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Legislative Update

Week Ending March 17, 2006

• Week in Review
• Political News & Notes
• Joint & Several Liability Repeal Bill Goes to Governor
• DOR Updates PA-41 Detailed Instructions for 2005
• PICPA Meets With Revenue, Tax Forms Processors
• CPA License Renewal Now Online
• Property Tax Conference Committee at Full Strength
• Governor Formally Vetoes Voter Fraud Bill
• Supreme Court Hands State Setback
• Bill Exempting HSA Deposits from State Income Tax Approved by House
• IRS Gearing Up Delinquent Tax Collection Effort

Week in Review 

State House Republicans this week introduced their own 2006-07 budget bill, House Bill 2499, that differs from Gov. Rendell's proposal in that it reflects the current year spending plan. According to House GOP leaders, the Governor's proposed budget actually would cost $1-billion more than projected and, if enacted, would create a huge deficit that should surface shortly after the November election. The first budget vote may take place early April in the House. 

The state House approved legislation on Tuesday to apportion damages in civil actions proportional to the liability of defendants. The proposed law replaces an earlier one that had been tossed out by the Court on a technicality rather than on the basis of merit. The proposed law would eliminate the practice of plaintiff's lawyers' practices suing to recover huge damages from deep-pocket defendants, even if these defendants had only minor involvement in the matter. The bill now goes to the Governor.

Political News & Notes

Former Speaker of the House Dies. K. Leroy Irvis, the first African American to serve as Speaker of the Pennsylvania House of Representatives, died March 16 at the age of 86. Born and raised in New York, he adopted Pittsburgh as his hometown after graduating from the University of Pittsburgh Law School. The popular Democratic lawmaker was first elected to the state House in 1958 and served for more than three decades. 

Former State Senator Passes Away... Jeanette Reibman, longtime Democratic state Senator, died March 11 in Allentown at the age of 90. Sen. Reibman was the first woman elected to the Pennsylvania State Senate. She served in the state Senate from 1966 until 1994 after serving 10 years in the state House.

Special Election Result. Democrat John Sabatina ran away with the win in March 14 Special State House Election in Philadelphia to fill the seat vacated by the January resignation of Alan Butkovitz who is now Philly City Controller. The 35-year lawyer won with nearly 90 percent of the vote.

Senate Special Election Candidates Selected... Two weeks ago, Chester County Democrats selected County Commissioner Andrew Dinniman as the Party's candidate for the state Senate seat left vacant by the death of Republican Senator Bob Thompson. Last Saturday, Chester County Republicans selected County Commission Chairperson Carol Aichele to represent the GOP in the Special Election to be held in conjunction with the May 16th Primary Election.

Joint & Several Liability Repeal Bill Goes to Governor

Senate Bill 435, known as the Fair Share Act, was approved Tuesday evening in the state House without amendments by a vote of 118-81. It now goes to Gov. Rendell who has to take action on the bill by March 25. The PICPA is urging the Governor to sign the bill into law.

The legislation eliminates joint liability for defendants in civil cases found to be less than 60 percent liable, replacing it with a system of comparative responsibility in which a defendant is responsible for paying only his fair share of the damages. That means if a party is responsible for 10 percent of the fault, that party would be accountable for paying only 10 percent of the total award. Under current law, the doctrine of joint and several liability establishes that any defendant in a multidefendant civil case may be required to pay any or all damages associated with the actions of their co-defendants.

Senate Bill 435 would allow for joint and several liability under the following circumstances:

• Where the defendant is responsible for a majority of the damages.
• An intentional misrepresentation.
• An intentional act.
• Actions related to the release or threatened release of hazardous substance under the Hazardous Sites Cleanup Act.
• Those involving drunken drivers if an action is brought under Section 497 of the Liquor Code.

Legislation nearly identical to Senate Bill 435 was approved by the General Assembly in 2002 but was struck down by Commonwealth Court on the grounds that it violated the single subject requirement of the state constitution. The court's decision did not suggest there was anything wrong with the actual content of that law.

DOR Updates PA-41 Detailed Instructions for 2005

The PICPA has been advised that as a result of several questions received regarding when Schedules RK-1 and NRK-1 were required to be included with the PA-41 return as well as when to provide the same schedules to beneficiaries, the Department of Revenue recently updated the PA-41 Detailed Instructions for 2005.

These instructions can also be found on the Department's Web site. The updated instructions begin on the bottom of Page 25 and continue through the top of page 26, and include revisions for the PA Estate or Trust Schedule RK-1 and PA NRK-1. The instructions now incorporate when to include the Estate or Trust Schedule RK-1 and NRK-1 with the PA-41 return and when to provide the Estate or Trust Schedule RK-1 and NRK-1 to each beneficiary dependent upon the residency status of the beneficiary(ies). 

The exact amendatory language for the instructions is currently under consideration within Revenue. In essence, the changes will reflect that an RK-1 and an NRK-1 will need to be prepared for whole-year and part-year nonresident beneficiaries only. Only the RK-1 will need to be prepared for resident beneficiaries. The overall change in reporting requirement from prior years is necessary to address a compliance issue.

PICPA Meets With Revenue, Tax Forms Processors

Representatives of the Department of Revenue, the National Association of Computerized Tax Processors (NACTP), and the PICPA Committee on State Taxation's Forms Subcommittee, attended a meeting this week in Harrisburg to discuss the 2005 tax season and the tax forms approval process.

Time was spent discussing ways to improve the tax forms review process. The PICPA urged the Department to consider revising its internal process so forms are approved by Dec. 31 each year. In response, the Department noted that its hands are tied because of the legislature and often review cannot begin until the legislative process has been completed.

The PICPA also urged the NACTP to review what other states do in terms of reviewing forms and the feasibility of a Dec. 31 approval date. It was also recommended that the NACTP communicate with its members-particularly smaller practitioners-about the approval process and explain the limitation in a practical approval time.

The PICPA's Forms Subcommittee urges members to forward comments and concerns regarding major or recurring forms issues to the PICPA Government Relations Team.

CPA License Renewal Now Online

The State Board of Accountancy mailed license renewal information to licensees last week. If you have not received your renewal information, please contact the Board. The information is only sent to active licensees based on the address the Board has in its records - the information will not be forwarded if you have moved. The license renewal process is available on the PICPA Web site.

The Board is encouraging licensees to renew online, and the information mailed contains a personal registration code to access the renewal site. You also have the option to obtain a renewal application and renew via traditional mail. Renewal forms can be faxed or downloaded from the Board's Web site.

The software utilized by the state has been modified to accommodate the Board's requirement to report individual CPE hours. This modification may be difficult to navigate, particularly if you have many courses with varying types of credit, you may want to consider renewing offline.

The PICPA has addressed this issue with the Board, and all of your comments posted to the listserv have been forwarded to the Board staff and to the chairman of the Board. We are working with the Board to eliminate this issue going forward, and it is likely that for the next renewal period you will not be required to provide individual course information, which will alleviate the software issues. Individual course information will still be required upon audit.

Also, please note in your renewal package from the Board that your renewal license will expire on Dec. 31, 2007 to coincide with the next CPE renewal period. Your renewal at that time will also be contingent upon completion of your CPE and peer review requirements, if applicable. If you report in early January 2008, but completed all of your requirements on a timely basis-Dec. 31, 2007-your license to practice will have remained in good standing with the Board.

The Board has not yet updated their Web site to incorporate the new license expiration date. Instead, they have used the current renewal process as an opportunity to notify licensees. The PICPA will attend the April Board meeting and continue to monitor this process to ensure that the new information is provided to members.

Property Tax Conference Committee at Full Strength

The property tax relief saga continues. The Senate this week appointed its three members to the House-Senate Conference Committee on Special Session House Bill 39.

Momentum on the issue seems to have slackened in recent weeks, with other pieces of legislation waiting in line, a state budget to be negotiated, and more than 70 legislators thinking about their May 16 primary contests.

While many legislators are willing to vote for nearly any piece of legislation that will cut property taxes, no amount of pressure seems to forge a majority behind one bill.

A group of six lawmakers is supposed to negotiate a compromise bill between the House and Senate. A month after voting to create the conference committee, the conferees includes Senators David Brightbill, Edwin Erickson and Robert Mellow, and Representatives Lynn Herman, David Steil and Michael Veon.

Both chambers have approved plans that would use the gambling revenue, but differ on how to supplement it.

The Senate plan would use lottery revenue to expand a rebate program for low-income seniors, although some of the gambling money may have to be diverted for the rebates. The House has proposed raising state sales and personal income taxes to offset deeper reductions in real estate taxes.

In September, Rendell called a special session on property taxes after the failure of Act 72, the 2004 law that was supposed to use revenue from slot-machine gambling to help fund public schools and reduce local property taxes.

Governor Formally Vetoes Voter Fraud Bill

After weeks of threats, Gov. Ed Rendell formally vetoed House Bill 1318 on Wednesday, calling the bill unconstitutional and an unnecessary burden that would result in some Pennsylvania residents losing their right to vote.

Under House Bill 1318, every voter would be required to show some form of identification at every election such as a valid driver's license; a U.S. passport; a student, employee or government ID; a county voter registration card; a firearm permit; a current utility bill or current pay statement; or, a paycheck or government check. For those unable to obtain photo identification, the Pennsylvania Department of Transportation would be required to issue non-driver identification free-of-charge.

Supreme Court Hands State Setback

The state Supreme Court handed the Department of Labor and Industry a set-back in its attempt at characterizing limousine drivers as employees and imposing unemployment compensation taxes on their employers. The Feb. 28, 2006 decision, Danielle Viktor, LTD. v. Department of Labor and Industry, Bureau of Employer Tax Operations, affirmed a Commonwealth Court decision.

The latest decision held that the Department wrongly imposed its own interpretation of what constitutes an "independently established trade, occupation, profession or business" in contravention of the dictates of the statute and other judicial interpretations. The emphasis of the Department on the "proprietary" interest factor, as measured by ownership of assets or bearing some undefined share of the risk of loss, is not supported by the statute and impaired the Department's ability to assess the nature of the drivers' businesses, noted the Court.

Bill Exempting HSA Deposits from State Income Tax Approved by House

The state House approved legislation that would exempt deposits to Health Savings Accounts from state personal income tax. Health Savings Accounts (HSAs) were established as part of the Medicare Reform Act signed into law by President Bush in December of 2003.

House Bill 2125 would amend the state's Health Savings Account Act, which was enacted last July. That statute brought Pennsylvania into compliance with federal regulations regarding HSAs, and also exempted from state income tax any interest earned on money in HSAs, as well as disbursements from the accounts and reimbursements to the accounts

Any individual under the age of 65 who is covered by a high-deductible health insurance plan may opt to open a Health Savings Account. The annual deductible of the individual's health insurance plan must be at least $1,000 for an individual or $2,000 for a family. The maximum annual out-of-pocket expenses allowed are $5,000 for an individual or $10,000 for a family.

House Bill 2125 now goes to the Senate for consideration.

IRS Gearing Up Delinquent Tax Collection Effort

The IRS recently awarded contracts to three firms to participate in the first phase of its private debt collection initiative. The 2004 American Jobs Creation Act authorizes the IRS to hire private firms to collect federal tax debts. The IRS expects to assign uncollected liabilities to the firms beginning this summer.

Private firms will not be authorized to take enforcement actions such as liens, levies or seizures. In addition, private firms will not be authorized to work on technical issues such as offers in compromise, bankruptcies, hardship issues or litigation. Rather, the IRS will assign to the private firms cases in which the taxpayer has not disputed the liability. The private firms will contact taxpayers to make payment arrangements.

In the second phase of the private debt collection project, scheduled for 2008, the IRS intends to contract with up to 10 firms. Over the course of 10 years, the IRS expects the private firms to help it collect an additional $1.4 billion in outstanding taxes