How are Pennsylvania Businesses taxed?
If you’ve decided to start a new business in Pennsylvania then you’ll want to be aware of the important annual requirements, especially filing your business tax returns. The state has a privilege tax also known as a corporate net income tax along with several other types of small business taxes. The type of Pennsylvania business tax and the tax rates will vary according to the type of entity structure you’ve formed, and the business activity. You may also be required to file more than one type of tax. Let’s look at the various entities and their tax obligations in Pennsylvania.
Taxes for an LLC
If you’ve chosen to form a limited liability company in Pennsylvania then for taxation purposes, it will be considered a pass-through entity. A pass-through entity is not required to file any federal or corporate taxes. Since an LLC is a flow-through entity, the income will pass through to the owners and members. In such a situation, the members will have to file a personal income tax at the rate of 3.07 percent instead of filing a Pennsylvania corporate income tax.
A limited liability company may be required to file a privilege tax also known as the Corporate Net Income Tax (CNIT), at the rate of 8.99 percent. This tax is applicable for both domestic and foreign LLCs. Some of the other Pennsylvania LLC taxes that you may be required to file include the Sales & Use Tax, gross receipts tax from any type of business transactions that occurred within Pennsylvania, the Public Utility Realty Tax (PURTA), the Foreign Franchise Tax, and the employer Withholding tax. The above-mentioned taxes can be filed online using myPATH e-services or by applying via the mail.
Taxes for a C Corporation
If you choose to incorporate a Pennsylvania C corporation, your company will be subjected to the Corporate Net Income Tax (CNIT). This tax rate is a flat 8.99 percent. It’s also one of the most important Pennsylvania corporation taxes that’s applicable for both domestic and foreign corporations. As a CNIT taxpayer, your company may also be subjected to the gross receipts tax, corporate loans taxes, gross premiums taxes, and the surplus lines agent tax.
Another important Pennsylvania corporate income tax is the Capital Stock and Foreign Franchise Tax. The capital stock tax is applicable for corporations holding capital stock, while the foreign franchise tax is levied on foreign corporations or entities organized as corporations and operating within the state. Either form of tax is levied on the capital stock value of the said corporation. Apart from these, a C Corporation may be subjected to Sales & Use Taxes, Public Utility Realty Taxes (PURTA), and Employer Withholding taxes. You can file these taxes online using the myPATH e-services.
Taxes for an S Corporation
Whether you form a limited liability company or a C Corporation, you can always apply for S Corporation tax status in Pennsylvania. When a company has an S Corporation status, the tax liabilities also change. The most important Pennsylvania corporate income tax for an S-Corp is the Corporate Net Income Tax (CNIT). Pennsylvania S corporations are subject to the CNIT rate of 9.99 percent on their built-in gains. Since an S Corp is a flow-through entity, the shareholders will be subjected to a personal income tax at the rate of 3.07 percent.
If your S Corporation is involved in retail sales, rentals, or the use of tangible personal property including digital products, then your entity will be subjected to the sales and use tax. These types of Pennsylvania corporation taxes will also be levied on certain services at a rate of 6 percent. The rate for use tax is the same as it is for sales taxes, although there is an additional 1 or 2 percent local use tax if your company is based in Philadelphia or Allegheny County.
Taxes for a Sole Proprietorship
A sole proprietorship is one of the easiest businesses to form in the state of Pennsylvania. A sole proprietorship entity is owned and operated by a single owner, therefore the most important Pennsylvania business tax is the individual income tax return (Form PA-40). The tax rate for the Pennsylvania Personal Income Tax (PIT) is 3.07 percent against the taxable income of the sole proprietor. You can use a PA business tax calculator to determine the tax amount due. Apart from this, depending on the business activity, sole proprietors may also be required to file sales and use tax returns. If a sole proprietor is operating from Philadelphia or Allegheny County, certain city or local taxes like local use tax and Net Profits Tax (NPT) may also be applicable.
Taxes for Partnerships
Various forms of taxes are applicable in Pennsylvania when you form a partnership company. The foremost Pennsylvania business tax for a partnership firm is the corporate net income tax (CNIT). The tax rate is 3.07 percent and the process to file is the same as the process for an LLC or S Corporation. Each partner will also be required to file a Pennsylvania Personal Income Tax (PIT) at 3.07 percent. Apart from this, some of the taxes applicable would be similar to a sole proprietorship or LLC, like the Sales & Use Tax, Employer Withholding tax, and certain city or local taxes.