National Elections
The Pennsylvania Republican/Democratic split remains the same in Congress: 12 Republicans and seven Democrats.  Three new faces will appear in the Pennsylvania delegation as Republican Michael Fitzpatrick won Republican Jim Greenwood’s seat, Democratic Senator Allyson Schwartz won election to Congress from the seat that had been held by Democrat Joe Hoeffel, and Republican State Senator Charlie Dent won election to Congress for the seat that has been held by the GOP's Pat Toomey. Senator Arlen Specter won a fifth term in the U.S. Senate.

Nationwide the Republicans increased their control the Senate by four bringing the total to 55 republicans, 44 democrats and 1 independent. The lead in the United States House of Representatives also increased by 4, bringing the total to 232 republicans, 202 democrats and 1 independent. 

Pennsylvania State Elections
In the state legislature, the Republicans picked up a seat in the state senate, bringing their majority to 30-20.  This breakdown will only remain for a short time as two seats controlled by Democrats and one controlled by a Republican will be up for special election. In the state house, the Republicans also picked up three seats previously held by democrats, while the democrats won two seats controlled previously by Republicans for a net gain of one house seat for the GOP, which now holds a 110-93 majority.

Statewide, the Republicans retained the Attorney General seat and the Democrats retained the Auditor General and State Treasurer seats.

Federal and Statewide Office Winners

U.S. Senate – Arlen Specter - R  5th term

Congressional Members from Pennsylvania
District 1 Robert A. Brady – D   5th term
District 2 Chaka Fattah – D  6th term
District 3 Phil S. English – R  6th term
District 4 Melissa A. Hart – R  3rd term
District 5 John E. Peterson – R  5th term
District 6 Jim Gerlach – R   2nd term
District 7 Curt Weldon – R  10th term
District 8 Michael G. Fitzpatrick – R 1st term
District 9 Bill Shuster – R   3rd term
District 10 Don Sherwood – R  4th term
District 11 Paul E. Kanjorski – D  11th term
District 12 John P. Murtha – D  17th term
District 13 Allyson Schwartz – D  1st term
District 14 Mike Doyle – D   6th term
District 15 Charles W. Dent – R  1st term
District 16 Joseph R. Pitts – R  5th term
District 17 Tim Holden – D  7th term
District 18 Timothy F. Murphy – R  2nd term
District 19 Todd R. Platts – R  3rd term

Attorney General – Tom Corbett – R
Auditor General – Jack Wagner – D
State Treasurer – Bob Casey Jr. – D

Recommends Cutting State’s Corporate Net Income Tax to 6.99 Percent

Pennsylvania Bio will closely review to assess the impact on the biosciences industry
 
A report released today by the Pennsylvania Business Tax Reform Commission recommends a 30 percent reduction in the state’s Corporate Net Income (CNI) Tax.  The new 6.99 percent rate would be lower than all of the Commonwealth’s surrounding states. 

The Commission’s final report also recommends uncapping the amount of future Net Operating Losses that can be claimed by businesses, changing the apportionment structure for the CNI Tax and reforming the appeals process within the state Department of Revenue.
 
Governor Edward G. Rendell created the 12-member Commission on March 4 to recommend changes to Pennsylvania’s business tax structure that would broaden the tax base, thereby allowing lower tax rates and making Pennsylvania more competitive with other states.  The Commission’s members were appointed by the Governor and by the leaders of the General Assembly’s four legislative caucuses.  They represent a broad cross-section of the state’s business community, including the Pennsylvania Chamber of Business and Industry, Pennsylvania Business Roundtable and Team PA.

In its final report, the Commission said Pennsylvania’s current CNI Tax rate is not competitive with other states.  Lowering the CNI Tax rate was the Commission’s primary goal.
“The Commonwealth’s nominal tax rate of 9.99 percent, the third highest in the nation, discourages both new economic development and the retention of existing Pennsylvania businesses,” the Commission’s final report said.

Reducing the CNI Tax rate to 6.99 percent would make Pennsylvania’s rate lower than all of its surrounding states and move the Commonwealth’s rate to 26th highest among the states.
The Commission also recommends:

• Eliminating the existing $2 million annual cap on Net Operating Losses, which it said discourages economic development and is at odds with other state policy and funding initiatives that encourage technology-based and biotech company start-ups. 
• Changing the weighting of the sales factor of the CNI Tax apportionment formula from the present 60 percent to 100 percent, which the Commission said would encourage employers to locate or expand in Pennsylvania.
• Shifting to market-based sourcing in the CNI Tax apportionment formula for the sale of services, which the Commission said would encourage growth in service-related industries.
• Continuing the phase-out of the Capital Stock and Franchise Tax on its current schedule, or accelerate the phase-out if possible.
• Reforming Pennsylvania’s tax appeals process and related administrative procedures, which the Commission said are inefficient and confusing to businesses and detrimental to Pennsylvania’s business climate.
 
To keep its recommendations revenue neutral, as required in the Governor’s Executive Order, the Commission recommends that Pennsylvania shift to a mandatory unitary combined reporting system, which would require members of a unitary group of businesses to combine their income and expenses for tax purposes. The Commission said Pennsylvania’s existing separate company reporting uses a narrow tax base and allows tax-planning opportunities such as the use of passive investment companies, sometimes called Delaware holding companies, to shift income outside the Commonwealth.

The Commission said mandatory unitary combined reporting would better measure the net income of affiliated corporations generated within a taxing jurisdiction by broadening the tax base to make it less susceptible to manipulation.
 
The Commission also recommends a new tax on “pass through” businesses.  Profits of such businesses are currently taxed at the 3.07 percent Personal Income Tax rate, rather than the 9.99 percent CNI Tax rate paid by ordinary corporations. The Commission said the 6.92 percentage-point gap is the largest of any state, and recommended that it be narrowed as part of its tax reform proposal.

The Commission’s recommendations would have a net cost to the General Fund of $49 million.  The Commission said the relatively small expense would allow a more competitive CNI Tax rate and help offset the impact of combined reporting and the new tax on pass through businesses. 
The Commission stressed that its final report is a unified proposal, and should be considered as such.

“The Commission endorses the tax recommendations contained in this plan as a package,” the final report says. “It does not endorse any of the recommendations individually except the recommendations on improvements to the tax appeals process.”

The Commission’s final report contains detailed summaries of testimony at its 14 meetings, discussions of other options considered and comments by members.  The report can be viewed or downloaded by visiting the Commission’s web site at www.businesstaxreform.state.pa.us.

The Commission was chaired by Revenue Secretary Gregory C. Fajt. Also serving on the Commission were:

• Ron Bloom, Special Assistant to the President of the United Steelworkers of America.
• Joseph C. Bright, a partner in the Tax Practice Group at Wolf, Block, Schorr and Solis-Cohen LLP.
• R. Michael Cortez, Vice President and General Counsel for Sheetz Inc.
• Joseph Cottonaro, Director of Taxes at Hershey Foods.
• Denise L. Devine, Founder and Chief Executive of Nutripharm Inc. and its wholly owned operating subsidiary, Devine Foods Inc.
• Dean M. Glick, Tax Manager for High Industries Inc.
• Joseph C. Guyaux, President of PNC Financial Services Group.
• M. Christine Murphy, Chairman and Chief Executive Officer of S. Zitner Co.
• Leroy D. Nunery II, Vice President, Business Services, University of Pennsylvania.
• Thomas W. Wolf, Chairman and President, The Wolf Organization.
• Douglas Skowron, Director, Pittsburgh Gateways Corporation.