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PA Tax Law
Changes!
~ A Note from
the Tax Director at Case | Sabatini ~
On July 6, 2006, Governor Edward G. Rendell
signed Senate Bill 300, which enacts new Pennsylvania state tax legislation.
More important aspects of the new law are set forth below.
Capital Stock and
Franchise Tax
S.B. 300 changes the Pennsylvania capital stock and franchise tax in
two respects. First, it revises rate schedule for phasing out the tax. In
particular, for taxable years beginning in 2006, the new rate is 4.89 mills.
For 2007, the new rate is 3.89 mills (2.89 mills for 2008, 1.89 mills for
2009, and 0.89 mills for 2010). The tax will be eliminated in 2011.
In addition, applicable for taxable years
beginning after 2006, the capital stock valuation formula is slightly
changed. The valuation exemption amount is increased from $125,000 to
$150,000.
Tuition Program
Contributions
Applicable to taxable years beginning after 2005, a personal income
tax deduction is permitted for contributions to qualified tuition programs
under Section 529. The deduction is subject to an annual federal gift tax
exclusion threshold (currently, $12,000). In addition, distributions and
rollovers from a qualified tuition program that are not taxable for federal
purposes, and undistributed earnings on a qualified tuition program, are
excluded for Pennsylvania personal income tax purposes.
Health Savings Account
Contributions
In a major change to the tax law, and applicable to taxable years beginning
after 2005, taxpayers may take personal income tax deductions for
contributions to health savings accounts. In addition, the new law clarifies
that amounts distributed from a health savings account that are includable
in the gross income of an account beneficiary for federal income tax
purposes are taxable for Pennsylvania tax purposes.
S Corporation Elections
In another major change to the tax law, and applicable to taxable years
beginning after 2005, an S corporation for federal income tax purposes will
no longer be required to file an election to be treated as a Pennsylvania S
corporation. Special rules are enacted, however, for corporations that wish
to terminate their elections.
In addition, the Internal Revenue Code of
1986, as amended through January 1, 2005, now applies to S corporations.
Previously, the Code, as amended through January 1, 1997, applied. One
significant aspect of this change is that the number of shareholders is
increased from 75 to 100.
For additional
guidance, or if you would like to
discuss how this will affect your tax planning, please contact our firm at
(412) 881-4411. If you do not have a contact at Case | Sabatini,
simply ask for Jim Dee and he'll make sure to put you in touch with the CPA
whose background most closely matches your needs.
Disclaimer: To ensure
compliance with requirements imposed by the Internal Revenue Service, we
inform you that any tax advice contained in this communication (including
any attachments) was not intended or written to be used, and cannot be used,
for the purpose of (i) avoiding any penalties that may be imposed, or (ii)
promoting, marketing, or recommending to another party any transaction or
matter addressed herein. |