Bill to close ‘Delaware loophole’ will remain on hold in Pennsylvania

Politicians call it a way to close the “Delaware tax loophole.” Businesses call it the “add-back provision.” Either way, the Pennsylvania House passed a measure last week that included measures to prevent companies from transferring profits to Delaware to avoid paying Pennsylvania taxes. That does not mean the bill will become law.

While it also includes a number of tax reforms the business community has pushed for a long time, notes Sam Denisco of the Pennsylvania Chamber of Business and Industry, he says the complicated bill leaves the state’s businesses divided.

“I’ve gotten a call from a company that’s said in seven years this is going to cost us $50 million, or $30 million. I’ve gotten a call from a company that said yeah we really like it because the rate’s getting lowered and we’re going to save $10 million over seven years,” Denisco said, explaining why the Chamber had declined to take a position on the legislation.

After the House vote, Governor Corbett told reporters the state could not afford the tax reductions this year. Denisco said the Chamber would be more likely to support the bill, introduced by Republican legislator, Dave Reed, if it did not include the change to the Delaware provision.

The Philadelphia Chamber has also approached the measure with caution. In a statement to WHYY before the vote, the Philadelphia Chamber said that: “The Delaware Holding Provision broadly effects the tax structure of Pennsylvania’s businesses with varying consequences,” but that it supported reductions to business taxes including the Capital Stock and Franchise tax. Critics of the tax bill, including the Pennsylvania Center for Budget and Policy, argue the bill should not include tax reductions while the state cuts social services.

Director Sharon Wood said in a statement that the tax changes would “undermine the commonwealth’s ability to meet its obligations — and result in a long-term erosion to the quality of schools, colleges and public services.”

Speaking in Philadelphia in late April, state Welfare Secretary Gary Alexander said he does not expect the Department would see additional revenue, even if the Corbett administration does take up closing the Delaware loophole. He said that if the Corbett administration supports a Delaware loophole bill, he would only expect a measure that is revenue-neutral.