Action Alert: Urge your legislators to vote “NO” on combined reporting

Association Spotlight, Government Affairs News, Action Alerts!

Proposal would increase taxes on many Pennsylvania Businesses

BACKGROUND: Over the last several years, the business community has successfully challenged efforts to change how taxes are levied on Pennsylvania businesses. Some lawmakers have urged that the state institute Mandatory Unitary Combined Reporting to increase the taxes that Pennsylvania collects from businesses. This proposal, referred to as combined reporting, would have far-reaching and harmful effects on large and small employers, with the certain result of lost businesses and jobs across Pennsylvania. It is a fact that some industries and individual businesses would pay significantly more taxes as a result of combined reporting.

On June 13, 2007, despite ongoing and concerted efforts of the statewide business community, the House Finance Committee, by a vote of 15-14, approved HB 1186, legislation that would require Mandatory Unitary Combined Reporting in Pennsylvania. The measure is now before the House of Representatives and could be considered at any time.

TALKING POINTS:

• Not only would combined reporting make Pennsylvania less competitive for existing manufacturers and other businesses, it would discourage new businesses from locating here, contributing to Pennsylvania's reputation as a poor place to do business. If a company wants to expand its activities into Pennsylvania by establishing an affiliated company in Pennsylvania, mandatory combined reporting would expose all of its income in other states to Pennsylvania business taxes. Site selection consultants have clearly indicated that if Pennsylvania converts to combined reporting, it will deter businesses from locating here.

• Although proponents of combined reporting indicate that overall, combined reporting, together with CNI reductions, would be revenue neutral, it would not be revenue neutral for key industry sectors. In fact, some industries and individual businesses would pay significantly more taxes as a result of combined reporting. The manufacturing, business service and trade industries would see net increases in their tax liabilities of approximately $8 million, $20 million and $53 million, respectively. In other words, the proposal would be a tax increase for manufacturers, further discouraging these firms from locating and expanding in Pennsylvania. There are numerous examples of firms that would pay 50 percent or even 100 percent more in businesses taxes under mandatory combined reporting — enough to force a decision to move operations out of our state.

• This tax law change would take away the predictability of tax compliance by creating uncertainty about how the Department of Revenue will choose to view a company's activities in other states and nations. Protracted litigation is sure to follow because of the inherent complexity and vagaries. In states like California that have instituted this complex tax provision, huge compliance and litigation costs have resulted for both businesses and state government. Static assumptions have been used to estimate revenues from instituting combined reporting, ignoring the reality that overall revenues would decrease as manufacturers and other businesses remove their operations from our state.

• None of Pennsylvanian's competitor states include combined reporting in their tax codes. Futhermore, none of the 17 states that do require combined reporting (all in the western United States) have more punitive Corporate Net Income (CNI) and Capital Stock and Franchise taxes than Pennsylvania.

IMMEDIATE ACTION REQUESTED: Contact legislators immediately and ask them to vote "NO" on combined reporting.

CONTACT INFORMATION: