July 15, 2013

By: Robert A. Cohen, CPA, ESQ

        The much anticipated expiration of the Pennsylvania Capital Stock /Franchise Tax has once again been extended by the passage of House Bill No. 465, which was signed into law by Governor Corbett on July 9, 2013.  The Pennsylvania Capital Stock/Franchise Tax was set to expire on December 31, 2013.  

The tax is assessed on the value of the capital of a PA or foreign (non PA) entity operating in Pennsylvania. The current 2013 tax rate is .89 mills.  Under the new law, entities subject to capital stock tax for the January 1 to December 31, 2014 year will pay at a rate of .67 mills, and for January 1 to December 31, 2015 at a rate of .45 mills.  Although the millage has decreased significantly since the introduction of the Capital Stock/Franchise Tax, business owners subject to this tax still need to weigh the benefit versus the cost of using a multi-entity structure to minimize the impact of the Capital Stock/Franchise Tax for the 2014 and 2015 tax years.

There are seven (7) types of entities which Pennsylvania classifies as being subject to the Capital Stock/Franchise Tax, including: 

           1. a corporation;
           2. a joint-stock association;
           3. a business trust;
           4. a limited liability company; 
           5. any entity that for federal estate tax purposes is classified as a corporation; 
           6. a captive REIT; and
           7. a captive QRS (business trust that is a qualified real estate investment trust subsidiary under IRC §856(i)).

Companies subject to the tax must (1) determine the total value of their capital stock, (2) determine its taxable assets, (3) determine the portion of its total capital stock value applicable to the tax, and (4) apply the applicable mill rate to its taxable capital stock value   .      

For More Information, Contact: Robert A. Cohen

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