The recently approved state budget includes a long-sought reduction to Pennsylvania’s corporate net income tax, one of the highest in the nation.
The tax will be lowered from the current 9.99 percent — a figure not changed since 1995 — to 8.99 percent this year. It will then drop an additional 0.5 percent each year until 2031, where it will reach a set rate of 4.99 percent.
The $45.2 billion state budget, with a possible $2.2 billion in additional federal relief funds, was signed into law on Friday by Democratic Gov. Tom Wolf, eight days past the June 30 deadline.
The corporate net income tax cut, which had been a bipartisan issue throughout budget negotiations, is part of that budget package.
“This monumental tax reform package is a giant step towards making Pennsylvania more competitive,” Luke Bernstein, chief executive of the Pennsylvania Chamber of Business and Industry, said in a statement. “We need to send a clear message that Pennsylvania is officially ‘Open for Business,’ and by cutting the CNI rate in half – a goal that our organization and fellow chambers have worked toward for so long – we are doing just that.”
Bernstein added that the cut will allow businesses to leverage the state’s “prime” location, educational institutions and workforce while trying to attract businesses to operate within the state.
Matt Smith, president of the Greater Pittsburgh Chamber of Commerce, and Liz Ferry, vice president of state legislative affairs at the Chamber of Commerce for Greater Philadelphia, both shared their support for the cut in a joint statement.
“It helps our entire population, creating an economic ecosystem that supports job creation in both large corporations and smaller, community-based businesses,” Smith said.
“We applaud the actions of the Wolf administration and General Assembly to bring Pennsylvania’s business taxes more in line with our neighboring and competitor states as we seek to attract and retain jobs from around the nation and world,” Ferry said.
The new tax rate will make Pennsylvania have one of the lowest rates in the region.
Maryland’s corporate net income tax is 8.25 percent, while New York uses a sliding scale that changes based on annual income. It maxes out at 7.25 percent for its highest earners. New Jersey also changes its rates according to total income. The Garden State’s tax caps at 11.5 percent for corporations with a net income of more than $1 million a year, the highest rate in the country.
Ohio would be the only neighboring state with a lower rate, since it does not have a state corporate net income tax.
Not everyone in the state celebrated the news of the tax cut, however.
Marc Stier, director of the progressive Pennsylvania Budget and Policy Center, said in a statement that the new budget, “is a deep disappointment for Pennsylvania.”
Stier has been a longtime supporter of the state adopting combined reporting, which is used in 28 other states. It would require that corporations merge profits from each of their subsidiaries, inside and outside of Pennsylvania’s border, to determine their taxable income.
Combined reporting mandates are not included in the 2022-23 state budget.
“The huge accumulate surplus gave the Republican-controlled General Assembly an extraordinary opportunity to make a difference in the lives of everyday Pennsylvanians,” Stier said. “Sadly, they failed to take advantage of it. Given a choice between helping working people who vote for them and the corporations who give them campaign contributions, they chose to help the latter.”