Pennsylvania Income / Franchise Tax: New law changes NOL limitation, increases sales factor weighting, and extends franchise tax phase-out

H.B. 1531 , signed by gov. 10/9/09. Effective immediately, new law that applies to taxable years beginning after December 31, 2008, limits the net operating loss deduction for state corporate income tax purposes to the greater of 15% (previously 12.5%) of taxable income or $3 million. For taxable years beginning after December 31, 2009, this net operating loss deduction is limited to the greater of 20% of taxable income or $3 million.

For taxable years beginning after December 31, 2008, the weight of the sales factor for state corporate income tax purposes is increased to 83% (previously 70%), while the property and payroll factors are decreased to 8.5% (previously 15%) each. For taxable years beginning after December 31, 2009, the weight of the sales factor for state corporate income tax purposes is increased to 90%, while the property and payroll factors are decreased to 5% each.

Also, applicable to taxable years beginning after December 31, 2009, the new law increases the fixed formula deduction from the value of capital stock for state franchise tax purposes from $150,000 to $160,000. The law additionally extends the capital stock/franchise tax phase-out date from 2011 to 2014.