Key Legal and Regulatory Changes for Pennsylvania Businesses

1. Introduction of Annual Reporting Requirements

Beginning January 1, 2025, Pennsylvania’s Act 122 of 2022 replaces the decennial reporting requirement with an annual reporting mandate for most business entities. The goal is to ensure updated records for all active business entities in the state.

Who Is Affected?

Domestic and foreign business corporations, limited liability companies (LLCs), limited partnerships, business trusts, and nonprofit corporations must comply with this new requirement.

Filing Details

• Deadline: Reports are due annually by July 1, starting in 2025.

• Content: Businesses must include their name, jurisdiction of formation, registered office address, names of principal officers or partners, and a brief description of business activities.

• Method: Filings can be submitted online through the Pennsylvania Department of State portal or by mail.

Consequences of Non-Compliance

Failure to file could result in administrative dissolution or cancellation of an entity’s registration. However, administrative penalties will not be enforced until 2027.

Action Steps

• Update company records to ensure accurate reporting.

• Assign a responsible individual or team to manage annual filings.

• Set reminders to meet the filing deadline and avoid unnecessary penalties.

2. Changes in Tax Provisions

Recent changes to Pennsylvania’s tax structure will impact businesses significantly in 2025.

Corporate Net Income Tax (CNIT) Rate Reduction

The CNIT rate, reduced to 8.99% in 2024, will continue its gradual reduction until it reaches 4.99% by 2031. For 2025, the rate will be 8.49%.

Expanded Net Operating Loss (NOL) Deduction

The cap on NOL deductions increases by 10% annually, eventually reaching 80% of taxable income by 2028. This change offers businesses enhanced opportunities to offset taxable income against past losses.

Clarifications on Sales Tax Exemptions

The 2024-2025 budget provides guidance on sales tax exemptions for software and digital products, clarifying obligations for businesses in the tech sector.

Action Steps

• Consult with tax advisors to strategize around NOL deductions and reduced CNIT rates.

• Ensure accounting systems are updated to reflect tax rate changes.

• Review sales tax obligations, particularly if selling digital products.

3. Recognition of Grantor Trusts for Tax Purposes

Starting January 1, 2025, Pennsylvania will recognize irrevocable grantor trusts for state tax purposes. This change aligns with federal tax treatment, impacting businesses that use these trusts for estate planning or asset management.

Implications

Grantors will now report trust income on their personal tax returns, making accurate accounting and tax planning critical.

Action Steps

• Consult with estate planning professionals to assess the impact of this change.

• Update tax filings to include income from grantor trusts.

4. Changes to Tax Appeal Processes

Act 123 of 2024 introduces reforms to Pennsylvania’s tax appeal processes, effective January 27, 2025.

Key Changes

• Extended Appeal Period: The period to appeal tax assessments increases from 60 to 90 days, providing businesses more time to prepare appeals.

• Electronic Filing: Appeals can now be filed electronically, streamlining the process.

Action Steps

• Review recent tax assessments to determine if appeals are necessary.

• Prepare for electronic filing to expedite the process.

The legal and regulatory changes taking effect in 2025 reflect Pennsylvania’s commitment to modernizing business operations and tax structures. While these reforms present opportunities, they also impose new compliance obligations. Businesses that take proactive steps to address these changes will position themselves for success in the coming year.

Staying ahead of regulatory changes is crucial for your business’s success. Contact the experienced attorneys at The Ament Law Group to help you navigate Pennsylvania’s evolving legal landscape and ensure compliance with the latest requirements. Let us partner with you to secure a prosperous 2025!