If you’re thinking about starting a business in Pennsylvania, an important part of the financial side of your business plan is to evaluate the impact of taxes on your new business. Your lawyer and your accountant are key members of your business team that can help you evaluate what type of entity to form, how that entity should be taxed, and the taxes applicable to your business.
Part two of this series is a high level overview of the common taxes that you may be subject to depending on the way your business is organized. Part one discussed sales and use taxes and others that may apply based on the nature of the goods you sell or the services you provide.
This post is not intended to be a substitute for legal or tax advice from your lawyer or accountant – you should talk to them in order to obtain advice to address your specific situation. Need a lawyer or an accountant? We might be able to help you with that!
Business Corporations, S Corporations and LLCs
Corporate Net Income Tax is assessed for Pennsylvania entities that are taxed as a corporation for federal purposes, including corporations and LLCs that have elected to be taxed as a C or an S Corporation. The tax is imposed for the privilege of doing business, carrying on activities, having capital or property employed or used in Pennsylvania or owning property in Pennsylvania. LLCs that are taxed as pass-through entities (either as a disregarded entity or as a partnership) are not subject to Pennsylvania Corporate Net Income Tax.
Pennsylvania Corporate Net Income Tax is levied at the rate of 9.99% of federal taxable income, without the federal net operating loss deduction and special deductions, and as modified by certain additions and subtractions.
Up until December 31, 2015, LLCs and corporations were subject to Pennsylvania Capital Stock Tax or Foreign Franchise Tax. For more information, please see the heartfelt tribute we paid on the Lancaster Law Blog: Farewell, Pennsylvania Capital Stock Tax (1844-2016).
Sole Proprietorships and Partnerships
Individuals and partnerships that are not taxed as corporations are not subject to Corporate Net Income Tax. They are subject to Pennsylvania personal income tax on taxable income received.