Tuesday, July 13, 2010

A Primer on the CNI

For those, like me, who don't have a good grasp on the corporate net income tax (CNI), two recent articles provide a good overview.

"A taxing problem," by Mary Beth Schweigert on LancasterOnline 7/10, gives a detailed but understandable overview of what the tax is, who is applies to, what combined reporting is, and whether or not the Delaware Loophole actually exists. Here's an excerpt:

A company's state tax bill depends on how it is organized. Only C corporations, which may have an unlimited number of owners, are subject to the corporate income tax. All publicly traded companies are C corporations.

Owners of more closely held, often smaller, businesses, such as limited liability companies, partnerships and S corporations, pay the personal income tax rate of 3.07 percent on any profits.

Pennsylvania's corporate income tax rate is so high in part because so few companies actually pay the tax, said Stephanie Weyant, spokeswoman for the state Department of Revenue.

"Pennsylvania is missing out on revenue it should be collecting, and there's really not much the department can do about it," she said.

In 2005, the department's most recent figures, 71.3 percent — or nearly 95,000 — Pennsylvania C corporations paid no state income tax.

Weyant estimates that about 45 percent of those companies broke even or lost money, so they didn't owe any tax.

But an unknown number of others avoided the tax by shifting profits to passive investment companies in states with favorable tax laws, she said.

You should read the entire article to get a fuller understanding.

How does that apply to current politics? Our friends at Triad Strategies prepared a blog post "Corporate Taxes and Campaigns" that looks at the cni and how it applies to the governor's race this year.

Read those two and you will probably have enough understanding of the basic issues and a political view of them that you can sound like you know what you are talking about at political fundraisers and receptions. I have my notecards ready.

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