Sep. 23--The York County Chamber of Commerce and its member businesses say they're hoping state legislators back off a proposal to increase a "nuisance" business tax as part of a tentative state budget agreement.

The York area business community is among others statewide to oppose the capital stock and franchise tax, which was supposed to be phased out by 2011.

But faced with revenue problems, legislators proposed a budget that calls for increasing the tax rate from 1.89 percent to 2.89 percent.

The proposal also halts the previously legislated process of phasing out the tax, which has been the subject of ire from the business community for at least the past decade, said CPA Art Full, a shareholder with SF & Co. CPAs and Business Advisors.

Full said nearly every corporation is subject to the tax, but there are some exclusions for manufacturers. It's based on the equity of the company and a five-year earnings history, he said.

"This is a weird little tax to try to explain to everybody," he said. "It's so convoluted, I can't really explain how the state determines it."

It's possible that a company could actually be losing money during the current tax year, but pay the tax based on profit made a few years ago, he said.

"Because of the way it's calculated, companies might be having a hard time now, but over the past five years had profits," he said. "Paying taxes and not having profits, it doesn't go hand in hand."

Chamber position: Robert Jensenius,

executive vice president at the Chamber, said about 30 percent of its 500-plus member businesses pay the tax, which runs an average of $1,000 per year per business.

It's bad for the state's competition in the business community, because businesses in most other states don't have the tax, he said.

He also said the tax is confusing.

"It's a misunderstood tax that doesn't apply to everyone," he said. "It's not equally applied to all businesses, just those who fall within the criteria."

Adding to the frustration is the "back and forth" between phasing out the tax and then deciding not to, Jensenius said. The first time legislators canceled the phase-out, Mark Schweiker was governor, he said.

So while legislators are still discussing details of the final 2009 budget, the Chamber is pushing for the phase-out to continue, he said.

Legislators: At least one York County legislator agrees with the Chamber.

Stan Saylor, R-Windsor Township, said he won't vote for the current budget or any other proposal that increases taxes on business.

The companies have already paid their taxes based on the 1.89 percent rate for the first seven months of the year, so they'll get a surprise tax bill at the end of the year, he said.

The tax will have a "devastating effect" on small businesses, which could have to cut jobs or raise employees' health insurance co-pays to afford the extra 1 percent, he said.

"I already have people in my district who have lost jobs this year," he said. "I'm not going to be the one to push that button to say, 'Yes, they're going to lose their job.' Companies will go out of business because of it."

But Eugene DePasquale, D-York City, said the increase in the Capital Stock and Franchise Tax is one way of avoiding deeper program cuts that could harm the future of the state.

The tax has already been reduced by more than half over the past six years, he said, and the phase-out will resume in two years.

"At the end of the day, we have dropped $3.5 billion in revenue, and we're already spending about $400 million less than the previous year," he said. "We have some tough choices to make ... and this is one that we can do that will not significantly harm the future of the state."

--Reach Christina Kauffman at 505-5436 or ckauffman@yorkdispatch.com.

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