Professional Issues Tracker

Charitable Giving Bill

The issue

State Reps. Abigail Salisbury (D-Allegheny) and Keith Greiner, CPA (R-Lancaster), introduced legislation supported by the PICPA that would raise the monetary threshold that subjects charitable organizations to more extensive financial oversight, including mandatory audits. Under House Bill 1824, charitable organizations receiving annual contributions of $1 million or more (currently $750,000) would be required to have an audit. Those receiving contributions of less than $1 million would have different levels of review or compilation required on their financial statements to be performed by an independent CPA.

Our position

The PICPA believes this legislation will benefit many not-for-profit organizations while also relieving human capital pressures in the CPA community.

Status: House Bill 1824 is pending in the House State Government Committee. Memo.

Tax Appeal Reform

The issue

State Sen. Scott Hutchinson (R-Venango) and Rep. Tim Briggs (D-Montgomery) introduced Senate Bill 1051 and House Bill 1994, respectively, legislation backed by the PICPA that would streamline the process of resolving disputes with the Department of Revenue (DOR). The proposed legislation would permit the Board of Finance and Revenue (BF&R), which hears and resolves appeals of final decisions from the DOR that involve most types of tax disputes, to consider late-filed tax appeals from the DOR and create a settlement process for taxpayers as an alternative to the formal and lengthy court appeals process.

Our position

This legislation would empower BF&R to direct and oversee a formal settlement process for any tax appeal that would benefit from this procedure. This taxpayer-friendly solution also benefits Pennsylvania by resolving tax issues sooner, collecting tax liabilities quicker, and directing resources toward more complex cases.

Status: Senate Bill 1051 was approved by the Senate Finance Committee on March 20 and is currently in the Appropriations Committee. Memo.
House Bill 1994 is pending in the House Finance Committee. Memo

Corrective Legislation for Intangible Expense Addback Credit

The issue

Pennsylvania’s corporate net income tax (CNIT) law requires certain intangible expenses or costs to be added back when paid to an affiliate. When the affiliate is also subject to income tax (in Pennsylvania or elsewhere), a credit is currently allowed. This credit is calculated using the taxpayer’s CNIT apportionment and it has the potential to be applied in a manner that results in double taxation. This situation is exacerbated by the establishment of an economic nexus standard and a change to market-based sourcing of intangibles pursuant to Act 53 of 2022. Effective beginning with the 2023 tax year, these changes are expected to significantly increase the number of affiliates subject to CNIT.

Our position

The PICPA will support corrective legislation to replace the current inequitable credit mechanism with a simpler deduction that avoids unnecessary complexity and relieves double taxation. Legislation should be introduced to allow an affiliate that is subject to CNIT a deduction equivalent to the intangible expenses or costs added back under the current law.

Optional Entity-Level SALT Cap Workaround

The issue

The federal Tax Cuts and Jobs Act (TCJA) of 2017 imposes a $10,000 limitation on the deduction individual taxpayers may claim for state and local taxes paid for tax years 2018-2025 (SALT cap). This limitation presents challenges for taxpayers, particularly owners and shareholders of businesses structured as partnerships or S corporations. Income generated from the activities of these pass-through entities is currently taxed at the owner level at Pennsylvania’s 3.07% personal income tax rate.

Our position

The PICPA is urging state lawmakers to adopt legislation that provides a revenue-neutral elective pass-through entity tax (PTET) to allow tax to be paid at the entity level and facilitate the federal deductibility of state income taxes. In doing so, Pennsylvania will better align with those states that have already enacted similar legislation to provide their constituents with a path to an increased federal tax deduction. To date, 36 of the 41 states imposing a personal income tax have passed similar legislation. The PICPA supports Senate Bill 659 (Sen. Aument) and House Bill 1584 (Reps. Pisciottano/Greiner).

Status: Senate Bill 659 was approved by the Senate Finance Committee on March 20 and is currently in the Appropriations Committee. Memo.
House Bill 1584 is pending in the House Finance Committee. Memo.

Resident Partner Credit

The issue

Pennsylvania resident partners who are subject to a PTET in other jurisdictions may incur a double tax based on the denial of a Pennsylvania resident credit, even though the same amount of tax is being paid to the other states through the PTET as was paid directly by Pennsylvania residents. The Pennsylvania DOR has articulated its position that a Pennsylvania resident partner is not entitled to a credit against personal income tax for PTET paid to other states. This contrasts with the DOR’s position that a Pennsylvania resident S corporation shareholder is eligible for a similar personal income tax credit.

Our position

The PICPA supports Senate Bill 660 (Aument) and House Bill 1584 (Pisciottano/Greiner) as legislation that would allow the same credits for resident partners and S corporation shareholders, alleviating this potential for double taxation.

Status: Senate Bill 660 is pending in the Senate Finance Committee. Memo.
House Bill 1584 is pending in the House Finance Committee. Memo.

E-Filing Local Tax Reform

The issue

In the interest of simplifying local taxes from the standpoint of Pennsylvania's taxpayers and tax preparation practitioners, the PICPA is urging the state General Assembly to allow the electronic filing of local earned income tax returns. This will help modernize local tax filing while leveraging existing systems and processes to hold down costs and other impacts. Modernized e-File (MeF) is a federal program run by the IRS that allows taxpayers and professionals to electronically submit a tax return directly to the IRS and state tax authorities. Forms are converted to a digital layout that tax preparation programs transmit to the federal authority, which in turn transmits the state information directly to state tax authorities.

Our position

Currently, taxpayers can file electronically using the MeF system for their federal and state tax returns. The reforms would incorporate this same process for local earned income taxes.

Status: Representatives from the PICPA had a meeting with Rep. Bob Freeman, chairman of the local government committee in the House, on Dec. 20, 2023, followed by a call with members of the local government Commission in Harrisburg to discuss this issue. Our proposal was well received.