Effective rate January 1, 2007:  3.89 mills (previously 3.99 mills)

Effective January 1, 2008:  2.89 mills (vs. previous 2.99 mills)

Effective January 1, 2009:  1.89 mills (vs. 1.99 mills)

Effective January 1, 2010:  0.89 mill (vs. .99 mill)

CSFT now set to expire after 2010

·         Increase “capital stock value” exclusion to $150,000 (from $125,000)

Saves business taxpayers about $1.6 million

Effective January 1, 2007

·         Change LLC requirements

Effective January 1, 2006

Codifies current practices and federal law

Saves business taxpayers about $7.2 million

Allows LLCs to organize as Restricted Professional Corporation (RPC)

Corporate Net Income Tax (CNI) (HB 859):

·         Increase NOL cap and increase Sales Factor (effective January 1, 2007)

Increases NOL to $3 million (from $2 million)

Increases Sales Factor to 70% (from 60%)

Saves business taxpayers about $35.1 million

Inheritance Tax (SB 300):

·         Reduce (by 50%) the farmland valuation for Inheritance Tax purposes

Saves taxpayers about $100,000

Applies to valuations within agricultural conservation easements

Effective July 1, 2006

Personal Income Tax (SB 300):

·         Apply Federal S Corporation status to Pennsylvania Subchapter S Corps

Saves taxpayers about $1.1 million

Effective January 1, 2006

Automatic unless 100% of shareholders elect otherwise

Increases maximum number of shareholders allowed from 75 to 100

·         Conform Pennsylvania Health Savings Accounts (HSA) and Medical Savings Accounts (MSA) to current federal law (effective January 1, 2006)

Saves about $4 million

Excludes HSA contributions from Personal Income Tax

·         Make TAP contributions, rollovers, earnings, and distributions deductible

Saves about $25 million (effective January 1, 2006)

Applies to 529 Plans (TAP)

Current law exempts only earnings and distributions

Sales ands Use Tax:

·         Extend manufacturing exemption to “clean rooms” (HB 859)

Locations with self-contained, sealed environments with controlled closed air systems independent of the general environmental systems

Typically hi-tech production:  silicon chips, hard disk drives, etc.

·         Exempt “Investment Metal Bullion” and “Investment Coins” (SB 300):

Saves about $2 million in taxes

Effective in 60 days

Tax Credits:

·         Research & Development Tax Credit; Small Business set-aside (HB 859)

Saves business taxpayers about $10 million (effective July 1, 2006)

Increases R & D credits allowed to $40 million (from $30 million)

Increases small business R & D expenses to 20% (from 10%)

Increases small business set-aside to $8 million (from $6 million)

Extends sunset date from December 31, 2006 to December 31, 2015

·         Increase Educational Improvement Tax Credit (EITC) by $10 million (total $54 million per year)

Total estimated tax savings: $119.7 million (2006 – 2007) and $195.9 million (2007 – 2008).

These business tax reductions are a good step forward in improving Pennsylvania’s business tax structure.  Good step, but there still is a long way to go!  The Greater Reading Chamber of Commerce & Industry will continue working with our elected officials to improve the overall business climate and improve our economic positioning, step by step.