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Pennsylvania Business and Personal Tax Changes

The following are changes in Pennsylvania Business and Personal Taxes effective when indicated:

Changes in Corporate Taxes:

  • The annual net operating loss (NOL) deduction is now the greater of 12.5% of taxable income or $3.0 million effective for years beginning after 12/31/06. The previous limit was $2.0 million.

  • The corporate net income tax apportionment factor for sales has been increased from 60% to 70%. The payroll and property factors have been reduced from 20% to 15% each. This is effective for the year ended 12/31/06. The apportionment factors for capital stock tax purposes remain unchanged.

  • The minimum taxable capital stock valuation has been increased from $125,000 to $150,000. The capital stock tax rate has been decreased from 4.99 mills to 4.89 mills. This is effective for the year ended 12/31/06. Also, the capital stock tax rate will decrease 1.00 mills for each subsequent year until it is completely phased out in 2011.

  • Every Federal S corporation will automatically become a Pennsylvania S corporation effective this year. If for any reason a Pennsylvania S corporation wishes to be treated as a C corporation for Pennsylvania purposes, it will be necessary to file a Form REV-643.

  • Annual settlement notices from the state will be discontinued for all settlements mailed after 1/1/08. Notices will be sent only if there is a change in assessment. Notices will have to be sent Certified Mail by the state. Corporations receiving any such notices will have 90 days from the notice date to petition the Board of Finance and Review for a review.

Changes in Personal Income Taxes:

  • Effective for 2006 tax returns, contributions to a Federal Sect. 529 Education Plan will be deductible up to $12,000 per student. Since husband and wife can file separate returns, this should presumably allow each to make the contribution.

  • Contributions to a Health Savings Account will now be deductible for the year 2006. These are accounts where taxpayers have a high deductible medical insurance plan (usually $5,000 or more) and self insure the deductible.

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