On July 9, 2013, Governor Tom Corbett signed House Bill 465 into law as Act 52. The act has tax provisions affecting both businesses and individuals.
Capital Stock/Foreign Franchise Tax
The Capital Stock/Foreign Franchise tax applies to corporations and LLCs and was scheduled to be phased out for tax years beginning after December 31, 2013. The new law extends the tax for two years. The tax rate will decrease each year:
2013 0.89 mills
2014 0.67 mills
2015 0.45 mills
2016 phased out
Corporate Net Income Tax
Higher Net Operating Loss Deductions Allowed
Net operating loss (NOL) carryovers from previous years can be used to offset current year taxable income for C corporations. The NOL deduction is currently capped at the greater of $3,000,000 or 20% of taxable income. For 2014, this will increase to the greater of $4,000,000 or 25% of taxable income. For 2015, the cap increases to $5,000,000 or 30% of taxable income.
Related Party Expense Addback
Beginning in 2014, taxpayers generally must add back interest or intangible expenses paid or accrued to an affiliated entity. A tax credit is available if the affiliated entity is subject to tax on the addback items in another U.S. state. This provision primarily affects tax strategies involving affiliated entities in low-tax or no-tax states such as Delaware.
Personal Income Tax
Foreign Country Tax Credit Eliminated
Beginning in 2014, the resident tax credit for taxes paid to foreign countries is eliminated. Credits for taxes paid to other U.S. states are still allowed.
New Business Start-up Costs
PA will follow the federal rules allowing new businesses to deduct up to $5,000 of start-up costs beginning in 2014.
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