THE TAX COMPENDIUM
THE TAX COMPENDIUMDECEMBER 2010Edward G. Rendell,GovernorC. Daniel Hassell,Secretary of RevenueDOP-3 (12-10)
COMMONWEALTH OF PENNSYLVANIADEPARTMENT OF REVENUEStrawberry SquareHarrisburg, PA 17128-1100THE SECRETARY(717) 783-3680December 2010Taxpayers of Pennsylvania:On behalf of the Pennsylvania Department of Revenue, I am pleased to present a new edition of thePennsylvania Tax Compendium.The Department of Revenue administers and enforces the state tax codes, while performing fiscal analysisand budget planning for the Governor. In fiscal year 2009-10, the Department collected 27.6 billion inrevenue for the General Fund, 2.6 billion for the Motor License Fund and 736.4 million for the GamingFund.The Tax Compendium describes the basis, rate and history of Pennsylvania taxes and is intended forresearch and background information. It is a general guide to Pennsylvania taxes, not a tax manual. TheStatistical Supplement for the Tax Compendium contains tax collections data, including historical data forcomparison purposes. Both reports are available on the Department’s Web site atwww.revenue.state.pa.us, under News and Reports.I encourage you to visit the Revenue Department’s Web site to explore the many e-services offered.Taxpayers can file returns and reports, make payments, register businesses, ask questions and file appealselectronically for Pennsylvania personal income and business taxes.You can also stay on top of recent developments in the Department by visiting the Web site and bysigning-up to receive the Pennsylvania Tax Update, a bi-monthly electronic newsletter.Sincerely,C. Daniel HassellSecretary of Revenue
Table of ContentsPageGeneral Fund1Corporation TaxesCorporate Net Income TaxCapital Stock and Foreign Franchise TaxesGross Receipts TaxPublic Utility Realty TaxGross Premiums TaxFinancial Institutions TaxesOther Corporation Taxes667910101112Consumption TaxesSales, Use and Hotel Occupancy TaxesCigarette TaxMalt Beverage TaxLiquor Tax1313141415Other TaxesPersonal Income TaxRealty Transfer TaxInheritance and Estate TaxesTable Game TaxesMinor and Repealed Taxes161618191920Non-Tax Revenue21Motor License Fund22Liquid Fuels TaxesLiquid Fuels and Fuels TaxMotor Carriers Road Tax / IFTAAlternative Fuels TaxOil Company Franchise Tax2222232324Motor Vehicle Licenses and Fees24Other Revenue24Public Transportation Assistance Fund Taxes and Fees26Lottery Fund28Gaming Fund29Recent Changes in Tax Law30Tax Summary40iii
Pennsylvania Tax CompendiumDecember 2010General FundThe General Fund is the major operating fund of theCommonwealth. It receives most tax revenue andother receipts not assigned by law to special funds.Special funds receive monies set aside for particularpurposes. The General Fund is the primary fundingsource for most Commonwealth agencies.Act 48-2009 reduced the amount of tax credit thatcould be awarded in FY 2009-10 and 2010-11 by 50percent and 55 percent respectively. For FY 11-12and forward, the total amount of credit that can beawarded returns to 18 million.Job Creation Tax CreditGeneral Fund revenues are appropriated by theGeneral Assembly and approved by the Governor.Funding for basic and higher education, health andhuman services, and protection of persons andproperty account for the majority of General Fundexpenditures.Any employer creating at least 25 new full-timeequivalent jobs or increasing their workforce by 20%or more within three years from a given start datemay receive a tax credit of 1,000 for each jobcreated. To qualify as a new full-time job, theemployee must earn at least 150% of the federalminimum hourly wage rate, excluding benefits.Twenty-five percent of the tax credits are allocated tocompanies with fewer than 100 employees. The totalcredit available in a fiscal year was increased from 15 million to 20 million beginning in FY 1998-99and to 22.5 million beginning in FY 2001-02. Act48-2009 reduced the amount of tax credit that couldbe awarded in FY 2009-10 and FY 2010-11 by 50percent and 55 percent respectively. In FY 2011-12,the total credit that can be awarded returns to 22.5million. To be eligible for the credit, an employermust enter into an agreement with the Department ofCommunity and Economic Development.Several programs generate tax credits for businessesand individuals to apply against various GeneralFund taxes:The Neighborhood Assistance ProgramAny business firm or private company (as defined inArticle XIX-A of the Tax Reform Code) or passthrough entity which engages in certain assistanceprograms in impoverished areas or makes qualifiedinvestments in designated enterprise zones may claimthe Neighborhood Assistance Tax Credit. Theamount of credit that may be awarded to a taxpayer is55% of the amount contributed by a business firm, or75% of the amount contributed to special programpriorities defined by the Department of Communityand Economic Development in regulations. Forprivate companies, the amount is 25% of the amountof qualified investment, or 35% of the amountinvested in special program priorities. Also, a creditequal to 75% of the contributions made by a businessfirm during a taxable year for comprehensive serviceprojects with a five-year commitment may beawarded. A credit equal to 80% of the contributionsmade by a business firm during a taxable year forcomprehensive service projects with a six-yearcommitment may be awarded. The amount of thecredits awarded annually cannot exceed 500,000 forcontributions or investments for single projects or 1,250,000 for contributions or investments for fourprojects.The Employment Incentive PaymentsProgramA corporation, bank, savings institution, insurancecompany, or mutual thrift institution subject to majorcorporation taxes or individual subject to thepersonal income tax, employing persons formerlyreceiving welfare benefits may qualify foremployment incentive payment credits. The credit isalso available to pass-through entities. The credit isfor a portion of wages paid to a qualifying employeein the first three years of employment. Additionalcredit is available for financing associated day carecosts. Total employment incentive payment creditsauthorized cannot exceed 25 million in any fiscalyear. Act 48-2009 reduced the amount of tax creditthat could be awarded in FY 2009-10 by 50 percent.If the tax credit is not used in the period theinvestment was made, it may be carried over for fivesucceeding calendar or fiscal years. With the passageof Act 55-2007, taxpayers can also sell or assignunused tax credits. Total amount of credits taken bytaxpayers cannot exceed the statutory limit of 18million in a fiscal year, with 2 million to allocatedexclusively to pass-through entities. However, if thepass-through entities do not claim the 2 million, theunused portion is available for other taxpayers.Employment incentive payment credits are available(as provided by Act 116–2004) for employees hiredup to December 31, 2009.1
Pennsylvania Tax CompendiumDecember 2010Businesses were first able to apply for the credit inSeptember of 1997 and can continue to apply eachSeptember through the year 2015.Special Tax Provisions for PovertyCreditsPersonal income tax - A credit against personalincome tax liability is available for individuals whomeet eligibility income limits. The most recentlegislative change increased the dependent allowancefrom 9,000 to 9,500 per dependent. More detail isavailable in the Personal Income Tax section.Coal Waste Removal and UltracleanFuelsA tax credit is available for qualifying capitalexpenditures on facilities producing fuels from coal,culm, or silt. The credit can be used against sales anduse tax, corporate net income tax, and capital stockand franchise tax. The total cost of the credit iscapped at 18 million per year.Research and Development Tax CreditsA research and development tax credit is availablefor qualified research performed in Pennsylvania.Prior to Act 46–2003, the credit had an annual cap of 15 million, with 3 million earmarked exclusivelyfor small businesses. Act 46–2003 raised the annualcap to 30 million and the amount of credit availableto small businesses to 6 million. Act 116–2006raised the annual cap to 40 million and the amountof credit available to small businesses to 8 million.Before the passage of Act 116 the credit for allbusinesses was equal to 10% of the increase inresearch activities in Pennsylvania over a baseperiod. Act 116 increased the small business creditfrom 10% to 20% of research activities.Keystone Opportunity ZoneThe Keystone Opportunity Zone (KOZ) program wasestablished in 1999 to spur the development ofunderutilized or deteriorated properties across theCommonwealth. In defined, parcel-specific areas,the program allows businesses and residents toreceive tax relief from various local and state taxes.By waiving these taxes for a series of years, theprogram hopes to stimulate development of theselected sites. The Department of Community andEconomic Development administers the program forthe Commonwealth.Act 48-2009 reduced the amount of tax credit thatcould be awarded in FY 2009-10 and FY 2010-11 to 20 million and 18 million respectively. In FY2011-12 and forward, the total amount of credit thatcan be awarded returns to 40 million.Among the state taxes waived by the program arecorporate net income, capital stock and foreignfranchise, personal income, bank shares, and mutualthrift institutions taxes. Insurance companies andcertain regulated transportation companies may earntax credits based on the number of jobs created in azone. Businesses operating in a zone are exemptedfrom paying sales and use taxes on items purchasedfor consumption in a zone. At the local level,property, earned income, and various other taxes arewaived for zone businesses and residents.The credit may be applied against the corporate netincome tax, capital stock and franchise tax, personalincome tax, or any combination thereof, but may notexceed 50% of such qualified tax liability for taxyears 2004 and earlier. Act 46–2003 eliminated the50% limitation for tax years 2005 and forward.Unused credits may be carried forward fifteentaxable years.Twelve Keystone Opportunity Zones, eachcontaining as many as twenty sub-zones, have beendesignated throughout the Commonwealth. Theprogram was enlarged in scope and length by thecreation of Keystone Opportunity Expansion Zones(KOEZ).Act 217–2002 allowed for theenhancement of KOZ or KOEZ subzones. Asamended, each zone may contain no more than 6,500acres and expire no later than January 1, 2014. Act217 also created Keystone Opportunity ImprovementZones (KOIZ).With the passage of Act 46–2003, taxpayers couldapply to the Department of Community andEconomic Development to sell or assign an unusedcredit after one year from the date that thedepartment approved the credit. The purchaser orassignee must use the credit in the taxable year inwhich the purchase or assignment is made and thecredit cannot exceed 75 percent of the tax liability forthe taxable year. The purchaser may not carry creditsforward or back or obtain a refund of any unusedcredit. This change applied to credits awarded inDecember 2003 and after. The Department ofRevenue is required to report to the GeneralAssembly the names of all taxpayers using the creditfor credits awarded in December 2004 and after.Act 51–2003 permits KOZ and KOEZ subzones toenhance their size up to previously legislated limitsand extended the application period for KOIZsubzones until June 1, 2004. Benefits in theadditional KOZ and KOEZ acreage began January 1,2004 and expire with the rest of the subzone, eitherDecember 31, 2010 or December 31, 2013.2
Pennsylvania Tax CompendiumDecember 2010Approved KOIZ subzones expire December 31,2018. Act 51 also changed the relocation provisionsgoverning businesses moving into a subzone.if the business provides a written commitment to theDepartment of Community and EconomicDevelopment (DCED) to contribute the same amountfor two consecutive years. The tax credit shall notexceed the tax liability of a business for any giventaxable year. Prior to 2004, the credit could notexceed 100,000 per business per taxable year. Act48–2003 increased the limit to 200,000 per businessper taxable year beginning in 2004.Act 79–2008 granted KOZs that are set to expirewithin the next five to ten years the option ofextending their associated benefits for seven to tenyears. Act 79-2008 also allows the Department ofCommunity and Economic Development to designateup to 15 additional KOZs beginning in January 1,2010. Under this legislation, contractors, pursuant toa contract with a qualified business, landowner orlessee, may purchase, exempt from sales and use tax,any tangible personal property or services for use inthe zone by the qualified business.Prior to 2004, the total amount of tax creditsapproved for all taxpayers could not exceed 30million in a fiscal year, including 20 million forcontributions to scholarship organizations, and 10million for contributions to educational improvementorganizations. Act 48–2003 increased the totalamount of tax credits available for all taxpayers to 40 million in a fiscal year, including 26.7 millionfor contributions to scholarship organizations, and 13.3 million for contributions to educationalimprovement organizations.Act 48–2003 alsocreated a 5.0 million credit program forcontributions to pre-kindergarten scholarshiporganizations beginning in fiscal year 2004-05.Furthermore under Act 79, the formula forcalculating the taxable income of a corporation in azone is now based only on the payroll and propertyfactors. The sales factor was eliminated from thecalculation.Keystone Innovation ZoneAct 12–2004 created the Keystone Innovation Zone(KIZ) program to foster growth in targeted industrysegments, namely research and development andother high technology businesses. The zones aredefined parcels and are operated by a partnership ofbusiness groups and institutions of higher education.Qualified businesses operating in a zone are entitledto priority consideration for assistance under anumber of State programs, as well as a tax credit. AKIZ company may apply to the Department ofCommunity and Economic Development for a taxcredit equal to 50 percent of the increase in its grossrevenues from the previous year attributable to itsactivities in a zone. A KIZ company may not claimin excess of 100,000 in tax credit per year. Nomore than 25 million in tax credits may be awardedin any taxable year.Act 46–2005 increased the total amount of tax creditsapproved for all taxpayers from 40 million to 44million in a fiscal year including 29.3 million forcontributions to scholarship organizations, and 14.7million for contributions to educational improvementorganizations beginning in fiscal year 2005-06. Act114–2006 raised the annual cap on credits from 44million to 54 million, including 36 million forcontributions to scholarship organizations and 18million for contributions to educational improvementorganizations beginning in fiscal year 2006-07.Act 45–2007 increased the total aggregate amount ofEducational Improvement Tax Credits available for afiscal year by 16 million, from 59 million to 75million. The amount of credits available forscholarship organizations was increased by 8.7million to 44.7 million per year. The ements was increased by 4.3 million to 22.3million per year. The total amount of creditsavailable for kindergarten organizations increased to 8 million per year, an increase of 3 million.KIZ companies may apply KIZ tax credits againstpersonal income tax, corporate net income tax, orcapital stock and franchise tax liabilities. KIZcompanies may apply for KIZ tax credits beginningSeptember 15, 2006 based on expenses from theprior taxable year. The Department of Communityand Economic Development began awarding creditsduring fiscal year 2006-07.Act 61–2008 increased the annual limit per taxpayerfrom 200,000 to 300,000 for scholarship andeducation improvement organizations, and increasedthe annual credit limit for contributions to prekindergartenscholarshiporganizationsfrom 100,000 to 150,000.Educational Improvement Tax CreditThis tax credit is granted to business firms providingproof of a contribution to a scholarship organizationor an educational improvement organization. Theactual credit is equal to 75% of the total amountcontributed during the taxable year. A credit equal to90% of the total amount contributed will be grantedAct 48-2009 reduced the amount of tax credit thatcould be awarded in FY 2009-10 and FY 2010-11 to 60 million and 50 million respectively. Act 463
Pennsylvania Tax CompendiumDecember 20102010 increased the credit to 60 million for 2010-11.In FY 2011-12 and forward, the total amount ofcredit that can be awarded returns to 75 million.A tax credit equal to 25% of qualified filmproduction expense may be taken against PIT (exceptemployer withholding tax), CNIT or CSFT.Qualified film production expenses are Pennsylvaniaproduction expenses if at least 60% of the totalproduction expenses are incurred in Pennsylvaniaexcept that compensation paid to individuals orpayments made to entities representing individualsfor services provided in the film cannot exceed 15million.Film Production Tax CreditThe Film Production Tax Credit was created by Act95–2004. A tax credit in the amount of 20 percent ofqualified film production expenses was available forexpenses incurred in Pennsylvania. The tax creditmay be used to offset capital stock and franchise tax,corporate net income tax, or personal income tax. Toqualify, the expenses must have been incurred in theproduction of a film or television show of at least 15minutes in length that is intended for a nationalaudience. At least 60 percent of total productionexpenses must have been incurred in Pennsylvania.Credits granted may be carried forward; however,they may not be carried back or refunded. Creditsmay be sold or assigned with the approval ofDepartment of Community and EconomicDevelopment and the Department of Revenuepursuant to regulations jointly promulgated. Thereare procedures for the transfer of unused credits bypass-through entities (Subchapter S corporation,Limited Liability Companies and Partnerships) to ashareholder, member or partner. Those films thatreceive a film production grant are not eligible forthis credit for the same film. The total amount ofcredits that can be granted in any fiscal year cannotexceed 75 million.The total amount of tax credit that could be awardedin any fiscal year was 10 million. Initially, theDepartment of Revenue awarded the tax credit onAugust 15 for qualified expenses incurred duringJuly through December of the prior calendar year.Beginning in fiscal year 2006-07, the credit programwas replaced with a grant program.Beginning in fiscal year 2007-08, the FilmProduction Tax Credit was reestablished as part ofAct 55–2007.DCED is responsible foradministering the program. DCED will administerthe award of the credits by the order of the datethat the applications are received. Tax creditcertificates will be issued by the Department uponreview and approval of an audit, economic impactreport, and any other information requested by thePennsylvania Film Office. Provided the informationsupplied to the Film Office meets the financialreporting requirements of the program, a tax creditcertificate will be issued within 45 days of receipt ofthe information.Act 48-2009 reduced the amount of tax credit thatcould be awarded in FY 2009-10 and FY 2010-11 to 42 million and 60 million respectively. In FY2011-12 and forward, the total amount of credit thatcan be awarded returns to 75 million.Strategic Development AreasThe Strategic Development Areas (SDA) programwas established in 2006 to provide incentives foreconomic development in designated areas. Act 151of 2006 created the program to provide tax relief andtax credits to qu
The Tax Compendium describes the basis, rate and history of Pennsylvania taxes and is intended for research and background information. It is a general guide to Pennsylvania taxes, not a tax manual. The Statistical Supplement for the Tax Compendium contains tax collections data, including historical data for comparison purposes.
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