On October 9, 2009, Pennsylvania Governor Rendell signed into law the 2009-10 budget, which was balanced in part by increases in and a delay to the phase-out of Pennsylvania’s capital stock and franchise tax (“CS&F Tax”). Instead of being completely phased-out after the 2010 tax year, the CS&F Tax now applies at the following rates:
The legislation provides just a bit of relief by increasing the standard deduction used in calculating the capital stock and franchise tax from $150,000 to $160,000 for tax years beginning after December 31, 2009.
C corporations, S corporations and LLCs are subject to CS&F Tax. Restricted professional companies that are not classified as corporations for federal income tax purposes are not subject to the tax. The CS&F Tax does not follow the federal income tax rules on disregarded entities so that, even if an LLC is disregarded for federal and state income tax purposes otherwise, it is not disregarded for purposes of the CS&F Tax and remains subject to the tax.
Of particular significance, limited partnerships continue to be excluded from the tax which can make this form of entity an attractive alternative in Pennsylvania to an LLC. By using a limited partnership, the overall CS&F Tax can normally be minimized significantly because individual limited partners are not subject to the tax. In some instances we are able to eliminate this tax completely by having a trust (or other entity not subject to the tax) serve as the general partner of the limited partnership.
Among other changes, the legislation includes a tax amnesty program which runs from April 26, 2010 through June 18, 2010, increasing both the cap on net loss carryforwards, and the sales factor in the corporate net income tax apportionment formula, as well as implementing cuts in various Pennsylvania tax credit programs.
If you have any questions regarding these changes, please contact your attorney at Williams Coulson or either of the following Williams Coulson attorneys: Mark C. Coulson, Raymond P. Parker, Anthony M. Tedesco or Richard R. DiFrischia.