CLIENT UPDATE
Published for the Clients and Friends of Zegarelli Associates Professional Corporation


NEW PA TAX LAW
ONLY CHANGE IS CONSTANT

On June 16, 1994, the Commonwealth of Pennsylvania enacted a new tax law that is likely to have a significant impact upon your business—especially if you operate as a C corporation. Following are the primary aspects of the law that you need to know:

Corporate Taxes

Net Operating Loss Deduction. The once-repealed net operating loss (NOL) deduction has been revived and will be phased-in over the next few years, as follows:

Year of Loss Carryover Year(s)
1988 1989, 1990 and 1995
1989 1990, 1995 and 1996
1990–1993 1995, 1996 and 1997
1994 1995
1995 1996 and 1997
1996 and thereafter Three concurrent years
The maximum NOL deduction in any one year is $500,000.

Note that the changes are significant, but they stop short of repairing all of the damage caused by the prior repeal of NOL deductions. For example, if a corporation sustained a loss in 1991 and showed a profit in 1992, 1993 or 1994, then the only recourse is to carry the loss to 1995, 1996 and 1997, which may not best suit the particular corporate circumstances. Also, the case of Surgical Laser Technologies v. Commw. of Pennsylvania is pending, in which the original repeal of the NOL deduction is being challenged. If your corporation was affected by the repeal, Zegarelli Associates can file a protective petition on your behalf to preserve your ability to file for a refund.

Rates. Corporate Net Income Tax rates (formerly 12.25%) are scheduled to be reduced over the next several years, as follows:

Year Rate
1994 11.99%
1995 10.99%

Year Rate
1996 10.75%
1997 and thereafter 9.99%

Capital Stock Tax. The formula for computing the Capital Stock Tax has been advantageously changed to exclude $75,000, rather than the previous $50,000 in asset value.

Business Trusts. Pursuant to the former law, PA business trusts were exempt from all PA tax and only actual distributions to beneficiaries were subject to personal income tax. Now, business trusts which are taxed as a corporation for federal purposes, are also taxed as corporations for PA purposes.

Inheritance Tax. Prior to the new law, a 6% inheritance tax was imposed on assets passing to a surviving spouse which, prior to death, were not jointly held. The tax is now phased-out as follows:

Date of Death Rate
on or after 7/1/94 3%
on or after 1/1/96 2%
on or after 1/1/97 1%
on or after 1/1/98 eliminated

Sales Tax. Effective July, 1, 1994 and April 1, 1995, respectively, sales from magazines and interior office building cleaning services are exempt from PA Sales and Use Tax.

NEW PA CONTRACTOR
PAYMENT ACT

April 18, 1994, is a day that many contractors and subcontractors will remember. In short, on that date, the Contractor and Subcontractor Payment Act became effective and will have a significant impact upon construction contracts. The basics are as follows:

•The Act applies only to real property. It does not apply to the work of Owners, or to improvements to six or fewer residential units constructed simultaneously.

• The Act requires the disclosure by the Contractor of the payment dates between the Owner and the Contractor, and unless otherwise disclosed, must be paid in the same manner as retainage.

• The Act requires that subcontractors be paid for retainage as follows: 1) if the Owner is holding retainage, then the Contractor must pay the Subcontractor within 14 days of the receipt of the retainage from the Owner; 2) if the Owner is not holding retaining, then the Contractor must pay the Subcontractor within 30 days after final acceptance by the Owner. Owners must pay retainage to Contractors within 30 days of final acceptance of the work.

• The Act grants penalties, interest and attorneys' fees relating to enforcement for violations of the Act.

Please contact the firm if you have any questions about how the Act may apply to your business circumstances.

PLAIN MEANING LAW

Recall that, in a prior issue of Client Update, Zegarelli Associates addressed the issue of the recently-passed "Plain Language Consumer Contract Act."

In short, the law provides for visual and linguistic contract standards, and also provides for review by the Attorney General for prior contract approval. This law has wide-sweeping implications for many businesses represented by Zegarelli Associates. As a result of the new law, the firm is suggesting that our clients contact us, as soon as possible, with regard to having us review and revise their standard agreements.

TRADEMARK SEARCHES

One of the most interesting services that we offer is the ability to perform preliminary computerized trademark research in the office—generally for less than $50 per search. Because we have the technological ability to perform this research in the office, we can often save you hundreds of dollars. Before you use a new business, product or service name, have us perform this research. You not only save considerably on our in-house search costs, but the search results could save you thousands—if not hundreds of thousands—of dollars later.

KUDOS

We say it to our clients all too often: pick your team, develop your team, rely on your team, and thank your team. We are, of course, pleased to be part of your team, and we take this opportunity to make the following special acknowledgements:

Lisa M. Davis, a summa cum laude graduate of the Sawyer School of Business and JTPA Achievement Award recipient, was promoted from Legal Assistant to Legal Coordinator on July 1, 1993. As Legal Coordinator, Lisa has primary legal assistant duties, top authority for management of legal assistants, and case and client management. Sherri L. Weber, a summa cum laude graduate of the ICM School of Business, accepted a position as Legal Assistant, effective June 1, 1994, following her externship with the firm, which she began in January, 1994. Sherri provides the traditional legal assistant services such as legal research and case assistance.

We thank Lisa and Sherri for their invaluable contributions to the success of the firm and its clients.

Future Issues of Client Update

Future issues of the Client Update are expected to have summary articles on Raising Capital and Franchising. Call us with your ideas for future articles.

As always, please call us if you have any questions or if we can be of assistance to you in any way.

Articles and information are for general information only, and often address issues, without expressly indicating, in generalizations. Laws vary between and among jurisdictions.  You should not rely upon any information provided by or on the website, including articles, as applicable to your particular situation. The law, filing fees, etc., change often, so the information in this document may not be current. The laws of various jurisdictions may be different than provided here.  Please contact us at info@zegarelli.com if you are interested in becoming our client--only then would this office be in the position to provide advise with regard to your particular situation.  It is important for you to review Terms of Use.

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