Governor Breaks Promise Again: Seeks to postpone phase-out of Capital Stock and Franchise Tax

Wednesday, June 17, 2009

Governor breaks promises again: Seeks to postpone phase-out of Capital Stock and Franchise Tax

HARRISBURG, PA – Targeted tax reductions and limited government spending are the best ways to foster business and job growth and position the Commonwealth to withstand economic instability, the Pennsylvania Chamber of Business and Industry said today in response to Gov. Ed Rendell’s revised budget proposal.

The administration seeks to again postpone the phase-out of the Capital Stock and Franchise tax, a tax that businesses pay even if they do not have any income to report.

"The phase-out of the Capital Stock and Franchise tax was enacted due to widespread bipartisan acknowledgment that the tax is unfair because it has no relation to a company’s profitability," said Gene Barr, PA Chamber vice president of government and public affair. "With the recession impacting the bottom lines of so many companies, the last thing we should be doing is delaying again the elimination of this major deterrent to business livelihood and growth. We have to make sure job creators come out of the economic downturn positioned for recovery."

Barr said job creators across the nation rely on predictability within the tax structure, including tax phase-out schedules, in creating business plans. A postponement of the scheduled CSFT phase-out would be a tax increase for businesses that plan and budget for expenses in Pennsylvania.

Additionally, the CSFT phase-out freeze, along with new accounting rules of recent years that require companies to re-state income and tax obligations, could have an adverse impact on the stock prices of some companies.

In his February budget address, the governor stated that he believed it was necessary to protect previous business tax cuts, and that was the reason he proposed to continue the phase-out of the Capital Stock and Franchise tax.

"…To raise these taxes at this time could cause a reduction in much-needed spending and business investment," he said.



Barr urged state lawmakers to heed the governor’s original words and maintain the scheduled CSFT phase-out.

"While the business community and the governor are in agreement that Pennsylvania’s uncertain economic situation requires attention, differences of opinion exist on the best approach to economic stimulus," he said.

"Job creators know best what is needed to operate and grow their businesses and create jobs for residents. This includes creating a business climate that enables them to thrive rather than creating one that places them at a competitive disadvantage. Postponing the Capital Stock and Franchise Tax phase-out and increasing the Personal Income Tax will inhibit Pennsylvania businesses’ ability to recover from this recession."

The business community has already weathered two slow downs toward the goal of complete elimination of this onerous tax. In June of 2002, the tax was increased by .75 mills from 6.49 to 7.24 and in December of 2003, it was increased by 1 mill.


The Pennsylvania Chamber of Business and Industry is the state’s largest broad-based business association, with its membership representing nearly 50 percent of the private workforce. More information is available on the PA Chamber’s website at