Rep. Dave Reed (R-Indiana) Wednesday joined with Rep. Eugene DePasquale (D-York) to unveil a plan to close the “Delaware Loophole” and implement necessary business tax reforms in Pennsylvania.
The proposal is geared toward helping create a more competitive and fair business climate in the state.
Employing what is known as an “expense add-back” provision, House Bill 2150 would close the Delaware Loophole and levels the playing field for all companies doing business in Pennsylvania.
“Any business tax reform proposal, if it’s to be taken seriously, should include closing the Delaware Loophole,” stated Rep. Reed. “Creating a competitive environment and a level playing field for job creators is vital to our economic recovery, and this proposal accomplishes both goals.”
The Delaware Loophole has garnered significant attention over the years and has been criticized as a flaw in Pennsylvania’s business tax structure. The term was coined to describe a legal tax avoidance practice used by some multi-state corporations to reduce their Pennsylvania tax liabilities by transferring the ownership of intangible assets to an affiliated company in Delaware.
“A successful business is not built on hiring high-priced tax attorneys and accountants to avoid paying taxes,” Rep. Reed said. “It’s about having a good business model, working long hours, and making sacrifices. Most Pennsylvania businesses do not use this tax avoidance mechanism, which is all the more reason to close the loophole to ensure fairness among all employers.”
Targeting very specific transactions among close business affiliates, the new provision would only affect businesses that are taking advantage of the loophole for the sole purpose of tax avoidance in Pennsylvania. The proposal also would use revenue captured through closing the loophole to reduce Pennsylvania’s overall business tax burden.
Specifically, closing the Delaware Loophole would enable the state to gradually reduce the corporate net income tax during the next six years; implement a single sales apportionment factor; and gradually phase out the cap on net operating losses during the next nine years.
“Year after year, the state ranks among the worst in the nation for the cost of doing business, so it’s clear that comprehensive business tax reforms are needed,” said Rep. Reed. “Closing the Delaware Loophole will bring consistency to our tax structure and lower the tax burden, showing that Pennsylvania is a great place to do business.”
Reps. Reed and DePasquale were joined by members of both parties to introduce the legislation. To date, House Bill 2150 has more than 50 co-sponsors.
