A product of thePennsylvania Chamber Foundation

Pennsylvania lags other states in business tax policy

Published on November 4, 2014

taxesThe mix, in both type and rate, of taxes a state chooses to employ has been associated with economic growth. Further, within states, many functions and their associated taxes may be shifted between state and local government “layers.” This makes it difficult to accurately estimate the impact of taxes on statewide economic performance, as tax rates may vary between regions within the same state as well as between states, but we have selected six tax metrics that have a high degree of similarity between states and encompass a large proportion of most state revenue collections. We include in the “Taxes” category the following six measures: highest marginal corporate income tax rate, highest marginal individual income tax rate, local tax collections per capita, sales tax rate, gasoline tax rate, and property taxes as a percent of home value. Taken together, these taxes provide a view of the major revenue devices employed in most states.

Most notably, Pennsylvania continues to have one of the highest corporate income tax rates, with a rate of 9.99% (compared to the median of 6.63%) and a ranking of 49th among the states. On the bright side, the commonwealth’s individual income tax rate, at 3.07% compared to the median rate of 5.75%, is among the top 10 states, with a ranking of 8th. Local tax collections per capita and sales tax rate are ranked in the middle, at 29th for local tax collections per capita and 26th for the sales tax rate. It should be noted that Pennsylvania’s sales tax rate of 6%, which is near the national median of 5.98%, includes exemptions for most food and clothing, which is not true of all the other states. The state gasoline tax rate is higher than the median, ranking 46th with a tax of 41.8 cents in 2014, compared to a median of 26.75 cents. Pennsylvania’s property taxes as a percent of home value are higher than those in most states, with a rate of 1.49% in Pennsylvania, compared to a median of 1.05%, and a ranking of 38th.