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1 Jared Walczak, How an Unexpected Revenue Ruling Penalizes Capital Investment in Pennsylvania, and How Lawmakers Can Fix It 1 (2018)

handle is hein.taxfoundation/hurcivpa0001 and id is 1 raw text is: FISCAL FACT No. 580 Mar. 2018 The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) nonprofit organization. @2018 Tax Foundation Distributed under Creative Commons CC-BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org How an Unexpected Revenue Ruling Penalizes Capital Investment in Pennsylvania, and How Lawmakers Can Fix It Jared Walczak Senior PolicyAnalyst Key Findings * In late December 2017, the Pennsylvania Department of Revenue issued a tax bulletin eliminating the ability of corporations to deduct the cost of capital investment until sale or disposal of an asset. This action created the least favorable treatment of investment in the nation. * The Department's determination is based on an interpretation of the interactions of existing state law with the new federal tax law's provision of full and immediate expensing of short-lived capital assets. However, this interpretation is at odds with the one the Department took in 2011, when the federal government briefly adopted the same full expensing policy. * Corporate income taxes are levied on net income, meaning that businesses are permitted to deduct most of their costs, including compensation and the cost of inventory, raw materials, and fuel. Generally, however, investments in machinery, equipment, land, and buildings must be deducted over time according to depreciation schedules. * Pennsylvania's treatment of capital investment has typically been less generous than federal law, but state lawmakers always intended a deduction to be available. * Pending legislation (House Bill 2017) would reverse the effects of the 2017 tax bulletin. * Failure to act would make the cost of investment in Pennsylvania uniquely high at precisely the time that other states are acting to claim their share of the additional domestic investment anticipated as a consequence of federal tax reform.

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