HARRISBURG, Pa., July 5, 2006 (PRIMEZONE) -- The Pennsylvania Chamber of Business and Industry welcomed the adoption of the recently enacted tax cuts as a start toward implementing business tax reforms that will stimulate high tech and manufacturing investment and activity in the Commonwealth.
"Throughout the budget process, the collective business community was unified in its tax priorities for the new budget," said Jim Welty, PA Chamber vice president. "We are pleased that the governor and lawmakers from both sides of the aisle recognize that competitively, Pennsylvania can do better, and improving our business tax structure is necessary if we are to move forward."
Welty said despite some non-manufacturing sectors of the economy keeping pace with national economic growth, Pennsylvania's high tech and manufacturing sectors have lost nearly 200,000 high-paying, high value jobs since 2000, even as competitor states have continued to add jobs in these sectors. Additionally, while U.S. manufacturing employment has remained generally steady since November 2003, Pennsylvania continues to lose about 1,000 manufacturing jobs each month.
The 2006-07 budget increases the cap on net operating losses to the higher of $3 million or 12.5 percent of a company's net income, which is particularly helpful to start-up companies that often lose money in their first years of operation, and cyclical manufacturers - both of which pay significantly higher taxes over a multi-year period than out-of-state competitors because of the onerous NOL cap.
The budget also raises the sales factor for corporate net income tax apportionment from 60 percent to 70 percent. With this change, a company's CNI tax liability is based more on sales rather than investments in capital and employees, which the state should be encouraging, not penalizing.
In addition, the budget exempts contributions to health savings accounts from Pennsylvania's income tax. This much-needed provision aligns the Commonwealth with the rest of the nation and benefits employers and employees who continue to struggle under the crippling cost of health care.
"Ultimately, the business community sees the elimination of the net operating loss cap and full implementation of a single sales factor as critical components in order to enable Pennsylvania to fully compete on a national and global scale," Welty added. "While we had hoped for more significant improvements to these tax provisions, the fiscally responsible reductions will provide a welcome boost to high-tech industry and will help reverse the trend of job losses in our manufacturing sector."
Unfortunately, lawmakers failed to enact a legislative fix to a recent state court ruling and subsequent Revenue Department policy change that expands the sales tax base to include downloadable computer software. The change will cost business at least $55 million in the 2006-07 fiscal year.
"The tax on computer downloads will affect all businesses, but will fall particularly hard on certain industries," Welty said. "If the adverse court decision is not addressed quickly, the gains in this year's budget will be negated by a tax increase of significant proportions."
"We hope the governor's enthusiasm for business tax improvements and the bi-partisan cooperation of the House republicans, House democrats and our allies in the Senate will allow us to address this recent levy on the technology industry and provide for the complete elimination of the cap on losses and implementation of a single sales factor."
The Pennsylvania Chamber of Business and Industry is the state's largest broad-based business association, with thousands of members statewide. More information is available on the Chamber's website at www.pachamber.org.
The PA Chamber of Business and Industry logo is available at http://media.primezone.com/prs/single/?pkgid=353