Democratic Gov. Josh Shapiro routinely complains he’s “sick and tired” of Pennsylvania losing out to “frigging Ohio” on economic development.
A bipartisan group of Pennsylvania lawmakers, including Rep. Paul Friel (D-Pottstown), hope a proposed tax deduction for startup companies will jumpstart investment. It targets net operating losses (NOL) when deductions exceed taxpayer income within a tax period.
“This is smart business,” said Friel during a Tuesday conference call organized by the Pennsylvania Chamber of Business and Industry. “The economic return to Pennsylvania is significant, and we’re losing out if we’re not pursuing this.”
Senate Bill 346 would raise the NOL carryover tax deduction to 80 percent from the current 40 percent over four years.
A Senate memo said Pennsylvania is one of two states that doesn’t allow businesses to use the federal 80 percent NOL carryover. California is the other.
Senators expressed frustration that pharmaceutical and tech businesses leave Pennsylvania due to tax issues. Sen. Greg Rothman (R-Cumberland) said corporations spend millions and millions of dollars to put a product on the market, but can’t reduce their tax burden by writing that money off. Rothman added most businesses lose money the first few years that they’re in operation and need to know the government wants then to remain.
“We need to send a message to the business community that Pennsylvania is open for business,” he said.
Chamber officials said legislators are piggybacking on work done in 2022 when the state’s corporate tax cut was lowered.
They warned, however, that states like Ohio and North Carolina made additional tax cuts after the Keystone State corporate tax cut. They used Intel’s decision to pick Ohio for a $28 billion chip factory as proof that additional cuts are needed.
“We need to work harder to ensure that we get jobs and attract employers that want to be located [in Pennsylvania],” said Luke Bernstein, the chamber’s president and CEO.
The Pennsylvania Senate has already made moves on further tax reform. It passed a bill that would lower the personal income tax earlier this month.
That was over protests from Democrats like Sen. Sharif Street (D-Philadelphia) that tax cuts won’t bring in new businesses. Street called tax cuts “a failed strategy” during debate on the Senate floor.
Fellow Democrat Sen. Nick Miller of Lehigh County disagreed. He said Pennsylvania brought in a record level of corporate net income revenue last year despite the lowered tax rate. “Companies want to see larger jumps [in tax cuts]…more than the piecemeal smaller cuts,” he said.
Friel, who beat longtime Republican Rep. Tim Hennessey in 2022, agreed that tax cuts are a good thing. “If we are more attractive, we are going to grow the businesses and the employers in Pennsylvania,” he said.
Republicans took umbrage with the idea that tax cuts are a partisan issue.
“This is one of those issues that could bring opportunity for family-sustaining jobs to the Commonwealth of Pennsylvania,” said Rep. Josh Kail of Beaver.
The Tax Foundation has said NOL provisions help smooth out business income and promote tax neutrality for businesses that face high exposure to economic slowdowns. That includes major business players like Uber, Amazon, Tesla, and Airbnb. Restaurants and hotels also use NOL deductions to stay in business.
“Businesses take work and they take investments and they take capital. We shouldn’t be penalizing people who want to take risks in our great Commonwealth,” added Rothman.
S.B 346 unanimously passed the Senate Finance Committee a year ago. It was referred to the Rules and Executive Nominations Committee earlier this month.
