Current Rate
Three Factor Apportionment Formula
Credits
Exemptions
Pennsylvania has a Capital Stock and Foreign Franchise Tax which are imposed on corporations with capital stock, joint-stock associations, limited liability companies, business trusts and entities that for Federal income tax purposes are classified as a corporations, which are formed under the laws of the Commonwealth of Pennsylvania or formed under the laws of another jurisdiction and doing business within Pennsylvania.
Taxpayers subject to the Capital Stock or Foreign Franchise Taxes may also be subject to other taxes. Visit the Pennsylvania Department of Revenue Web site for more details.
Current Rate
The Capital Stock and Franchise Tax rate is imposed at a rate of 2.89 mills.
The valuation of the stock is calculated using this formula:
- [0.5 x {(Average Net Income/0.095) + (0.75 x Net Worth)}] - $125,000
Net worth is defined as consolidated net stockholders' equity as of the close of the tax year unless at that time net worth is greater than twice or less than half of the net worth as calculated at the beginning of the year. In that case, net worth is an average of the two amounts. Average net income is defined as a five-year average of unconsolidated net income as shown in the stockholders' annual report.
Corporations are permitted to choose between a single “exempt assets” factor and a three-factor apportionment to determine the portion of capital stock value attributable to Pennsylvania and thus subject to Commonwealth taxation.
Corporations may use the exempt assets factor to exclude certain nontaxable assets. The single fraction consists of the average book value of taxable assets divided by the average book value of total assets.
The three-factor apportionment is composed of property, payroll and sales fractions.
Certain assets are exempt from tax, and these exemptions are reflected in the apportionment fractions used to compute the percentage of the capital stock value actually subject to tax.
A statutory exemption is provided for assets engaged in producing a manufactured article within Pennsylvania, specified processing operations, including computer software development, research or development activities, and air or water pollution control efforts. A corporation receives an exemption for intangible assets to the extent that they are directly used in an exempt activity.
For more information, visit the Pennsylvania Department of Revenue website or call (717) 787-1064.
Three Factor Apportionment Formula
For corporations which conduct activity in more states than Pennsylvania, a three-factor apportionment method is used to apportion capital stock value.
Pennsylvania uses property, payroll and sales in its apportionment formula:
- [(PA Property/Total Property) + (PA Payroll/Total Payroll) + ( PA Sales/Total Sales) ] / 3
Corporations whose business is transacted both within and without Pennsylvania are permitted to choose between a single “exempt assets” factor and a three-factor apportionment formula to determine the portion of capital stock value attributable to Pennsylvania and thus subject to commonwealth taxation. (Corporations whose entire business is transacted within the commonwealth may use the exempt assets factor to exclude nontaxable assets.) The exempt assets factor is based on the ratio of book value of taxable assets to book value of total assets.
Credits
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.
Enterprise Zone Credit Program
Allows corporations a tax credit of up to 20 percent on investments to rehabilitate or improve buildings or land in an Enterprise Zone.
For more information, contact the Office of Community Services at (717) 787-1984.
For more information about tax credits for businesses, visit the PA Department of Community and Economic Development website.
Exemptions
Taxpayers who are engaged in manufacturing, processing or research and development in Pennsylvania whether utilizing three-factor or single-factor apportionment.
Corporations may deduct $125,000 from capital stock value.
Equipment, machinery, facilities and other tangible property used during tax year within Pennsylvania for water or air pollution control or abatement devices are exempt from the Capital Stock and Foreign Franchise Tax.
Exempt almost all manufacturing, property, payroll and receipts
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