PENNSYLVANIA BUDGET CHANGES MAY EFFECT
STATE CORPORATE, INDIVIDUAL AND SALES TAXES
The long-awaited Pennsylvania budget has finally been signed into effect. In the wake of the economic turndown, it is not surprising that the budget included a combination of tax rate increases, a reduction of tax credits, and accelerated tax remittance schedules. As one concession to taxpayers, Pennsylvania is also instituting a tax amnesty program early next year. The details of these changes are presented below:
Capital Stock Tax - The capital stock tax rate was due to decrease for 2009 in accordance with the gradual phase-out of the tax. The 2.89 mills rate has been retroactively reinstated for 2009 and will remain in effect through 2011. The phase-out is scheduled to resume in 2012 as the rate drops to 1.89 mills and again to 0.89 mills in 2013.
The Department of Revenue will not charge estimated tax penalties if the estimates were based on the anticipated, lower 1.89 mills tax rate. However, you may have a larger balance is due with the filing of your 2009 tax return. While the tax rate was increased, there is some relief in a larger valuation deduction (increased from $150,000 to $160,000).
Corporate Income Tax - Although the tax rate has remained unchanged, changes to the weighting of the apportionment factor will affect taxpayers operating in more than one state. The current weighting is 15 property, 15 payroll, 70 sales. New legislation emphasizes the sales factor. In 2009 the weighting will change to 8.5 property, 8.5 payroll, 83 sales. For 2010 and thereafter, the weighting will be 5 property, 5 payroll, 90 sales.
Corporations with significant out of state sales may find a decrease in this income tax obligation. Conversely, out of state corporations with significant sales within Pennsylvania can expect an increase of income tax. The Department of Revenue is requiring catch up estimated tax payments from corporations whose allocable income would be higher due to this change.
Tax Credits - The types of schools available for the Education Improvement Tax Credit (EITC) program has been expanded. However, the amount of tax credits to be awarded will be reduced by approximately one-third. This will affect both the EITC and R&D credits. Taxpayers interested in participating in these programs will need to apply early.
Sales Tax - Effective May 31, 2011, large filers will need to file and deposit sales tax on a semi-monthly basis. Filers will be subject to semi-monthly filing if the amount due in the 3rd quarter of the prior year is $25,000 or more.
Personal Income Tax - Employers with significant withholding will be required to file and remit employees' withholding on a weekly basis. The new filing schedule will be based on annual withholding (instead of quarterly as in the past), as indicated below:
Annual Withholding Filing Schedule
Less than $1,200 Quarterly
$1,200 - $4,000 Monthly
$4,000 - $20,000 Semi-Monthly
$20,000+ Weekly
Tax Amnesty Program - During a limited window of time, taxpayers will be able to take advantage of a tax amnesty program. The Department of Revenue will waive 100% of the penalties and 50% of the interest if the delinquent tax is paid by the end of the program. This program will be in effect from April 26, 2010 to June 18, 2010. The Department of Revenue will provide more details as the start of the program nears.
Please contact Terry Martin or Hal Margolit, Tax Managers, at 215-675-8364 with questions regarding these changes or how they effect your business.
