With Corporate Tax Revenue Lagging, Some Question Breaks

By Stacy Brown | PA Independent

Corporate tax collections have lagged this fiscal year, causing some to question previous tax breaks provided to businesses by Gov. Tom Corbett.

The collections were $259.3 million, or 17.6 percent, less than last year, according to the state Department of Revenue.

Corporate taxes generally account for about 18 percent of the state's total revenue, but Corbett provided more than $200 million in tax breaks to corporations last year, including allowing businesses to write off the entire cost of expenses in one year, rather than spreading out the write-off over several years. 

"The state was in no position last year to adopt 100 percent bonus depreciation, which permitted more generous corporate tax deductions on certain business expenses," said Christopher Lilienthal, communications director for the Pennsylvania Budget and Policy Center, a liberal Harrisburg-based economic think tank. 

"Nor is it in any position to cut the capital stock and franchise tax this year. These tax cuts do very little to improve the economy but do cost the state money that will not be invested to create jobs in education, public safety and health care," Lilienthal said. 

Corbett is trying to address the shortfall, in part, by freezing state spending and halting pay increases for state employees. But administration officials maintain they don't anticipate a tax increase. 

"The bottom line is that the road is much bumpier than anticipated," Department of Revenue spokeswoman Elizabeth Brassell said. 

The lack of revenue from corporate tax collections may reflect the unexpectedly heavy use of tax credits, which corporations are allowed to carry forward from previous tax years and which make corporate tax revenue forecasting difficult, Brassell said. 

Brassell noted that tax credits resulted from overpayments in tax year 2010, and those credits can be applied to future payments. 

“The prior year’s liabilities and overpayments may be having an impact on the current fiscal year,” she said. 

Kevin Shivers, president of the Pennsylvania chapter of the National Federation of Independent Businesses, which represents small business owners, said while it was a tough year for businesses, brighter days are ahead. 

"You have to credit Corbett for keeping the Legislature focused. There were those pushing him to spend the Rainy Day Fund and had he done that, things would be worse," Shivers said. 

Also, Sam Denisco, vice president of government affairs at the Pennsylvania Chamber of Business and Industry, which represents businesses in the state, said Corbett's policies helped pave the way for businesses to invest in the state and keep unemployment levels down. 

Still, Tim Potts, president and CEO of Democracy Rising Pennsylvania, which advocates for accountable and transparent government, said the decline of corporate tax revenue collections is baffling.

Potts said the Wharton School at the University of Pennsylvania used to provide revenue estimates, and he recommended the state use the school's services again for more fair and realistic estimates going forward. 

Under Corbett, the Department of Revenue and the state Office of the Budget collaborate to develop revenue estimates for the state. 

"They have no reason to over or underestimate," Potts said of the Wharton School. 

The corporate tax revenue could be lower now simply because some businesses aren't turning profits, said David Patti, president and CEO of the Pennsylvania Business Council, a trade association here. 

"With companies, you could be selling goods all year, but if your expenses are very high then there is no net profit to tax," Patti said. "(Businesses) are selling goods at a lower price just to stay afloat. Just to make payroll." 

State Sen. Jake Corman, R-Centre County, chairman of the Senate Appropriations Committee, said revenue collections are typically heavier in March and April and he is hoping that would help bring the budget back into balance. 

State Rep. Joseph Markosek, D-Monroeville, the ranking Democrat on the House Appropriations Committee, said he was equally hopeful.

Other revenue shortfalls include:

• Sales tax receipts at $4.4 billion, which is $23.3 million, or 0.5 percent, less than anticipated.
• Personal income tax revenue at $4.6 billion, which is $165.9 million, or 3.5 percent, below estimate.
• Inheritance tax revenue at $391.3 million, which is $17.9 million, or 4.4 percent, below estimate.
• Realty transfer tax revenue at $152.6 million, which is $9.9 million, or 6.1 percent, less than anticipated.
• Non-tax revenue, such as the sale of unused state land and mineral royalties, at $112.3 million, which is $20.7 million, or 15.5 percent, below estimate.
• Motor License Fund, which includes the gas and diesel taxes, as well as other license, fine and fee revenue, at $1.2 billion, which is $4.4 million, or 0.4 percent, below estimate. 

Tax revenue from cigarette, malt beverage, liquor and table games taxes--the so-called sin taxes--totaled $778.2 million, which is $10 million, or 1.3 percent, above estimate.