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Legislative Update

Week Ending January 13, 2006

• Week in Review
• Political News & Notes
• EMS Changes Stalled
• PICPA to Testify on Sales Tax Plan
• IRS Clarifies Schedule D Instructions
• Taxpayer Advocate Reports to Congress
• Filing Requirements for Small Employers Simplified

Week in Review

The Senate Special Session Committee on Legislation announced this week that it will convene a second public hearing on the Scavello-Benninghoff sales tax expansion-property tax relief plan, which is contained in Senate Bill 854. The PICPA is scheduled to testify at the hearing. Look for a complete recap in next week's Legislative Update.

Political News & Notes

Piccola Ends GOP Bid. Dauphin County state Sen. Jeff Piccola unexpectedly dropped out of the governor's race last weekend when it became clear he would not receive the central Pennsylvania GOP caucus' endorsement. Piccola was supposed to make his pitch to the caucus that covers central Pennsylvania-his home turf -and explain why the group should endorse him to run against Democratic Gov. Ed Rendell. Both Lynn Swann and Bill Scranton made their case with Swann winning the caucus' endorsement.

Outta Here!... Montgomery County Republican state Rep. John Fichter became the 12^th House member to announce that he will not seek re-election this year. Fichter was first elected in 1992. Several other lawmakers are rumored to be considering retirement.

Senate Leader to Have Primary Opponent. Republican Senate Majority Leader David "Chip" Brightbill will have to fend off his first challenge since 1994 in the form of former Lebanon City Councilman Mike Folmer, who says Brightbill has lost touch with his Republican roots. Sen. Brightbill is the second leader in the Senate to face a primary opponent. President Pro Tem Robert Jubelirer will have at least one and possibly two opponents in his primary.

EMS Changes Stalled

The House and Senate played legislative ping-pong before the holiday recess with a bill making changes to the $52 Emergency and Municipal Services Tax. Disagreements over minor technical amendments prevented the bill from reaching Gov. Rendell's desk.

Senate Bill 157, legislation amending the 2004 Emergency and Municipal Services Tax, was approved by the House Dec. 5 by a vote of 142 to 49. The following week the Senate amended the bill sending it back to the House for another go-around. The bill is currently pending in the House Rules Committee.

The bill, as presently written, changes the name of the tax to the Local Services Tax, and makes various technical changes to further provide for the withholding and collection of the tax. Another change clarifies that funds raised by the tax can be used for property tax relief in addition to the already established restricted uses. The bill further mandates an exemption for workers who earn less than $12,000 per calendar year from all sources.

The bill also provides for withholding of the $52 tax on a pro rata share per pay period, and includes provisions to ensure that no taxpayer shall be subject to the payment of the tax by more than one political subdivision during each payroll period.

PICPA to Testify on Sales Tax Plan 

The Senate Special Session Committee on Legislation announced this week that a second public hearing on the Scavello-Benninghoff property tax relief plan will be held Wed., Jan. 18, 2006. Committee Chairman Noah Wenger has requested the PICPA to testify. The message PICPA will offer senators is that a sales tax on services is bad economic policy.

The Committee held a hearing on Jan. 4 at which Revenue Sec. Greg Fajt and others gave testimony concerning the Scavello-Benninghoff plan, Senate Bill 854, which proposes to expand the sales and use tax base to fund residential school property tax reform. It is not yet known whether a third public hearing will be held.

IRS Clarifies Schedule D Instructions  

After receiving comments from the AICPA and tax practitioners about the burden imposed on tax practitioners, the IRS released a statement this week clarifying the Form 1040, Schedule D instructions involving capital gains transaction recordkeeping. The instructions literally state that tax practitioners must enter the specifics of each capital gain or loss transaction on a separate line of the form.

Taxpayer Advocate Reports to Congress

National Taxpayer Advocate Nina Olson released the National Taxpayer Advocate's 2005 Annual Report to Congress this week in which she urges Congress to enact fundamental tax simplification. The report spells out a series of core principles for simplifying the tax code. This year's number one Most Serious Problem is Trends in Taxpayer Service, with Criminal Investigation Refund Freezes the number two problem.

Filing Requirements for Small Employers Simplified

Beginning Jan. 1, 2006, certain employment tax filers will be able to file the new Form 944 (Employer's Annual Federal Tax Return) once a year rather than filing Form 941 (Employer's Quarterly Federal Tax Return) four times a year under temporary and proposed regulations released by the IRS. Eligible employers are those with estimated annual employment tax liability of $1,000 or less. The IRS will begin mailing notification letters between Feb. 1 and Feb. 15, 2006 to eligible small employers for calendar year 2006. The new Form 944 and instructions will be available on the IRS Web site by Jan. 31, 2006.