State and Local Taxes

Click here to download pdf. file 2007-2008 Municipal Tax Data

No one likes to talk about taxes, but they're a part of doing business, and a factor in when determining where a firm will locate. Firms relocating to Pennsylvania will be pleasantly surprised by the tax situation here. According to a 1997 study commissioned for The Congressional Quarterly. Less than one-fourth of state income comes from the Corporate Net Income Tax. The lion's share of state income derives from Sales & Use taxes (35 percent) and the personal income tax (33 percent).

Corporate net incomes were taxed at the rate of 11.99 percent in 1994, but for 1997, that rate had dropped to 9.99 percent, with additional cuts on the horizon. Even at the earlier level, the tax only amounted to $122 per capita, eighth in the nation, a rate comparable to New Jersey's, but well behind the bite in New York, Connecticut and Delaware.

Pennsylvania's total tax burden on a high-income family was ranked 25th in the nation by The Congressional Quarterly, with number one, New York, being the most onerous burden. Maryland was number 2, and New Jersey number 9. State and local sales taxes provide more than one-third of state funding, but as a percentage of personal income-3.25 percent - they are among the lowest in the Nation (actually, number 40). The annual sales tax per capita ($667.70 in 1997) is also among the lowest in the nation (number 34). Forty-one of the 50 states impose state personal income taxes. Pennsylvania's Personal Income Tax rate, a very small 2.8 percent, is the lowest of any of them.

Tax Incentives

Approved businesses that agree to create at least 25 new jobs, or increase their employment by 20 percent in the Commonwealth within a three-year period are eligible for a $1,000-per-job tax credit. Larger firms, of course, will have less trouble creating new jobs; still, 25 percent of the available credits each year are set-aside for companies with fewer than 26 employees. The prime stipulation in these credits: they may not be utilized until the jobs are actually created.

Neighborhood Assistance Program (NAP)

The Neighborhood Assistance Program (NAP) provides tax credits for businesses that donate capital, which can be used to provide eligible services to low-income persons or impoverished neighborhoods. The eligible services include crime prevention, education, neighborhood assistance, and community services. A fund-raising plan or pledge commitment is also required, but firms meeting NAP criteria can receive a 50 percent tax credit against their Pennsylvania Net Corporate Income Tax liability for donated capital. Projects that meet specified state priorities may qualify for a 70 percent tax credit.

Enterprise Zone Program (EZP)

In 1983, the Commonwealth created the Enterprise Zone Program (EZP), a program of grants and other incentives designed to accelerate the economic revitalization of areas in need of new, and more aggressive, business-development strategies. To date, there are 52 such zones in the state, two of which (Conshohocken and Norristown) are located within Montgomery County.
The Enterprise Zone Program has been one of Pennsylvania's success stories. Since its inception more than sixteen years ago, there has been more than $1 billion in private investment in the zones statewide. The program has helped to establish more than 1,720 new businesses, created more than 21,000 jobs and retained almost twice that many across the Commonwealth.

Companies locating in these areas are eligible for a variety of development incentives, including tax credits, below-market financing, and reductions in utility fees. Enterprise Zone incentives apply both to existing companies and start-ups, however a priority is placed on firms involved in industrial, manufacturing or export services. Emphasis is also put on businesses that provide higher-quality employment, i.e., wages above the minimum wage, full-time employment opportunities, standard (or better) fringe benefits and opportunities for advancement.

The tax advantages are particularly inviting. Corporations are eligible for a 20 percent credit on their state Corporate Net Income Tax for the value of investments to rehabilitate land or buildings in a designated Enterprise Zone. Similarly, local abatements are also available.

In summary, the business looking to expand or relocate in Montgomery County is able to benefit from a wide range of assistance programs, which can be tailored to a firm's specific needs. In the last 10 years, almost 100 local businesses, large and small, have benefited significantly, receiving nearly $97 million in local, state, and Federal funding. Those funds leveraged projects valued at more than $2 billion, and directly helped to create or retain more than 21,600 jobs.

Montgomery County Industrial Development Corporation (MCIDC) was the key player in securing much of this funding, and remains available to assist in every facet of expanding or relocating here. At the same time, there are also numerous other local organizations that champion and support business and business development in the County. The MCIDC is happy to put prospective new businesses in touch with all these groups and programs. For additional details, please contact MCIDC at (610) 272-5000.

State Taxes

Business taxes in Pennsylvania are headed in the right direction - down and in some cases out. One tax we didn't have to cut was the Personal Income Tax. At 2.8 percent, Pennsylvania already has one of the lowest personal income tax rates in the country.

For more information on Pennsylvania's Business Taxes, click here.

Local Taxes

The primary source of revenue at the local level is the property tax. Pennsylvania's Constitution requires that all taxes be uniform on all subjects of taxation. As a result, the rate of taxation on business property is the same as the rate on residential property, which is a relatively unique feature of Pennsylvania's tax system compared to other states. Moreover, Pennsylvania's local property tax burden is also well below average - 86 percent of the national average based on Personal Income. Pennsylvania does not impose a state tax on real or personal property. Other local taxes of interest include the earned income tax, the business gross receipts tax, and the realty transfer tax. It should be noted that not all local taxing jurisdictions impose the earned income tax and/or the business gross receipts tax.

Business Gross Receipts Tax

Business gross receipts taxes are levied on the privilege of doing business within a jurisdiction. These taxes are also known as mercantile or business privilege taxes. Despite the different names they are essentially the same tax and are most commonly referred to as business gross receipts taxes. The tax is imposed on the gross receipts of a business or person engaged in business in a municipality or school district. Mercantile taxes are usually imposed on wholesalers, retailers, and restaurants.

Credits and exemptions

Business gross receipts taxes in Pennsylvania cannot be imposed on manufacturing, banking, insurance, or malt beverage activities. In 1988, legislation was adopted which prohibits the imposition of any new business gross receipts tax after November 30, 1988. The legislation also prohibits the rate from being increased above levels in effect on November 30, 1988 and prohibits the business gross receipts tax from being extended to subjects not taxed as of that date.

Business gross receipts tax rate

The rate of the mercantile tax is limited to one mill on wholesale vendors and one and one-half mills on retailers and restaurants. Business privilege taxes are generally imposed on service providers such as doctors, lawyers, etc. The rate of the business privilege tax is not limited.

Earned Income Tax

Most municipalities and school districts in Pennsylvania impose an earned income tax on wages and net profits at a combined rate of 1 percent, which is the maximum rate allowed under state law. Municipalities that adopt a home rule charter are exempt from the statutory maximum rate, and in 1996, the combined earned income tax rate exceeded 1 percent in 50 home rule municipalities. No income taxes were imposed by a municipality or school district in 147 municipalities and the combined rate was less than 1 percent in 22 municipalities. Municipalities that do not impose an earned income tax are concentrated in the suburbs of Philadelphia, and along the north central and northeastern borders of the state.

    Credits and exemptions

Earned income taxes are not imposed on interest or dividends. Distributions from a Subchapter S Corporation are exempt from the local earned income tax. However, distributions from Limited Liability Partnerships and Restricted Professional Companies are subject to the tax.

For more current and specific information, contact MCIDC at (610) 277-5000.

Realty Transfer Tax

The majority of local taxing jurisdictions in Pennsylvania impose a 1 percent realty transfers tax which is shared between the school district and municipality in addition to the Commonwealth's 1 percent Realty Transfers Tax. The state tax collected from the purchaser, while the local tax is collected from the seller.

The combined realty transfers tax rate (not including the state tax) exceeds 1 percent in 23 home rule municipalities. The municipality or school district in four municipalities imposes no realty transfers taxes.

Realty transfers tax rate

The Realty Transfers Tax rate in all municipalities in this county is 1 percent.