Reducing the Corporate Net Income Tax in Pennsylvania will improve the business climate when the new legislation is signed by Gov. Tom Wolf, according to the Pennsylvania Chamber of Business and Industry.
The chamber applauded state lawmakers and Wolf for the passage of House Bill 1342, which reforms the state’s tax structure, including a reduction to the state’s Corporate Net Income Tax rate and notable tax relief for small businesses.
“This monumental tax reform package is a win for businesses and the people of Pennsylvania,” said Luke Bernstein chamber president and CEO. “Pennsylvania has so much to offer potential investors and entrepreneurs. These tax reforms instantly make us more globally competitive and allow us to focus on Pennsylvania’s strengths as a hub of global commerce and opportunity – our prime location, world-class educational institutions, innovative workforce and more.”
The bill passed the senate last night by a vote of 38-12. The house approved the measure 184-16.
“We are proud to stand with the leaders of the House and Senate, Governor Wolf and other legislative champions of business who supported these vast improvements to our state’s competitiveness,” Bernstein said.
The tax reform package, which was a top legislative priority for the chamber for decades, is a major step towards showing that Pennsylvania is open for business, he said.
For decades, Pennsylvania’s CNIT rate, which at 9.99% was the highest flat rate in the country, served as a barrier to growth, Bernstein said.
The budget cuts the rate in half over the course of nine years – starting with a full one percent reduction in 2023 to 8.99% and then phasing down each year by half a percent until reaching 4.99% in 2031.
Based on current state corporate tax rates, the full reduction takes Pennsylvania from the highest CNI tax rate in the country to the sixth lowest by 2031 and is the first change in the rate since 1995 – giving the state’s economy a vigorous boost in its post-pandemic recovery, he said.
The benefits of a more competitive business tax code go far beyond just improving the state’s business climate, according to the chamber. Studies have shown that a decrease in the corporate tax rate leads to increased GDP, higher wages and increased home values, all of which create family sustaining jobs and attract and retain new talent.
The newly passed tax reform package also includes additional relief for small businesses, affording businesses the opportunity to defer personal income tax liabilities through “like-kind exchanges” of certain property, another long-sought after member-centric goal of the PA Chamber, Bernstein said.
This provision allows employers to invest in the job-creating assets businesses need to stay competitive. Previously, Pennsylvania was the only state in the country that did not offer this type of deferral, he said.
An additional component of the package aligns the state Tax Code with federal tax law by allowing small businesses to deduct qualifying equipment purchases from personal income tax liabilities, just as federal tax law provides for under Section 179. This change makes it easier for employers to buy equipment and invest, which in turn promotes job growth.
“This long sought-after overhaul of Pennsylvania’s business tax structure would not have been possible without a bipartisan, collaborative effort,” Bernstein added.
“We thank our legislative leaders for working with Governor Wolf and ensuring this tax reform package was part of this year’s budget, prioritizing the Commonwealth’s competitiveness and working alongside the Chamber, together for Pennsylvania,” he said. “We look forward to seeing the Governor sign this historic reform into law.”