HARRISBURG - House lawmakers approved legislation Monday to narrow the scope of a large state business tax loophole and gradually reduce the state Corporate Net Income tax rate in a warm-up for the final state budget debate.
The 129-65 House vote for a measure that combines business tax changes sought by House Republicans and Gov. Tom Corbett's business tax proposal advances an issue typically bundled with the state budget package.
The legislation headed to the Senate would curb use of what is known as the "Delaware loophole" and reduce the CNI tax rate from 9.99 percent to 6.99 percent over a decade starting in 2015.
The loophole allows businesses headquartered in other states to avoid paying the CNI tax on their operations here.
This measure would require businesses, even if headquartered in other states, to comply with an "expense add back" provision - a requirement that they pay taxes on profits.
The bill targets companies using the loophole for the sole purpose of avoiding taxes, said Rep. David Reed, R-62, Indiana, the sponsor.
Several Democratic lawmakers said the bill creates a loophole of its own - a provision saying the expense add back doesn't apply to a transaction involving a valid business purpose.
The bill contains many positive features, such as allowing a $5,000 deduction on the state Personal Income Tax for small start-up businesses in their first year of operation, said Rep. Gordon Delinger, R-99, Ephrata.
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