One of the least favorite parts of being an entrepreneur is tax time. Along with federal taxes, each state has its own rules and regulations by which business owners must abide. These rules are flexible, and many new laws are added each year. While some tax laws tend to be more advantageous to the government, others are actually beneficial to the business owner. Pennsylvania’s tax laws are no exception.
In an effort to hasten the Commonwealth’s economic recovery, Pennsylvania and the City of Philadelphia have enacted several tax credits for businesses creating new jobs. Such incentives include the Job Creation Tax Credit and Jump Start Philly. The Philadelphia Department of Commerce states Jump Start Philly, “Exempts new businesses that create at least six jobs in the first two years of operations in Philadelphia from paying the Business Income and Receipts Tax during those first two years. Additionally, fees are waived for eligible new businesses for a variety of licenses and registrations. The application is wrapped into the Commercial Activity License application.”
As a small business, you are not likely to be incorporated, and the Net Profits Tax is a requirement for limited liability companies, sole proprietorships, partnerships and other businesses that are not incorporated. The City of Philadelphia website explains, “The Net Profits Tax (NPT) is imposed on the net profits from the operation of a trade, business, profession, enterprise, or other activity by Philadelphia residents, even if their business is conducted outside of Philadelphia and non-residents who conduct business in Philadelphia.” As a non-resident your tax rate will be higher, and this tax must be paid in addition to the Business Income Tax.
In Pennsylvania, many agencies operate as “home rule” governments, meaning that they are given more leeway to self-govern. As a result, some of these municipalities set their own tax codes, which may be different than those of the Commonwealth. A blog post by the Keystone Crossroads Network provides information on home rule governments, including the tax rules. “Perhaps the most common objection is that Pa. home rule municipalities aren’t bound by state-set tax limits. While this is an advantage to governments that want to increase revenue, this may not be appealing to citizens who don’t want to see their taxes go up.”
As an entrepreneur, it is your responsibility to ensure that your business is compliant with all tax codes. It may be advantageous to meet with a tax attorney or a CPA prior to tax time to get a clear understanding of rules that may be affecting your business.
This article was written Alaina Brandenburger for Small Business Pulse