Dear Friends,
I hope you all had a happy and healthy 4th of July weekend! This week, the House returned to session to continue working on the state’s budget. I remain disappointed that the Senate has failed to propose their own version of the budget (to better enable negotiations), but I can confirm that negotiations are ongoing. I will continue to advocate for a fair, balanced, and timely budget – our communities need it, and they do not deserve to have funding delays. For those who have been asking, in the next few weeks I will discuss the impact of the Federal budget bill. By design, many of the provisions in that bill will not be implemented until after the 2026 mid-term election, but I believe it’s important to discuss how the Pennsylvania budget and federal cuts will interact. In this week’s email, I discuss how the House has acted to address long-term fiscal stability in our commonwealth.
Pennsylvania has tax loopholes that are heavily abused by larger companies at the cost taxpayers and small businesses. Currently, Pennsylvania’s corporate tax structure allows subsidiaries of companies to report separately, and each subsidiary or affiliate of a corporation files a separate return. This allows larger companies to use diversified tax practices to shield income from taxation in Pennsylvania, and smaller companies and individual taxpayers often get left carrying too much of our tax burden. According to the Pennsylvania Budget and Policy Center, 73% of companies operating in Pennsylvania that are subject to the corporate net income tax pay no tax .
At the end of June, a bill I co-sponsored, HB 1610 passed in the House. This bill implements combined reporting for those who are corporate net income tax filers. Currently, all Pennsylvania businesses pay the Corporate Net Income Tax (CNIT) rate on all their income, while multi-state corporations can keep much of their income with less taxes. This results in Pennsylvania-based businesses taking on the tax burden that multi-state corporations aren’t paying, essentially subsidizing them.
To ensure fairness, this bill would require multi-state corporations to pay their fair share. This allows for businesses that are made up of separate parts of a single corporation or ownership to file an annual combined report to the PA Department of Revenue as a unitary business. This means that they will pay the CNIT based on the share of their income that is equal to the share of their sales in Pennsylvania.
I have discussed this topic previously and I still believe that combined reporting provides an accurate and fair method of measuring actual income, substantially broadens the tax base, and is less subject to manipulation. This means that everyone pays their fair share, and small businesses are not stifled by unfairly applied taxes. My personal preference is that we adopt combined reporting because alternatives to combined reporting have been shown to be more easily manipulated and unfair to our small businesses.
This bill now sits awaiting a vote in the Senate’s Finance committee, chaired by Senator Scott Hutchinson. If you think securing this stream of revenue for the commonwealth and promoting tax fairness for our small businesses is important, I suggest reaching out to him here.