Closing the "Delaware Loophole"

by Steven Sodini 13. April 2012 09:45
The Pennsylvania House has approved a corporate tax reform bill designed to eliminate the "Delaware Loophole," which will “create a more competitive and fair business climate in Pennsylvania”, according to bill sponsor Rep. Dave Reed (R-Indiana). The loophole allows businesses headquartered in other states to avoid paying the state Corporate Net Income (CNI) Tax on their operations in PA. According to the PICPA, House Bill 2150 attempts to eliminate the loophole by requiring companies to “add-back” intangible expenses such as royalties and patent payments that do not have a “valid business purpose” as defined in the legislation. An amendment adopted by members of the House Finance Committee added interest income from a loan made to a related company which must meet the valid business purpose to qualify for a deduction. The bill also lowers the corporate net income tax rate from 9.99 percent to 6.99 percent over a six-year period, gradually uncaps net operating loss carry-forward over an eight-year period, and moves to a single sales factor apportionment for tax years beginning after Dec. 31, 2012.
Categories: Tax