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Legislative Update

Week Ending January 27, 2006

• Week in Review
• Political News & Notes
• Property Tax Compromise?
• Fair Share Bill Advances
• Tax Software List Available
• House Approved Changes Tax Collector Law
• NJ Court Rules Against PA Business
• California Mandates Professional Service Fees
• CPA-PAC Gearing Up for 2006 Elections
• AICPA to IRS: Lift Ban on Rolling Average Cost Method
• Proposed Rules on Designated Roth Contributions
• Direct Deposit Refunds

Week in Review

Elements of a property tax relief compromise plan may be starting to take shape. House Democrats this week put forth a hybrid of proposals that they believe might be the best chance of being enacted into law. It includes provisions of a plan passed by the state Senate in December. Legislative leaders and Gov. Rendell are pushing to have property tax relief legislation signed into law by the end of February.

Several hundred protesters converged on the state Capitol Rotunda this week to ask the Senate Republican Leadership to keep its promise made late last year to bring a bill to raise the state minimum wage up for a vote this month. Opponents of the measure counter saying that such a measure would destroy small businesses, cost jobs and make Pennsylvania even more unfriendly to businesses.

Political News & Notes

Conti Says He Won't Run Again. Bucks County Republican state Sen. Joe Conti announced Monday he will not seek re-election this year. The 12-year senator, who started in politics in 1984 as a Doylestown Township supervisor, said little about what he would do next other than he will continue to lecture about government at the University of Pennsylvania's Fels Institute of Government. He's the third member of the Senate-all Republicans-to retire.

17, 18, & 19. Democratic State Reps. James Shaner (Fayette) and Gaynor Cawley (Lackawanna), and Republican Rep. Jerry Birmelin became the latest members-now 19-of the state House to announce that they will step down when the legislative session ends in November. Shaner is the first lawmaker who voted "no" on the pay raise bill to announce his plans to not seek re-election.

Scranton Fires Campaign Manager... Republican gubernatorial candidate Bill Scranton fired Jim Seif, his campaign manager, Wednesday after Seif referred to Scranton's opponent for the GOP nomination-Lynn Swann-as "the rich white guy in this campaign." Scranton released a statement apologizing to Swann, his family and supporters for the comments.

Philadelphia Heat... The U.S. Senate race pitting incumbent Rick Santorum against challenger state Treasurer Robert Casey is causing quite a stir in the Philadelphia labor movement. A group of unions, including the Philadelphia Building Trades, on Tuesday night threatened to bolt from the AFL-CIO because of the organization's endorsement of Casey over Santorum. Included in the group of dissenting unions were the Longshoremen, the Sprinklerfitters and Cement Masons. According to some, the disagreements verged on fisticuffs. Stay tuned, folks, this one could get very interesting!

Rendell Says No to Wal-Mart Idea. Gov. Ed Rendell says state-by-state effort to force Wal-Mart to enhance health care coverage for its employees is not the way to go. "I understand the passions behind the Wal-Mart bill, but it's not the right answer." The Maryland General Assembly recently passed a bill targeting Wal-Mart. The bill was ultimately enacted into law after the legislature overrode a gubernatorial veto.

Property Tax Compromise?

Elements of a property tax relief compromise plan may be starting to take shape. On Wednesday, House Democratic Leaders announced a property tax relief plan that could deliver up to $3 billion to Pennsylvania homeowners. The proposal borrows from other reform plans already considered by the legislature and uses a combination of revenue sources.  

The three-pronged plan would direct the anticipated $1 billion in slot gaming money to every school district for property tax reductions; allow voters in each school district to decide on the 2007 ballot on a local Earned Income Tax, with the proceeds in each district used to further reduce homeowner property taxes by up to $1.3 billion statewide, depending on how many districts choose to participate; and, provide a statewide 0.5% increase in the current sales tax rate with no changes to current exemptions on goods or services. 

On Tuesday, a spokesperson for the Senate Republicans said the caucus is "discussing various elements of the property tax issue." That discussion came only days after one of its leaders publicly said that a sales-tax hike was the only tax-shifting option left to provide state-funded property-tax reductions for local homeowners.

House Majority Leader Sam Smith (R-Punxsutawney) said this week that if the Senate was really interested in the sales-tax hike, the House would negotiate. Smith also told reporters that "the Senate has pretty well dismembered" a House proposal to raise funds for property-tax reductions by levying sales tax on various businesses. 

Gov. Rendell weighed in late Thursday afternoon saying he was a supporter of the House Democratic plan.

Fair Share Bill Advances

The House State Government Committee Tuesday approved legislation restoring the "Fair Share Act," a lawsuit abuse reform measure and a PICPA supported initiative. The bill now goes to the full House for consideration.

Senate Bill 435 eliminates the doctrine of joint and several liability and replaces it with proportionate liability in cases where a defendant is found to be less than 60% responsible. Under joint and several liability, anyone found even 1% liable in a civil suit can be held 100% financially responsible. A plaintiff may recover the full amount of an award from any defendant. The result is that litigants often go after people with "deep pockets," putting Pennsylvania at an economic disadvantage with other states.

The bill will bring Pennsylvania in line with 44 other states. A similar bill was passed and signed into law in 2002, but in July of last year the state Commonwealth Court ruled that the law violated the state's single subject requirement of the state's constitution.

Tax Software List Available

The Department of Revenue has compiled a list of approved and non-compliant third party forms software vendors. Also, as in the past few tax years, the PICPA Forms Subcommittee will trouble-shoot problems with forms during tax season. Simply send an email with your specific problem or question to the PICPA Government Relations Team at governmentrelations@picpa.org and we'll work with the Department to get an answer.

House Approves Changes Tax Collector Law

The state House approved legislation Monday that would clarify the Commonwealth's local tax collector law and help ensure the safety of tax collection records. The proposal will now go to the Senate for further consideration.

Under House Bill 1725, a tax collector would be required to maintain and have legal custody of tax collection records in his possession. The bill also states that the collector would not be considered an agency of the taxing jurisdiction for purposes of the Right-to-Know Law. In addition, former tax collectors would be required to transfer possession of tax records to the taxing district or its new tax collector.

NJ Court Rules Against PA Business

On January 5, 2006, the New Jersey Tax Court ruled that a Pennsylvania manufacturer of candy and related products was subject to the full measure of the New Jersey Corporation Business Tax because the activities of its delivery drivers in that state exceeded the mere solicitation standard of P.L. 86-272. The court found that certain activities, which were conducted by delivery drivers, made the company liable for the full measure of the CBT (as opposed to the minimum tax).

In its opinion, the Court also stated that the delivery of product in company-owned vehicles was also an activity that was not protected. However, the Court then went on to say that the Division of Taxation has publicly stated that mere delivery of product in a company-owned vehicle, by a company that is not a common carrier, is protected under P.L. 86-272 provided the activities in NJ are limited to "mere delivery." 

California Mandates Professional Service Fees

If you provide public accounting services to clients, even if you only do ONE return, check the following information from the California State Board of Accountancy. You may well be required to register with the California Board and pay a licensing fee.

Effective Jan. 1, 2006, temporary practice rights will only be granted through California's Practice Privilege Program. As a result of legislation, all licensees' temporary practice have been terminated as of Dec. 31, 2005, and individuals are not be able to hold practice rights in California unless he or she qualifies under the Practice Privilege Program. Licensees must submit a California Practice Privilege Notification Form as well as a $100 Practice Privilege Fee.

Further information regarding California's Practice Privilege, including the Practice Privilege Handbook and related forms, is available at www.dca.ca.gov/cba. Questions may be directed to the Practice Privilege Unit by email at pracprivinfo@cba.ca.gov or by telephone at (916) 561-1704. View current regulations and fees in other states on NASBA's Web site.

CPA-PAC Gearing Up for 2006 Elections  

There are well-over 200 state House and Senate seats up for grabs in 2006. The May primary takes on added importance this year as it will decide not only who will face Gov. Ed Rendell in the fall but who will vie for the large number of open seats-now totaling 22-in the General Assembly due to the retirement of numerous incumbent lawmakers. The face of state government could change dramatically in 2006.

Your contributions to CPA-PAC will help secure pro-business majority for Pennsylvania.

With the stakes so high, now more than ever, the business community needs to get involved in the process. By contributing to CPA-PAC, the political arm of the PICPA, you can help ensure a pro-business majority in the halls of state government.

Make your contribution to CPA-PAC online today!

AICPA to IRS: Lift Ban on Rolling Average Cost Method

The AICPA urged the IRS to lift its ban on the use of the rolling average cost method to calculate inventory cost in a comment letter in response to IRS Notice 2005-25's request for comments on the IRS and Treasury Priority Guidance Plan.

The AICPA said in its letter, "because rolling average cost also can approximate actual cost, the IRS and Treasury should reconsider Rev. Rul. 71-234 and Rev. Rul. 77-480 to allow the use of rolling average cost whenever it approximates actual cost consistent with the holdings of Rev. Rul. 2002-17 and Rev. Rul. 2006-14."

Proposed Rules on Designated Roth Contributions

The Treasury Department and the IRS have issued proposed regulations regarding designated Roth contributions. Roth contributions were added to the Code by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and are effective for taxable years beginning after December 31, 2005.

Designated Roth contributions allow for employees to designate all or a portion of their elective contributions under a section 401(k) plan of a section 403(b) annuity plan as Roth contributions. These contributions would receive tax treatment much like a Roth IRA contribution, meaning that they would be contributed from after-tax income but, later, "qualified distributions" of the contributions plus earnings would be completely tax-free.

Direct Deposit Refunds

According to the IRS, approximately 16,000 direct deposit refunds were inadvertently generated as paper checks. This problem most likely affects taxpayers that filed one of the following types of returns:  Form 1040 E Z, a single page Form 1040 A or a single page Form 1040. More than likely these taxpayers have a different address since they filed their 2004 tax return. A notice will be mailed to the taxpayer on February third that explains this error.