Reed Proposal Closes Delaware Loophole

Member Group : News Releases

Representative Dave Reed
62nd District
Pennsylvania House of Representatives
Media Contact: Todd Brysiak
[email protected] /
July 1, 2013

Reed Proposal to Close the Delaware Loophole
Headed to Governor’s Desk

HARRISBURG – After years of discussion and debate, legislation to close the Delaware loophole is finally on its way to the governor’s desk. The plan, which was crafted by Rep. Dave Reed (R-Indiana), was approved in the state House by a vote of (119-83).

"For years, we have heard about the need to close the Delaware loophole and today we can finally say that we have reached that goal," Reed said. "This plan represents a fair and responsible approach to addressing the loophole, which is why it previously passed with such bipartisan support in both the House and Senate."

The Delaware loophole is a specific tax avoidance strategy which creates an unlevel playing field for businesses in Pennsylvania. Certain businesses shift certain assets to an affiliated company in Delaware, where they are not subject to tax. Under Reed’s plan, this type of tax avoidance will now be illegal.
Reed’s plan imposes an "expense add-back" provision, which responsibly targets businesses that use such tactics to avoid paying corporate taxes in Pennsylvania.

"Successful businesses are modeled on hard work, determination, and on sound business plans," said Reed. "They should not be based on who can best avoid paying the most taxes to the state."

Similar provisions to close the Delaware loophole have been debated for years, but with no conclusion or legislative solution. Reed’s proposal, unlike previous plans, takes a targeted approach to addressing the problem. The plan has garnered significant bipartisan support during the last two legislative sessions and passed the state House twice before today’s vote.

Reed’s tax reform plan was amended into House Bill 465 during the budget process. In addition to closing the Delaware Loophole, the legislation includes other reforms from Reed’s plan – House Bill 440 – that will support small businesses and promote future investments in Pennsylvania. Among these changes are increases in the state’s cap on net operating loss deductions and a new incentive for small start-up businesses.

"Job creation begins with providing a fair and competitive business climate," Reed said. "This legislation represents another important step toward making Pennsylvania a better home for our employers."

Reed offered additional thanks to former Democrat House member and current Auditor General Eugene DePasquale, who helped Reed author the plan last session when he was a member of the Legislature.

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