The Commonwealth is losing out on hundreds of millions of dollars in revenues because corporations with subsidiaries that operate in Pennsylvania continue to register them in Delaware to avoid paying Pennsylvania's corporate net income tax. That's according to a group of Democratic State Senators who are urging the Department of Revenue to aggressively audit the tax filings of Marcellus Shale drilling companies.
Senator Tina Tartaglione of Philadelphia is the prime sponsor of legislation that would require "combined reporting" for businesses in Pennsylvania and close the so-called "Delaware Loophole." 23 of the 45 states with a corporate income tax have already adopted a combined reporting standard.
Under combined reporting, the parent firm and its subsidiaries are viewed as 1 entity with their profits combined and then taxed by the state based on the level of business that entity conducts in the state compared to its business in other states.
Tartaglione says about 70% of companies doing business in Pennsylvania do not pay the corporate net income tax, and the number of businesses registered in Delaware over the past 20 years has soared from 6,000 to 115,000.
“The boom in natural gas drilling in Pennsylvania has been mirrored by a similar rise in the number Delaware subsidiaries registered by Marcellus Shale energy companies,” Tartaglione said. “All Pennsylvania taxpayers should question the reason for these
numerous affiliates and seek assurance that energy companies are paying
their share of state taxes.”
Tartaglione says that more than 500 Delaware business entities have been registered in the names of Marcellus Shale drilling companies in the past five years even though Delaware doesn’t have a single gas well.
Tartaglione and Senate Democratic leader Jay Costa of Allegheny County say if there is no severance tax on the drillers then the loophole on income tax should be closed.
The Democrats say several years ago, the revenue department estimated that $400
million in corporate taxes could be recouped by adopting a combined reporting standard.
Past legislative efforts to adopt the standard have failed.