TAX ALERT

On behalf of Kaplin Stewart Meloff Reiter & Stein, P.C. posted in Estate Tax on Feb 4, 2016.

Say Goodbye to the Pennsylvania Capital Stock and Foreign Franchise Tax

Governor Tom Wolf recently confirmed that as of January 1, 2016, Pennsylvania’s Capital Stock and Foreign Franchise tax (the “CST“) has been phased out. There have been several last minute resurrections of the CST, but it looks to have finally met its slow and painful end.

These taxes were imposed on corporations, limited liability companies (LLCs), business trusts, and other companies doing business within Pennsylvania. Domestic corporations were subject to the Capital Stock Tax, while foreign corporations were subject to the Foreign Franchise Tax on capital stock apportioned to Pennsylvania. These taxes were imposed in addition to any applicable taxes on net income.

The Pennsylvania Department of Revenue has also noted that the elimination of the CST means that many business types, such as S corporations, LLCs taxed as pass-through entities, and business trusts will be filing their final corporation tax returns for 2015. These returns should be marked as “final returns”.

As a result of the elimination of the CST, it is likely most real estate investments will be acquired in LLCs rather than Limited Partnerships. Historically, Limited Partnerships were the entity of choice for real estate because they were not subject to the CST. LLCs are considered a more efficient entity because, unlike limited partnerships, LLCs do not require the creation of a second entity to act as the general partner.

For more information, please contact Maury B. Reiter, Esquire at (610) 941-2476 or mreiter@kaplaw.com.