PA Senate passes bill allowing businesses a higher tax deduction on new equipment

By: Ioannis Pashakis
October 28, 2021 10:49 am

A bill that would allow Pennsylvania businesses to claim tax deductions of up to $1.05 million for the purchase of new equipment passed the state Senate in a 31 to 19 vote and is now headed to the House.

Senate Bill 349 calls for the removal of a limit on Pennsylvania S corporations, partnerships and individuals that limits the amount to $25,000 annually for new equipment, software and vehicles.

“The increase in the deduction found in Senate Bill 349 is not a tax credit, but simply allows a tax deduction earlier in the useful life of depreciable assets,” said Sen. Scott Hutchinson, R-Venango, chair of the Senate Finance Committee and the prime sponsor on the bill. “This overdue change is an incentive to encourage businesses to buy equipment and to invest, which promotes job growth in Pennsylvania.”

The legislation brings Pennsylvania small businesses in line with the state’s C corporations, which could already use the deductions as part of section 179 of the Internal Revenue Code of 1986. Pennsylvania’s personal income tax laws had limited other businesses to that $25,000 deduction, said Hutchinson.

If passed by the house, the bill will provide a boost to the state’s small and independent businesses following 18 months of uncertainty and restrictions during the pandemic, said Greg Moreland, state director of the National Federation of Independent Businesses Pennsylvania.

“This legislation mimics parts of the federal Tax Cuts and Jobs Act, which allows full expensing up to $1,050,000 for the purchase of new equipment, but at the state tax level,” said Moreland. “Prior to the pandemic we saw how federal tax code changes helped drive business growth around the country, and if SB 349 becomes state law, small businesses will be better positioned to invest, grow, hire, and drive Pennsylvania’s economic recovery.”

The legislation is part of a three-bill Small Business Reform Package that includes Senate Bills 347, 348 and 349.

SB 347, introduced by Sen. John DiSanto, R-Dauphin and Perry, would allow for tax-deferral when property is exchanged for similar property, a long-standing federal provision available in every state in some form except for Pennsylvania, DiSanto wrote in a memorandum for the bill.

SB 348, introduced by Sen. Judy Ward, R- Blair, Cumberland, Franklin, Fulton, Huntingdon,  would allow small businesses to use the Net Operating Loss deduction.

Both bills have yet to be passed in the Senate.

“The passage of SB 349 is the first step in helping advance a small business tax package to help employers recover from the COVID-19 pandemic and mandated shutdowns by bringing Pennsylvania tax law in-line with federal tax deduction law,” said Senate Majority Leader Kim Ward, R-Westmoreland.