Single Sales Factor (SSF)

Two small reforms to Pennsylvania’s tax code would produce enormous results to stimulate Pennsylvania’s economy: changing the formula by which the corporate net income tax base is calculated so as not to punish firms with assets and employees in the Commonwealth; and removing the cap on business losses from previous years that can be deducted from current profits before calculating current taxes.

A corporation’s profits are apportioned to Pennsylvania using three factors:

• the ratio of sales in Pennsylvania to all sales;
• the ratio of assets in Pennsylvania to all assets; and
• the ratio of payroll in Pennsylvania to total payroll.

What this means, is that a company with operations and employees in Pennsylvania has a higher tax liability than a firm that sells goods in Pennsylvania that are made elsewhere. That’s hardly an incentive to open factories and other operations or to create jobs in Pennsylvania.

Eleven other states calculate corporate net income tax only on a firm’s sales. Virginia’s legislature is considering making the change in this session. Virginia, is already considered a very business-friendly state.

Currently our income apportionment is based 70 percent on sales, 15 percent on assets and 15 percent on payroll. It’s time to move the rest of the way to a CNI tax based 100 percent on sales. This little move would go a long way toward creating jobs.

Find more information on the single sales factor (PDF file)

Net Operating Loss (NOL) Carryforward

The other needed tax change is to remove the cap on NOLs.

Forty-eight (48) other states DO NOT CAP the NOL carryforward deduction in their states.

Under current law the NOL deductions are limited to only $3 million or 12.5 percent of a firm’s Pennsylvania taxable income (whichever is greater).

Removing the cap on the NOL deduction would help two kinds of firms, both key to Pennsylvania’s economy:

• start-up firms in technology and biosciences which experience huge losses in early years that could be recouped, to some degree, if they reduced future taxes; and
• cyclical firms, often manufacturers in commodity markets like steel, chemicals, or pulp and paper where profits and losses fluctuate in wide swings.

Find more information on net operating loss carryforwards. (PDF file)

Lawmakers Support Business Tax Changes

Earlier this year, the House unanimously approved HB 377, which would make a number of business tax improvements, including moving to a single sale factor under the Corporate Net Income Tax and expansion of the range of the NOL.

Representatives Mike Gerber (D-Montgomery) and Mike Turzai (R-Allegheny) have recently introduced HB 2504 with more than 130 co-sponsors. The bill would enact a Single Sales Factor and remove the cap on NOL carryforwards.

In the Senate, the High-Tech and Manufacturing Stimulus Act (SB 1229) was introduced by Senators Pat Browne (R-Lehigh) and Wayne Fontana (D- Allegheny) with half of the Senate as co-sponsors. SB 1229 would phase-in the Single Sales Factor. In addition, the bill eliminates the $3 million cap on NOL that businesses can carry forward to the next fiscal year. The bill was reported out of the Senate Finance Committee and re-referred to Appropriations.

Other Important Facts

The Commonwealth's high tech and manufacturing sectors generate 16.1 percent of the gross State product, employ 670,000 Pennsylvanians and directly add more than $75 billion in value to the Commonwealth every year.

Despite certain non-manufacturing sectors of Pennsylvania's economy keeping pace with national economic growth and generating significant increased revenues for the General Fund budget, Pennsylvania's high tech and manufacturing employers have lost in excess of 200,000 high-paying, high-value manufacturing jobs since 2000, even as competitor states have continued to add manufacturing and high tech jobs.

The Senate Appropriations Committee fiscal note on SB 1229 determined that the fiscal impact of this act is less than $50 million in the first fiscal year or 0.20 of 1 percent of the General Fund budget and, in light of the significant and unexpected business tax revenues emanating from industry sectors in the current fiscal year, that the modest fiscal impact of this critical high tech and manufacturing stimulus act is readily accommodated in the General Fund budget.

The following links and reports will help you learn more about CompetePA and its priorities:

• Read about CompetePA's members and priorities (PDF file)

• Learn about Pennsylvania's job growth problem (PDF file)

• To find out more about the tax structure in the Commonwealth of Pennsylvania, visit the Department of Revenue's Web site

• What has the CompetePA coalition accomplished? (PDF file)

CompetePA