ability of businesses to set up holding companies in Delaware as a way to avoid paying Pennsylvania taxes.

Estimates suggest the loophole provision would genearate $70 and $100 million revenue beginning in 2015 but in conjunction with the corporate tax reduction would mean the legislation would be revenue neutral.

The bill now goes to the Senate where Erik Arneson, spokesman for Senate Republicans, said it was too early to make a "confident prediiction" on its outcome there.

Shortly before the vote, partisan floor comments by members led to an angry back and forth between House leaders.

Democrats assailed the bill as yet another Republican tax break for big corporations, while Republican supporters said it would boost job creation.

House Democratic leader Frank Dermody (D., Allegheny) assailed Corbett's jobs record, saying even with $900 million in tax breaks for businesses, "there are more unemployed in Pennsylvania than in the last eight years."

House Majority leader Mike Turzai (R., Allegeny) fired back his own statistics, citing lower March unemployment numbers and the reported 100,000 new jobs added under Corbett.

Bill sponsor Rep. Dave Reed (R., Indiana) said the legislation has bipartisan support (as was evidenced with 23 Democrats voting for it) and that independent analysis shows that the closure of the Delaware loophole would result in tens of millions in new revenue.

"The tax structure should be a road map, but it's a road block," said Reed.

Under the bill companies would "add back" expenses to their Pennsylvania income, including interest and expenses paid to related companies in other states.

Bill opponent Rep. Phyllis Mundy (D., Luzerne) said it would offer a broad exception for transactions “directly related to a valid business purpose" which would mean a company could easily skirt the law by claiming a valid business purpose.

 "Any corporation that employs accountants who can’t use that language to avoid taxation should really find a new CPA firm," Mundy said.





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Commonwealth Confidential gives you regularly updated coverage of the state legislature, the governor and the workings of the state bureaucracy. It is written by Angela Couloumbis in the Inquirer's Harrisburg bureau, based in the statehouse, and by the newspaper's far-flung campaign reporters.

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