Corporate Net Income Tax
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Current Rate Three Factor Apportionment Formula Credits and Exemptions The Corporate Net Income Tax is levied on federal taxable income, without the federal net operating loss deduction. Pennsylvania allows a 20-year net operating loss carry forward of up to $2 million a year. Current RateThe current rate is 9.99 percent. Certain entities are specifically excluded from the tax including building and loan associations, banks, bank and trust companies, national banks, savings institutions, trust companies, insurance and surety companies and all Limited Liability Companies and Business Trusts that are not classified as corporations for federal income tax purposes. More information is available in the CT-1 corporation tax booklet. To arrive at Pennsylvania taxable income, all taxes imposed on or measured by net income which are expensed on the federal corporate income tax return are added back, while the foreign dividend gross-up and net interest income and gains on United States government securities are deducted. In addition, consolidated or combined reporting is not allowed – Pennsylvania views each company as a separate company for Corporate Net Income Tax purposes. For corporations whose entire business is not transacted in Pennsylvania, the income base may be allocated and apportioned to determine income subject to taxation in Pennsylvania. For more information, visit the Pennsylvania Department of Revenue website or call (717) 787-1064. Three Factor Apportionment FormulaFor corporations which conduct activity in more states than Pennsylvania, a three-factor apportionment method is used to apportion corporate net income.Pennsylvania uses property, payroll and sales in its apportionment formula and double-weights the sales factor.The formula follows:
Credits and ExemptionsCorporations defined as S Corporations For federal tax purposes may elect to be treated like a partnership for Pennsylvania tax purposes and pay the 3.07 percent Personal Income Tax rather than the 9.99 percent Corporate Net Income Tax. Limited Liability Companies Those which qualify as partnerships for federal tax purposes are treated as partnerships for Pennsylvania tax purposes and pay the state 3.07 percent Personal Income Tax rather than the 9.99 percent Corporate Net Income Tax. Restricted Professional Companies (limited liability companies performing restricted professional services) Taxed like limited partnerships and pay the 3.07 percent Personal Income Tax rather than the 9.99 percent Corporate Net Income Tax. Financial institutions, insurance and surety companies and nonprofit corporations without authority to issue stock Exempt from the Corporate Net Income Tax. Research and Development Tax Credit Piggybacks the Federal Tax Credit providing companies that perform applied research in Pennsylvania with a credit to offset the cost of research. For more information, visit the Pennsylvania Department of Revenue website or call (717) 787-1064. Keystone Opportunity Zones(KOZ) Provides state and local tax abatement to businesses and residents locating in one of several designated zones. Educational Improvement Tax Credits Available to eligible businesses contributing to a scholarship organization, an education improvement organization, or a pre-kindergarten scholarship organization. Tax Credits may be applied against the tax liability of a business for the tax year in which the contribution was made. For more information, visit the newPA.com website. Job Creation Tax Credit Available to eligible businesses that, within three years from a negotiated state date, create 25 or more jobs or increase employment by 20 percent. Every new full-time job will result in a $1,000 tax credit that businesses can use against most business taxes. For more information, contact the Center for Business Financing in the Department of Community and Economic Development at (717) 787-7120. For more information about tax credits for businesses, visit the PA Department of Community and Economic Development website. |