Gov. Tom Wolf's budget proposal is giving Pennsylvania business owners and executives a lot to think about.
Wolf said in an interview Wednesday that his proposal to make Pennsylvania's scheme of taxation and school funding fairer will create winners and losers among businesses, in part depending on where they own property or how they pay income to the state.
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Wolf wants to increase state sales and income taxes while cutting corporate and school property taxes.
Most businesses are organized as S corporations — named for a subchapter of the federal Internal Revenue Code — and would be hurt by Wolf's proposal to raise the personal income tax from 3.07 percent to 3.7 percent.
"If you are a pass-through and you pay at the personal income tax level and I'm proposing to raise that, that would be true," Wolf said. "On the other hand, if your business is in a certain ZIP code, and your property taxes are going to go down substantially, you may actually have a net savings. And if you switch from an S-status to a C-status and it relieves you of paying earned income taxes at the county level, plus you get the property tax reduction, you may end up with lower taxes."
That means different businesses will be affected differently. It is complicated enough that some major business advocacy groups are trying to assemble a policy position more than a week after Wolf first proposed it, since it will have a different outcome for many of their member businesses.
Wolf also wants to raise taxes on the natural gas drilling industry, sales of tobacco products and financial institutions, and extend the state sales tax to more items that currently are exempt. Meanwhile, he wants to impose a new system of collecting the corporate net income tax, which could result in the state taxing billions of corporate profits that are theoretically being spirited out of Pennsylvania without being taxed.
Warren Hudak, whose suburban Harrisburg accounting firm has small business owners as clients, said Wolf's plan would cut taxes for Pennsylvania's largest corporations and the elderly while small business owners and working families would pay higher taxes.
"The winners are going to be large corporations and the guys who are going to be stuck with the bills are working families and small businesses," Hudak said.
Business owners would not get a property tax cut on their business property under Wolf's plan because the vast majority of those dollars would go to homeowners to reduce taxes on the home in which they live, Hudak said.
The Wolf administration said the proposal is designed to deliver tax cuts to homeowners whose incomes are below $100,000, while those who earn more would pay more.