Banking advocates are eager and wary about a proposal to restructure their tax law in Pennsylvania. Governor Josh Shapiro included a plan in his budget address at the start of this month. While the proposal would simplify how banks are taxed, it might be more expensive for some financial institutions based on other proposed tax changes.

Between depositing checks or pulling money from an ATM, consumers can forget that banks are businesses; not just a place to store and exchange funds. Most businesses in Pennsylvania pay a corporate net income tax.

Banks? They have three different tax laws—each with a different tax rate.

“There's a lot of complexity into how banks are taxed or pay taxes to the state,” Kevin Shivers said, president of the Pennsylvania Association of Community Bankers.

Banks owned by private or public shareholders pay a .95% tax on the equity of their shares, called a Bank and Trust Company Shares Tax.

“It's almost like an asset tax or a property tax,” Shivers said.

Banks funded from the people who deposit there, called mutual thrift banks, pay an 11.5% tax rate on their profits through the Mutual Thrift Institutions Tax.

Those two taxes combined brought in around $400 million in revenue for the 2023/24 fiscal year.

Lastly, the Private Bank Tax was created in 1861 and was part of a group of miscellaneous taxes that brought in $20 million in revenue in 23/24 fiscal year.

Shapiro has proposed getting rid of all three taxes, and having banks pay the corporate net income tax like most businesses in the Commonwealth

“Eliminating that all together would speak volumes,” John Dill said, CEO of Marquette Savings Bank. “And allow us to have a broader and greater impact in the communities that we do serve.”

Marquette Savings Bank is one of 60 mutual thrift banks in Pennsylvania. Dill says when mutual thrifts make more profit, it sets them up to offer better finance options for community projects.

“We can take those dollars and spread them out to organizations, worthy organizations and non-profits in our communities,” Dill said.

While advocates are eager for simplicity, Shapiro also proposed changes to the corporate net income tax. Pennsylvania used to have the 2nd highest corporate tax rate in the nation at 9.99%. In 2022, elected officials agreed to reduce the tax rate to 4.99% by 2031.

In this year’s budget proposal, Shapiro wants to decrease the tax rate at a quicker pace, getting to 4.99% by 2029. Business advocates are ecstatic at the option.

Shapiro also proposed closing a tax loop hole, by requiring companies that operate in multiple states to report all of their profits in their taxes. Pennsylvania would then measure what of that profit came from Pennsylvania and tax accordingly.

The Shapiro administration estimates closing the loophole would impact around 11% of businesses in the state. Some larger banks, if the other bank taxes were eliminated and the banks now subject to the generic corporate net income tax laws, would be impacted by the closed loophole.

“Making that change could negate all of the benefit of reducing the tax rates,” Shivers said.

The governor’s budget office estimates that the tax rate cuts combined with closing the tax loopholes would increase state revenues next year by around $360 million. That would be while the corporate income tax rate is still at 7.24%. Once that tax rate reached the 4.99% rate goal in 2029, even with the close loopholes, businesses would pay less than what they pay now.