Testimony of PICPA President William R. Lazor to the House Finance Committee on behalf of the PICPA

Thursday, November 13, 2003

Good morning Chairman Flick, Chairman Levdansky and members of the Committee. My name is Bill Lazor, and I am a CPA and partner with Kronick Kalada Berdy & Co., PC, located in Kingston, Pennsylvania and am currently president of the 19,000-member Pennsylvania Institute of Certified Public Accountants - the PICPA.

Kronick Kalada Berdy & Co. consists of eight partners and 40 staff that prepares approximately 1,800 tax returns in our office, with 1,300 of those being individual tax returns. We are a member of the SEC Practice Section of the American Institute of CPAs and are registered with the Public Company Accounting Oversight Board. The majority of our clients are small businesses owned by a few individuals or family members.

The PICPA is a professional association of CPAs working together to improve the profession and better serve the public interest. Founded in 1897, the PICPA is the second-oldest and fifth-largest state CPA organization in the United States. Our members come from public accounting, private industry, government, and education.

Before I begin my comments, I would like to applaud the General Assembly for its passage of House Bill 1700 last year, now Act 166 of 2002. This new law affects the definitions relating to wages and net profits contained within the Local Tax Enabling Act (Act 511 of 1965). The old law attempted to list the various items of taxable income, but the list was vague and contained many gray areas. This resulted in differing interpretations among taxing jurisdictions.

Act 166 removes the detailed listing of what was taxable, and inserts wording that states that net compensation and net profits-as determined by the Pennsylvania Department of Revenue-are taxable, with the exception of income that is not for services provided and which is in the nature of earnings from an investment. This is an excellent first step in streamlining local tax filing requirements.

I am here today to share some concerns the PICPA has with the proposed property tax reform bills currently under consideration. The PICPA is not here in support or opposition to any current legislative proposals. Our objective is only to offer information and to serve as a technical resource as you develop public policy.

The PICPA has three primary concerns with the various proposals under consideration: 1) Regarding the collection process, it is important to ensure that a more complicated tax filing system is not created; 2) Proper crediting provisions for taxes paid to other jurisdictions to avoid double taxation need to be put in place; and 3) Uniformity among taxing authorities needs to be established.

The current proposals that the PICPA has reviewed have the potential to create a local tax filing nightmare. If school districts are permitted to elect a personal income tax and the municipalities are not given this option, then the situation exists where the separation of the joint tax collection process could become necessary, therefore requiring taxpayers to file two local tax returns. In addition, the collection and remittance process becomes very complex due to the wide variety of tax rates on varying bases of taxable income such as earned income versus personal income.

The collection-at-source provisions currently in place under the Local Tax Enabling Act (Act 511) are not clearly defined. Problems exist with tax collectors refusing to accept non-resident withholdings or not accepting withholdings in excess of their rate. When you combine this with changes in the taxable income base and tax rates an even larger problem is created. We suggest that joint collection be mandated as well as tax collectors being required to collect and remit any withheld taxes.

Our second concern involves the crediting provisions found in the proposed legislation. The crediting provisions that are spelled out in the proposed legislation are confusing. Reference is made to the state laws in collecting a potential new personal income tax, yet the state laws do not contain sufficient provisions to deal with double taxation within the Commonwealth's borders. A provision is made within the legislation that would disallow credits for taxes paid on the same income to other states and their jurisdictions-credits that are currently permitted. Act 511 crediting provisions are referenced under the collections section. As a result there is some ambiguity that, when left up to an aggressive tax collector, could result in individual taxpayers being burdened with a very large tax increase. We suggest that the crediting provisions be more clearly defined within the legislation.

Our final concern, and one of the top legislative priorities for the PICPA, is the uniformity of our local tax collection processes. The PICPA is concerned that unless a more centralized collection process is mandated and local tax collectors are required to accept and remit the proper withholding taxes, an already inefficient system will become more so.

Act 166 is the first step in solving the problem, but it is not the end of the race. We have heard that some tax collectors do not intend to comply with the new law. Currently there are no penalty provisions in Act 511 to punish tax collectors that do not comply. We hope that any new legislation will address the need for uniformity and provide the Commonwealth with a clear system of local taxation that taxpayers can comply with easily and does not allow for tax collector abuse.

Many business people consider Pennsylvania's local government system frustrating and confusing because they must contend with a multitude of local government boundaries, rules, regulations, and taxes. Although local tax collection may not be perceived as a major impediment to economic development, it is an important issue. I know from personal experience that the system contributes to the perception that Pennsylvania is a difficult state in which to do business.

In conclusion, Pennsylvania's local tax system is fragmented, complex, and archaic. It must be fixed. A system that collects and distributes more than $1.5 billion annually in taxes cannot be allowed to function as inefficiently and as ineffectively as it has been. You are in the position to improve the local tax system and make Pennsylvania a state in which it is easy to do business. The PICPA and the 19,000 members we represent are prepared to assist you in this important endeavor.

Thank you, and I would be happy to answer any questions you may have.