Conklin legislation would close Delaware loophole, reduce Corporate Net Income tax rate

HARRISBURG, March 16 – State Rep. Scott Conklin, D-Centre, will be introducing legislation in the near future that will enact combined reporting to close the "Delaware loophole” and reduce the Corporate Net Income tax rate from 9.99 percent to 7.99 percent.

The legislation is geared toward enhancing job growth in Pennsylvania, and protecting small and medium-sized businesses, while ensuring taxpayers are not footing the bill for larger corporations.

Pennsylvania’s current CNI tax rate is 9.99 percent, the second highest in the nation behind Iowa, which has a tax rate of 12 percent. The Delaware loophole is a longstanding, legal practice that large corporations in Pennsylvania use to exploit a state law that allows them to establish holding companies in Delaware. Doing so enables companies to transfer all profits earned in the commonwealth to their out-of-state subsidiary because, unlike Pennsylvania, Delaware does not have a CNI tax.

“If Pennsylvania is going to be an innovator in business development, we need to consider reducing the corporate tax burden,” Conklin said. “But, this should not be done at the expense of hard-working families across the commonwealth.”

In his ongoing effort to close the loophole, Conklin also recently introduced legislation, House Bill 1719, which would require corporations and their related subsidiaries to file taxes as a single company for state CNI tax purposes. Nearly 76 percent of the 113,400 businesses that were subject to the CNI paid no tax in 2015, leaving it up to small and medium-sized companies without out-of-state subsidiaries to foot the bill. House Bill 1719 would abolish those tax avoidance practices.

According to the Pennsylvania Department of Revenue, Conklin’s proposal, which is expected to be introduced to the House in the near future, would raise an additional $330 million in revenues.