Pennsylvania Corporate Tax: Everything You Need to Know
Pennsylvania corporate tax, also known as the CNI tax, applies to both foreign and domestic corporations that operates in the state of Pennsylvania.3 min read
2. Understanding Your Corporate Tax Account ID
3. Understanding the Different Types of Pennsylvania Businesses
4. Multi-State Businesses
Pennsylvania corporate tax, also known as the CNI tax, applies to both foreign and domestic corporations that:
- Do business in the state.
- Own property or capital in the state.
- Carrying on business activities in the state.
The CNI tax also applies to foreign corporations that use a flow-through entity to work in Pennsylvania. This includes:
- Business trusts.
- Limited liability companies.
- Any other entity that does not pay federal taxes and is classified as a corporation.
Overall, Pennsylvania charges a CNI tax rate of 9.99 percent, which is one of the highest corporate tax rates in the United States.
Companies That Are Exempt From Pennsylvania Corporate Tax
Certain corporations are exempt from the Pennsylvania corporate tax. These include:
- Business trusts classified as real estate investment trusts, regulated investment companies, or qualified real estate investment trust subsidiaries.
- Any entities that are federally exempt according to Internal Revenue Code section 501.
- Corporations that have to pay the insurance premiums tax, title insurance companies shares tax, bank shares tax, or mutual thrift institutions tax.
Understanding Your Corporate Tax Account ID
Currently, Pennsylvania is transitioning to an integrated tax system, meaning all eligible taxpayers should receive a 10-digit revenue ID that will be used to track tax payments. Previously, all corporations had a seven-digit PA tax account ID. This number will still be valid until you receive your new 10-digit account number, at which point you'll have to start using the new ID. As soon as you receive your new number, the state will use it on all outbound correspondences.
Not sure if you've been assigned a new corporate tax account ID or not? Check correspondences sent to you by the Bureau of Corporation Taxes. You'll see a number in the upper right corner of the letter called the "Revenue ID." If you don't have any correspondences handy, you can also call the PA Department of Revenue, Tax Registration Office at 717-787-3653.
Understanding the Different Types of Pennsylvania Businesses
Still not sure if the Pennsylvania CNI tax applies to you? Understanding the different forms of Pennsylvania businesses should help.
All corporations operating in Pennsylvania are subject to the CNI tax as well as the capital stock tax.
An S corporation in Pennsylvania is a specific type of corporation that's created by filing a special form with the IRS. An S corp is different from a traditional corporation in that it isn't subject to a separate federal income tax. Instead, all taxable income generated by the S corporation is passed through to individual shareholders. This means that each shareholder must pay taxes on his or her earnings from the company. This is why S corporations are often called pass-through entities.
In Pennsylvania, the state recognizes the federal S corporation election, meaning that it doesn't force S corps to pay the CNI tax. However, the members of the company will still have to pay taxes on their earnings when filing their individual taxes.
Limited Liability Companies
A limited liability company, better known as an LLC, is also a pass-through entity. Because of this, it doesn't have to pay income tax to the state of Pennsylvania or the federal government. Of course, members still need to pay taxes on their share of the LLC's profits.
Most LLCs are classified as partnerships as default. However, if you wish, you can classify you LLC as a corporation. This would mean that your LLC would have to pay CNI tax.
In a partnership, each partner will receive a share of the company's profits. Instead of paying the CNI tax, each member of the partnership will have to pay taxes on the money on their federal and state tax returns.
Because there is only one member in a sole proprietorship (you), all of the income from your business goes straight to you. Therefore, you'll have to pay taxes to the state on that income.
Does your business operate in several states? This is called "nexus," and could mean you need to pay the Pennsylvania CNI tax, even if your business was formed in or is located in another state. Understanding the exact rules for multi-state businesses is tricky, so you should consider hiring a tax professional to make sure you get it right.
If you need help with Pennsylvania corporate tax, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.