Lawmakers in Pennsylvania are showing off their business-friendly side with historic corporate net income tax rate reductions in legislation signed into law July 8, 2022.  

By Judy Vorndran

Lawmakers in Pennsylvania are showing off their business-friendly side with substantial corporate net income tax rate reductions in legislation signed into law July 8, 2022. As part of the state’s tax reform, House Bill 1342 moves the Commonwealth’s net income tax from a high of 9.99% to below 5% within nine years. Other changes implemented with H.B. 1342 include market-based sourcing for intangible income and economic nexus for entities subject to the corporate net income tax.

Corporate net income tax rate reduction

Pennsylvania’s current corporate net income tax rate is 9.99%, making it one of the highest in the country. Six states—Alaska, Illinois, Iowa, Minnesota, New Jersey, and Pennsylvania—levy top marginal corporate income tax rates of 9 percent or higher (Tax Foundation).

H.B. 1342 reduces that rate incrementally over a nine-year period to 4.99%. This would put Pennsylvania in a class of eleven states that, as of today, have top rates at or below 5%—Arizona, Colorado, Indiana, Kentucky, Mississippi, Missouri, North Carolina, North Dakota, Oklahoma, South Carolina, and Utah (Tax Foundation).

Pennsylvania’s corporate rate reductions will happen automatically according to a schedule and will occur independent of state revenues for the year. The first rate reduction occurs for the tax year 2023 drops the corporate net income tax rate from 9.99% to 8.99%. Further reductions are as follows.

  • 8.49% for tax year 2024
  • 7.99% for tax year 2025
  • 7.49% for tax year 2026
  • 6.99% for tax year 2027
  • 6.49% for tax year 2028
  • 5.99% for tax year 2029
  • 5.49% for tax year 2030
  • 4.99% for tax years 2031 and thereafter

Economic Nexus

H.B. 1342 codifies Corporation Tax Bulletin 2019-04 in which the Commonwealth tax authority announced that for tax years beginning on or after January 1, 2020, corporations meeting an economic nexus standard would be required to file corporate net income tax returns (unless protected under Public Law 86-272). Further, a corporation with $500,000+ in receipts sourced to Pennsylvania will have nexus with the Commonwealth without regard to physical presence in the state. Affiliated entities domiciled in a foreign nation that have entered into comprehensive income tax treaties with the United States are excepted in certain cases.


In 2023, Pennsylvania will repeal the costs of performance treatment applied to various sales, as follows:

  • Lease or license of intangible property. Gross receipts are sourced to Pennsylvania based on property use in the state.
  • Intangible property. Gross receipts from the sale of intangible property are sourced to Pennsylvania for property used or associated with the state.
  • Securities. Gross receipts of securities held by taxpayer for sale to customers in the course of business are sourced to customer location.
  • Credit card receivables. Gross receipts are sourced to cardholder billing address within the state.
  • Loans between unaffiliated entities or individuals. Loans secured by real property receipts are sourced to the location of that property. Loans secured by tangible personal property gross receipts are sourced to the state where the property is delivered or shipped to a purchaser. Use is deciding factor on sourcing related to transportation property, like an airplane. All other loans gross receipts are sourced to location of borrower.  

This is an abbreviated summary of the sourcing section. Please contact us for specifics.

Car Sharing

Pennsylvania will extend a car-sharing fee as of January 1, 2023, to peer-to-peer car sharing programs. H.B. 1342 requires car sharing marketplace facilitators to collect sales and use tax on shared vehicle rentals of up to $2 per day as well as vehicles rented as part of a peer-to-peer car sharing program. The Commonwealth’s 2% vehicle rental tax does not apply to a shared vehicle rented through a peer-to-peer car sharing program.

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