Pennsylvania lawmakers clash over closing ‘Delaware’ tax loophole

(WHTM) — A Pennsylvania Democrat proposed a bill to close a loophole that allowed big businesses to avoid paying state corporate taxes by establishing holding companies in Delaware.

The Delaware Loophole allows large corporations to use a tax strategy to avoid paying state corporate taxes by establishing holding companies in Delaware. Democrats are moving to close the loophole, saying it would generate hundreds of millions of dollars for Pennsylvania.

Republicans counter that it would only make Pennsylvania less business-friendly than it already is.

“73% of corporations active in our state pay no corporate taxes to the Commonwealth at all,” said State Rep. Elizabeth Fiedler (D-Philadelphia). “73%. They exploit loopholes to cheat Pennsylvania out of desperately needed tax dollars.”

Rep. Fiedler proposed House Bill 1610, which would close the Delaware Loophole. She says it’s a simple fix.

“If a national company sells 25% of its goods or services in Pennsylvania, it should pay PA taxes on that 25%,” said Rep. Fiedler.

The bill requires what’s called “combined reporting.”

“Combined reporting is double taxation,” Sen. Greg Rothman (R-Cumberland/Perry/Dauphin) responded. “It’s going to drive companies out of Pennsylvania, and it’s not fair.”

Combined reporting has been around since 2004. Pro-business groups hate it, as they argue that they don’t “pay their fair share.”

“If businesses weren’t paying their fair share, you’d have more businesses moving into Pennsylvania,” said Rep. Aaron Bernstein (R-Butler/Lawrence). “Instead, businesses have been challenged and have moved out of Pennsylvania because of our high tax structure, because of the complications with it. We need to make our tax structure more competitive. This bill does not do that.”

Democrats argue they’ve made pro-business tax code tweaks in recent years. Republicans say they’ve made tweaks to close the loophole. Twenty-eight states, including New York, New Jersey, and West Virginia, have combined reporting.

“Red states like Texas, Idaho, Kansas, Kentucky, and Utah. Blue states like Illinois, Michigan, Vermont, and Oregon,” said Rep. Mary Jo Daley (D-Montgomery County).

However, in Pennsylvania, red and blue are not combining to move it.

“Everybody wants the lowest possible taxes,” said Rep. Michael Schlossberg (D-Lehigh). “At the same time, we need to make the government operate.”

“I look at this as just another tax hike on businesses in Pennsylvania,” said Rep. Keith Greiner (R-Lancaster). “Incentivize and encourage people to come here.”

House Democrats have the numbers to pass the bill in the House, which they expect to do on Wednesday. Then it’s on to the Republican-controlled Senate, where the bill’s fate is much more uncertain.