HARRISBURG -- The state Senate gave final approval last night to legislation that would make a small reduction in the personal income tax rate and provide some tax relief for businesses, but that Democratic Gov. Ed Rendell has vowed to veto.

The state House has already passed the bill, which would trim the income tax rate to 3.05 percent, down from the current 3.07 percent. The rate was raised to its present level on Jan. 1, 2004, up from the previous 2.8 percent. The Senate passed the legislation 35-13.

The tax cut would save someone earning $50,000 only $10 a year. But the bill was strongly supported by a coalition of 80 businesses because many small firms pay their state business taxes based on the personal income tax rate rather than the corporate net income tax rate of 9.99 percent.

The tax cut would also cost state government about $46 million a year, which is why Mr. Rendell opposes it. The Legislature didn't say how the lost revenue would be made up.

"A vote for this bill is essentially a vote for $46 million in cuts in state programs," said Rendell press secretary Kate Philips.

"Or else it will mean a dramatic increase in an alternate tax," she said. "You can't just vote for a tax cut because it feels good and sounds good to voters at home without putting together a responsible plan to implement it. This bill doesn't have that."

The bill would make two other changes favored by 80 businesses that have formed a coalition called Compete PA.

It would change the formula used for figuring the corporate net income for Pennsylvania firms. The new formula would base a company's taxes only on sales made within Pennsylvania, not on out-of-state sales or investments a firm makes in Pennsylvania.

It also would gradually lift the current limit on the amount of business losses a company could carry forward from one fiscal year to the next.

Currently, the losses that can be carried forward are capped at $2 million. That means a company can offset its profit in, say, 2005, by carrying forward up to $2 million in losses from 2004.

The bill says that by 2010, companies will be allowed to carry forward up to $10 million in losses to offset profits, and thus lower state taxes.

Business groups say Pennsylvania is one of the few states that limits loss carry-forwards. Rep. Mike Turzai, R-Bradford Woods, has led the move to lift that cap.

Sen. Jim Ferlo, D-Highland Park, complained that the Senate should be raising the state's minimum wage for lower-income workers, not giving tax cuts to businesses.

To which Sen. Jeffrey Piccola, R-Dauphin, replied, "This doesn't have anything to do with minimum wage. It's about tax cuts for job creators, for the people that create jobs that make it possible for everyday Pennsylvanians to go to work."

Despite Mr. Rendell's opposition to the tax-cut bill, many business-oriented groups, including the Allegheny Conference on Community Development in Pittsburgh, are still hoping he'll sign it.

The Allegheny Conference and other pro-business groups held a news conference here yesterday, saying that lower business taxes are needed to help Pennsylvania companies grow.

The new legislation "would benefit Pennsylvania's employers and job creation," said Kathryn Klaber, Allegheny Conference executive vice president.

She said the bill is supported by "a cohesive coalition representing diverse businesses, from manufacturers to biotech companies, large, established firms and high-growth new companies."

Barbara McNees, president of the Greater Pittsburgh Chamber of Commerce, said Mr. Rendell "has always described himself as a pro-business governor and said that enhancing the business climate is a top priority for his administration." She urged him to sign the bill.

To override a Rendell veto, two-thirds of members in both chambers would have to vote for the bill.

In another tax matter last night, the state House approved changes in a $52 a year tax now called the "community services tax." It used to be called the Emergency and Municipal Services Tax, and before that was called the Occupational Privilege Tax, and it used to be $10.

Under the House change, municipalities can collect it in several bites, rather than all at once. Some taxpayers had complained that taking the entire $52 out of their first paycheck of the year was too harsh.

The community services tax can be used only for limited purposes -- providing police, fire and emergency medical services, or road construction and maintenance, or cutting property taxes.

The bill now goes to the Senate.