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Legislative Update

Week Ending January 6, 2006

• Week in Review
• Political News & Notes
• Hearing Focuses on Sales Tax Expansion Plan
• Business Tax Cuts Vetoed by Rendell  
• December Collections Up
• Municipal Police Pension Bill Signed into Law
• Recently Issued PIT Tax Bulletins
• 2005 DPW Single Audit Supplement Online
• PICPA State Tax Brochures Available
• IRS/Practitioner Liaison Group Meeting Update

Week in Review

The Senate Special Session Committee on Legislation convened this week for the first time in the New Year. Senate Bill 854, which contains the Scavello-Benninghoff property tax relief plan, was the focus of the hearing. Revenue Secretary Greg Fajt and other business organizations testified. A second hearing is likely later this month.

On Tuesday, Sen. Robert Jubelirer was once again elected by his colleagues for an unprecedented 21^st time to serve as President Pro-Tempore. Sen. Jubelirer is the longest serving Senate Pro-Tem in Pennsylvania history.

Political News & Notes

Swann Enters GOP Gubernatorial Race. Before a cheering crowd at the Senator John Heinz Pittsburgh Regional History Center Wednesday evening, Lynn Swann formally launched his campaign for the Republican nomination for governor. Swann joins state Sen. Jeff Piccola, former Lt. Gov. Bill Scranton, and James Panyard, former director of the Pennsylvania Manufacturers' Association, seeking the GOP nomination. After retiring from football in 1983, Swann stayed in Pennsylvania, and turned to sports casting as a career, joining ABC as a host, reporter and analyst.

Rendell Nominates Cynthia Baldwin to State Supreme Court . Cynthia Baldwin was nominated by Gov. Ed Rendell to the Pennsylvania Supreme Court. If confirmed by the state Senate, Judge Baldwin will replace Justice Russell Nigro. Baldwin, 60, chairs the board of trustees at Pennsylvania State University. Judge Baldwin is a past appointee to the Pennsylvania Commission on Crime and Delinquency and is a past member of the Pennsylvania Commission on Sentencing.

Retirement Announcements Piling Up. Just before the rush of the Holiday season, Democratic state Reps. Kevin Blaum (Luzerne) and Tom Corrigan (Bucks) announced plans to retire and not seek re-election in 2006. This week Republican state Reps. Ray Bunt (Mont.), Jackie Crahalla (Mont.), Elinor Taylor (Chester), and George Hasay (Luzerne) announced that they will not seek re-election in 2006. Look for more announcements as we move deeper into 2006. In the midst of all this retirement talk, a special election to fill the now vacant House seat of new Philadelphia Controller Alan Butkovitz will be Tuesday, March 14, 2006.

Hearing Focuses on Sales Tax Expansion Plan

The Senate Special Session Committee on Legislation held a public hearing Wednesday to hear testimony from the Department of Revenue and various stakeholder groups on Senate Bill 854, the Scavello-Benninghoff property tax relief plan approved by the state House last month.

Revenue Secretary Greg Fajt started the hearing with an analysis of Senate Bill 854. Fajt told senators that the Scavello-Benninghoff plan, which would expand the state sales and use tax base to products and services currently exempt, would raise about $2.1 billion for property tax relief-$1.4 billion from expanding the sales tax and $672 million from an increased personal income tax. However, Fajt said the plan would spend $2.5 billion on property tax relief in 2006-07, leaving a $400 million hole that would have to be filled with state general fund dollars.

Fajt was followed by a parade of interest groups most of which urged senators to oppose the House-passed plan. A second hearing is tentatively planned for later this month.

The Senate passed a competing property tax relief proposal in December that would require all but three of the state's school boards to hold referendums on whether to raise local income taxes to offset property tax cuts.

Members are urged to continue contacting their senator to express opposition to an expanded sales tax. Contact your PICPA Government Relations Team at GovernmentRelations@picpa.org if you have questions.

Business Tax Cuts Vetoed by Rendell  

Blackberries and Palm Pilots began frantically buzzing on the afternoon of Dec. 23 when word leaked out that Gov. Rendell had vetoed legislation proposing business tax changes. House Bill 515, which passed by the House and Senate with huge margins, would have changed the apportionment formula for calculating the Corporate Net Income Tax and increased the limit on the Net Operating Loss deduction.

In his veto message, Rendell said the legislation violated his "pay as you go" fiscal policy. The Governor said those who wanted him to sign House Bill 515 into law are more interested in their own pocketbooks and less interested in being financially responsible and taking care of critical human service needs.

December Collections Up

The Commonwealth's coffers grew in December by $2.1 billion as General Fund revenues were $78.5 million more than anticipated. Fiscal year-to-date General Fund collections total $10.9 billion, which is $170.5 million above estimate. Personal and corporate income taxes are ahead of estimates, while year-to-date sales tax receipts are behind estimate. Motor vehicle sales tax collections were $15.5 million below estimate for December, and are $41.5 million below estimate for the year.

In other budget news, the Senate Appropriations Committee released its budget hearing schedule this week for the 2006-2007 budget. Gov. Rendell will present his budget to a joint session of the General Assembly on Tuesday, Feb. 7, 2006.

Municipal Police Pension Bill Signed into Law

Legislation that boosts municipal police officers' pension plans by offering length of service increments was signed into law by Gov. Rendell. Act 89 of 2005 allows police officers working in townships and boroughs to negotiate with their employer for a pension increment benefit of up to $500 after 25 years of service. This applies to municipal police forces that have three or more full-time officers.

State law previously provided that municipal police departments may establish and pay length of service increments for each completed year of service in excess of 25 years, not to exceed $100 per month. The maximum amount of these length of service increments had not been increased since 1973.

Recently Issued PIT Tax Bulletins

The Department of Revenue has issued two PIT Tax Bulletins dealing directly with Deferred Compensation Plans. The newly released bulletins are:

PIT Tax Bulletin 2005-03 - Deferred Compensation Under Nonqualified Plans

PIT Tax Bulletin 2005-04 - Section 457 (b) Eligible Deferred Compensation Plans

If you have any questions regarding these Tax Bulletins, please call the Department at (717) 787-8201.

2005 DPW Single Audit Supplement Online

The revised Single Audit Supplement from the state Department of Public Welfare is now available on-line. Though originally designed for audits of county-based programs, it is also useful for audits of nonprofit organizations and for-profit entities. To be added to future DPW distributions, please call 717-787-8890.

PICPA State Tax Brochures Available

The PICPA Committee on State Taxation has developed two (2) new tax brochures-The Pennsylvania Inheritance Tax and the Pennsylvania State Tax Tips-just in time for tax season. The AICPA's Federal Tax Brochure is also available. All brochures are developed for the general public and are available free for public speaking engagements. Order your brochures today.

IRS/Practitioner Liaison Group Meeting Update

Several members of the PICPA Federal Taxation Committee attended the IRS Liaison Group meeting on November 9, 2005. The report "You Asked; We Listened" was distributed and is available to you. If you have an IRS issue that you believe may be a systemic problem or an issue that represents a significant taxpayer, tax practitioner or IRS burden, please visit "Ask IRS" on the PICPA's Web site.