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Pennsylvania Governor Tom Wolf-(D) released his proposed 2015-2016 state General Fund budget on March 3, 2015. It sets forth a spending plan of $29.9 billion, increasing state expenditures by $836.5 million or 2.8 percent (after adjusting for proposed supplemental appropriations and lapses) over the prior fiscal year.

Pledging to make Pennsylvania a more business-friendly state, Wolf put forward a number of changes to the Commonwealth’s corporate tax laws. The proposal would close the Delaware loophole and provide for combined reporting, update the cap on net operating losses, lower the corporate net income tax, eliminate the capital stock and franchise tax and neutralize the imposition of the bank shares tax. Additionally, he has proposed a “manufacturing tax credit” to incentivize employers to add at least a million dollars’ worth of jobs to their payrolls

The Delaware Loophole:

Often considered a tool to evade payment of corporate taxes in the Pennsylvania, the “Delaware loophole” allows corporate entities to incorporate and pay taxes in another state while conducting business in Pennsylvania.

Wolf’s proposal would effectively close the Delaware loophole requiring what’s known as “combined reporting,” which would impose taxes by using a formula that captures all of the corporates subsidiaries, whether located in Pennsylvania or not.

Net Operating Loss:

Under current law, corporate taxpayers may deduct losses from one year in subsequent years, and the total amount of carry forward per taxpayer is capped at $5 million. Wolf’s tax proposal would decrease the cap on the carry forward from $5 million to $3 million. This change has been described as necessary to balance the loss of revenue from the reduction in the corporate net income tax.

Corporate Net Income Tax:

At 9.9%, Pennsylvania currently has one of the highest corporate net income tax (CNI) rates in the United States. Wolf’s proposal is intended to phase down the CNI over the next three years, dropping it to 5.99% as of January 1, 2016, to 5.49% as of January 1, 2017, and finally, to 4.99% as of January 1, 2018 and each year thereafter.

Capital Stock and Franchise Tax:

The capital stock and franchise tax is set to expire for taxable years beginning after December 31, 2015. Wolf’s proposal provides no language to extend the imposition of the capital stock and franchise tax, thereby eliminating it.

Bank Shares Tax:

Under the budget as proposed, the bank shares tax rate would be raised from .89% to 1.25%, effective and retroactive to tax year 2014. The basis for imposing the tax would be clarified which would make the tax revenue neutral, as was intended by the legislature in the amendments to the Tax Reform Code enacted in 2013.

Manufacturing Tax Credit:

Finally, Wolf would create a new “manufacturing tax credit”. An employer who can increase their taxable payroll by at least $1,000,000 by creating new jobs and maintaining those jobs for five years will be eligible to apply to the Department of Community and Economic Development for a tax credit in an amount of up to five percent of the new taxable payroll over the first $1,000,000. The maximum amount of tax credits will be $5,000,000 annually.

These proposals will be vetted by the General Assembly, and it’s likely they won’t look exactly as the Governor has proposed by the time the 2015-2016 budget is enacted. The deadline for enactment of a balanced state budget is June 30, 2015.