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Legislative Update

Week Ending April 28, 2006

• Week in Review
• Political News & Notes
• PICPA Challenges UC Decision
• House Democrats Offer Modest Tax Cuts
• Senate Confirms PICPA Member to Accountancy Board
• A Vote on Property Tax Relief Nearing?
• House Approved Film Production Grant Proposal
• Eastern Pa. Working Together Conference Scheduled

Week in Review

Legislative leaders and Gov. Rendell met on Tuesday in an effort to arrive at an agreement of some form on property tax relief. The governor said that he agreed with a plan to extend additional relief to seniors whose property tax bills are more than 10 percent of their income. Rendell also said that he would support a sales tax increase but admitted there were insufficient votes for that plan.

Two bills amending the state's eminent domain laws were sent this week to Gov. Ed Rendell for his signature or veto. House Bill 2054 and Senate Bill 881 are in response to the U. S. Supreme Court 2005 decision that allowed a Connecticut municipality to seize a person's personal property and award it to private developers in the name of economic development.

Political News & Notes

Rendell Leads Swann. In a new Morning Call/Muhlenberg College poll, Democrat Gov. Ed Rendell holds a slight lead over his Republican rival, Lynn Swann, in the state's gubernatorial match-up. Rendell has 45 percent to Swann's 39 percent, with 16 percent undecided. In March, Rendell was in a virtual dead heat with Swann, leading him 46 percent to 43 percent, with 11 percent undecided.

PICPA Challenges UC Decision 

Through the efforts of state Sen. Pat Browne, CPA, Rep. John Maher, CPA, and others, the PICPA is challenging a recent unemployment compensation tax policy position that will adversely affect hundreds-if not thousands--of small businesses in this Commonwealth.  

In its Spring 2006 newsletter, UC Issues Update, the state Department of Labor and Industry's Office of Unemployment Compensation Tax Services (UCTS) announced a major shift in policy regarding the imposition of unemployment taxes on members of limited liability companies (LLC) and restricted professional companies (RPC) filing as a single member (sole proprietorship) or as a partnership.

According to the UCTS, all remuneration received by the members of an LLC and RPC for services performed would now be considered covered wages under the reporting provision of the PA UC Law, unless the employer establishes an exemption under the law. This new interpretation of the UC policy will cost small businesses thousands of dollars each year.

The PICPA is asking for clarification of the basis of the change in policy. A legislative solution may be necessary.

House Democrats Offer Modest Tax Cuts

On April 26, House Democratic leaders unveiled legislation that is designed to promote job creation by aiding employers in high-growth sectors while leveling the playing field for small businesses competing with out-of-state corporations.

The tax cuts include expansion of the Net Operating Loss deduction cap to $3 million from $2 million; acceleration of the scheduled Capital Stock and Franchise Tax phase-out by 1/10 mill beyond what is already prescribed in statute to 4.89 mills; increasing the research and development tax credit to $40 million from $30 million; and, gradually shifting the weighting of the Corporate Net Income tax away from property and payroll and toward sales. This change also will reward employers that locate or expand production in the state.

In addition to changes already in statute, the overall cost to the Commonwealth, and savings to state businesses, for these proposed tax changes in FY 2006-2007 is $45.7 million. The breakdown is as follows: NOL cap expansion, $7.3 million; CSFT accelerated phase-out, $18.3 million; R&D tax credit increase, $10 million; single-sales factor shift, $10.1 million.

Absent from the plan is the combined reporting proposal that was recommended by Gov. Rendell's Business Tax Reform Commission.

Senate Confirms PICPA Member to Accountancy Board

On Tuesday, April 25, the state Senate unanimously confirmed PICPA member Lynette Horrell, CPA, to a four-year term on the State Board of Accountancy.

Ms. Horrell, of Pittsburgh, is a partner of Ernst & Young's technology, communications and entertainment assurance practice. Her responsibilities include educating personnel and overseeing implementation of all E&Y's Pittsburgh office clients on section 404 of the Sarbanes Oxley Act. A graduate of Indiana University of Pennsylvania, Ms. Horrell is also an advisory board member to Carlow College.

A Vote on Property Tax Relief Nearing?

Once again, the House-Senate Conference Committee attempting to produce a property tax relief proposal failed to reach a consensus this week, although talks are expected to continue through the weekend. The conference committee held two public meetings and one private dialogue with Gov. Ed Rendell. 

Although this week did not produce a compromise plan, Senate Majority Leader David Brightbill announced at the final committee hearing held on Wednesday, April 26, that the six members had a deadline of Monday, May 1, to piece together a proposal that could be presented to the General Assembly. Sen. Brightbill indicated that Monday's vote would offer the public an opportunity to see where each legislator stands on the issue of property tax relief.

Despite the lack of overall consensus, the committee, through discussions both among its six members and with members of their separate caucuses, has come to agree on several aspects of the plan: slot revenue would be used to boost property tax relief; voters would have the choice of reducing their school property taxes in exchange for higher local income taxes; they could choose to pay their property tax in installments, or in one lump sum; rebates for low-income seniors would increase, and their eligibility income limit would double to $30,000; and taxpayers would also have the option in the future to veto attempts to raise property taxes exceeding an inflationary index.

Once the final report has been presented and successfully passed through the committee - requiring two favorable votes each from the House and Senate members  - the proposal would move on to the separate chambers for their consideration and final vote. If passed by the General Assembly, the legislation would then move to the governor's desk, where he will either sign it into law or ask that the legislators return to the drawing board for another attempt at compromise.

House Approves Film Production Grant Proposal

Legislation to provide a more effective tool to lure Hollywood and other outside filmmakers to Pennsylvania passed the state House on Wednesday, April 26. If enacted, House Bill 983 would create an annual $10 million Film Production Grant Program to be administered by the Department of Community and Economic Development (DCED) and the Pennsylvania Film Bureau.

In order to qualify to receive a grant for reimbursement of up to 20 percent of all production expenses incurred in Pennsylvania, individual filmmakers would be required to submit an application notice to the DCED. Upon acceptance, the filmmaker would enter into a binding contract with the DCED. If for any reason the filmmaker violates the provisions contained in the contract they would be required to refund the Commonwealth the full amount of the grant amount awarded, plus a penalty of 10 percent.

House Bill 983 now moves on to the Senate for consideration.

Eastern Pa. Working Together Conference Scheduled

A Working Together Conference for eastern Pennsylvania is scheduled for Wednesday, May 24, 2006, at Philadelphia University. The Working Together Conference is a joint effort of Pennsylvania's practitioner organizations, the IRS and the Pennsylvania Department of Revenue to provide a forum for discussion of topical issues in tax administration. Representatives from the IRS Taxpayer Advocate Office will be available throughout the day for consultation and to assist in case resolution. For more information, visit the Working Together Web site.