One of the staple planning tools for real estate investors in Pennsylvania is the use of a limited partnership to own real estate. To retain the limited liability benefits that investors sought, these partnerships often featured a general partner that was a corporation or a limited liability company in its own right. Although this arrangement was more complicated and resulted administratively in more work than using a single entity, like a corporation or a limited liability company, this avenue was taken to avoid Pennsylvania’s “Capital Stock and Franchise Tax.” That tax applies to corporations and limited liability companies, but not to general partnerships and limited partnerships.
However, the Capital Stock tax has lost much of its bite in recent years and has been the subject of repeated (and now, we hope, final) efforts for phase-out and elimination.
The latest plan signed into law by Governor Corbett on July 9 of last year reduced the tax to .67 mills (67/100,000ths) for 2014 and .45 mills (45/100,000ths) for 2015. In addition to imposing these almost vanishingly small rates; the tax is scheduled to expire completely on December 31, 2015.
Unless matters change, the Capital Stock and Franchise Tax will finally become a thing of the past beginning in 2016. As one consequence, lawyers, landowners and real estate developers may now streamline the ownership of entities they use to hold and own real estate.
– Rod Fluck