Published for the
Clients and Friends of Zegarelli Associates Professional
NEW PA TAX LAW
ONLY CHANGE IS
On June 16, 1994, the Commonwealth of Pennsylvania
enacted a new tax law that is likely to have a significant impact
upon your businessespecially if you operate as a C
corporation. Following are the primary aspects of the law that
you need to know:
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 The once-repealed net operating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
19901993 1995, 1996 and 1997
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
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
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.
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
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
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.
One of the most interesting services that we offer is
the ability to perform preliminary computerized trademark
research in the officegenerally 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
thousandsif not hundreds of thousandsof dollars
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
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
Contact us today! Our firm can assist
you with understanding and applying the law to your particular situation.
Represent the Entrepreneurial Spirit®.
If you would like to obtain our other firm publications, please go
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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 firstname.lastname@example.org
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.
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