Legislation has been passed that makes changes to the corporate net income tax apportionment formula, increases the net operating loss (“NOL”) cap, and amends the research and development (“R&D”) credit that may be taken against corporate net income, personal income, and capital stock/franchise taxes.

Beginning with taxable years after 2006, a 70% sales factor, 15% property factor, and 15% payroll factor will be used to apportion business income for the PA corporate net income tax. The current formula is 60/20/20.

Also for taxable years beginning after 2006, the NOL cap will be $3,000,000 or 12.5% of taxable income, whichever is greater. Currently, the cap is $2,000,000.

R&D credits awarded after June 30, 2006 will be extended to 2015 for corporate net income, personal income, and capital stock/franchise taxes. The credit was due to expire this year. The cap on the total amount of R&D credits has been increased to $40 million, up from $30 million, in any fiscal year.

Also applicable for credits awarded after June 30, 2006, small businesses are allowed an R&D credit equal to 20% of the excess of their total PA qualified R&D expense for the taxable year over their PA base amount.

If you would like additional information on this topic or have any questions, please contact the taxdesk@thesaltgroup.com