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Legislative Update

Week Ending Nov. 10, 2006

• The Results are In ... Almost
• Gov. Vetoes EMS Correction Bill
• Rendell Signs Non-Profit Audit
• County Audit Bill Now Law
• Election Code Bill Signed Into Law
• Rendell Signs WC Bill
• National Guard Bill Vetoed
• New Top IRS Leadership Team Selected
• 2007 Inflation Adjustments Widen Tax Brackets, Expand Tax Benefits

The Results are In… Almost

The counts may not yet be completely final for the 2006 elections, but the voters of Pennsylvania have reached their verdict: they want change.

Following a turbulent run up to the elections, the only certainty in the minds of those watching the votes roll in Tuesday night was that there was no certainty in the outcome of any race. Polls had showed Gov. Ed Rendell and Bob Casey, Jr., with growing leads over their Republican competitors, but polls had failed to predict the outcome of the May primaries, and a number of voters had yet to decide upon their candidates.

Statewide races were a different matter, however, with many House and Senate seats in heated contention. Constituencies that had historically voted for a certain party were suddenly wavering, and in return, candidates who had once felt secure in their reelection bids felt the pressure to ramp up efforts to woo voters.

The final outcome? Pennsylvania will be sending four new Democrat members to the U.S. House of Representatives and elected its first Democratic U.S. Senator in forty years. Although some races are still being verified, it appears that the state House will no longer be dominated by the GOP, but be split down the middle, 102 to 101, with the Republicans retaining the majority. The state Senate is the only chamber that seemingly escaped unscathed, although its leadership is still largely in question following the Primary Election defeat of Senate Pro Tempore Robert Jubelirer and Majority Leader David “Chip” Brightbill.

Among the night's surprises was the early news that House Minority Whip Mike Veon (D-Beaver) had been defeated by Republican newcomer, Jim Marshall. Rep. Shawn Flaherty (D-Allegheny) was the second seat won by the GOP, compared to the nine confirmed seats picked up by Democrats. Rep. Tom Gannon (R-Delaware), who chairs the House Professional Licensure Committee, lost his reelection bid to Democrat Bryan Lentz.

Of note to PICPA members, CPA legislators Sen. Pat Browne (R-Lehigh) and Reps. Gordon Denlinger (R-Lancaster) and John Maher (R-Allegheny), have all retained their respective seats. One new CPA, Mike Peifer (R), will be joining the General Assembly, having run unopposed for the 139th House seat. Finally, in Montgomery County, PICPA member Monica Treichel, CPA, lost her bid to unseat Democrat Rep. Daylin Leach.

To see the unofficial election results, visit the Department of State's Web site.

Gov. Vetoes EMS Correction Bill

At the urging of the Department of Community and Economic Development and various local government groups, Gov. Rendell this week vetoed compromise legislation that made significant reforms to the Emergency Municipal Services Tax Act of 2004.

In his veto message to lawmakers on Senate Bill 157, the governor noted that “notwithstanding the improvements provided for in this bill, the timeline for implementation of these changes is simply not reasonable.” He went on to say, “I am also deeply concerned that due to the short window permitted for the passage of these local ordinances municipalities across the state will lose revenues already planned for in their annual budgets, which have already been adopted.”

Senate Bill 157 requires the tax, which would be renamed the “Local Services Tax,” to be withheld on a payroll-period basis with a maximum deduction of $1 per week, if levied at a combined rate exceeding $10 in a calendar year. If less than $10, the tax can be collected in one lump sum. Employers would be required to remit the LST collections on a quarterly basis.

The bill also specifically exempts those earning $12,000 or less per year from the tax, again, if the tax is levied at a combined rate exceeding $10 in a calendar year.

Lawmakers could override the governor’s veto when they return to session starting next week. If not, the bill will have to be reintroduced in January.

Rendell Signs Non-Profit Audit Bill

The PA Solicitation of Funds for Charitable Purposes Act has been amended to increase the review and audit thresholds for all charitable organization. On Oct. 27, 2006, Gov. Rendell signed the bill into law which goes into effect Dec. 26, 2006.

House Bill 632 requires any organization that makes charitable solicitations and which receives more than $300,000 per year to be audited (increased from $125,000). It also requires every charitable organization which receives annual contributions between $100,000 and $300,000 to have either a review or an audit of their financial statements.

The bill also requires every charitable organization that receives annual contributions between $50,000 and $100,000 to have either a compilation, review, or audit of their financial statements. For charitable organizations which receive annual contributions of less than $50,000, the bill specifies that compilation, review or audit is optional.

County Audit Bill Now Law

Gov. Rendell signed into law a bill giving county auditors until July 1 to complete their annual audit of the county and submit financial reports to the Court of Common Pleas and the state Department of Community and Economic Development (DCED).

House Bill 2185 also prohibits any sign or sign structure primarily used to support or display a sign from being assessed as real property by a county for purposes of real property taxes or by a political subdivision or municipality located within the county authorized to assess real property for purposes of taxation, regardless of whether the sign or sign structure has become affixed to the real estate.

The bill becomes effective immediately, and the provision related to signs and sign structures applies retroactively to assessments used for purposes of real property taxes levied and collected for fiscal periods of political subdivisions beginning on or after Jan. 1, 2005.

Election Code Bill Signed Into Law

A bill making changes to the Pennsylvania Election Code was signed into law by the governor.

House Bill 469 gives voters who become ill, disabled or learns that he or she must travel on business on Election Day the opportunity to present an emergency application for an absentee ballot. It also provides procedures for a voter who requires help to vote and allows the elector to designate, in writing, the person who will render assistance.

The bill prohibits contributions to candidates and political committees from partnerships, limited partnerships or limited liability companies, if all, or part of the funds, are being provided by a corporate partner, limited partner or member.

Rendell Signs WC Bill

Workers' compensation reform legislation was signed into law by Gov. Rendell.

House Bill 2738 increases the minimum amount that an injured employee is entitled to receive for total disability or death to $100 per week. It requires workers' compensation judges (WCJs) to set forth trial schedules which include a mandatory mediation conference.

The bill adds a section to the Act, which would codify the Workers' Compensation Appeal Board, outlining its internal procedures and providing for a code of ethics for board members. The bill prohibits the Department of Labor and Industry from assigning more than seventy-five percent of petitions from a particular county to one WCJ. The bill prohibits counsel fees from exceeding 20 percent of the amount either awarded by the judge or agreed to by settlement.

The bill also creates an Uninsured Employers Guaranty Fund that provides for compensation to injured employees when their employer fails to maintain workers' compensation coverage. The fund is to be funded by assessments, reimbursements and interest income earned.

The bill becomes effective in 60 days, except the provisions relating to resolution hearings and the appeals board, which become effective immediately.

National Guard Bill Vetoed

Gov. Rendell vetoed House Bill 2282, a bill offering a tax benefit to National Guard members enabling them to exempt from their income active duty pay earned during the period of deployment for national or international emergencies.

“Unfortunately, the bill that provided this benefit for our National Guard members was hijacked as a vehicle to resolve litigation pending between internet hotel booking services and the City of Philadelphia,” Gov. Rendell wrote in his veto message. The governor also pointed to substantive drafting errors in HB 2282 as further reason for his veto.

New Top IRS Leadership Team Selected  

IRS Commissioner Mark Everson announced the appointment of Kevin Brown and Linda Stiff as the agency's two new deputy commissioners, effective Dec. 1.

Brown, currently the Commissioner of the IRS Small Business and Self-Employed (SB/SE) Division, will become Deputy Commissioner for Services and Enforcement, responsible for overseeing the agency’s four operating divisions, Criminal Investigation, and the Office of Professional Responsibility.

Stiff, currently the Deputy Commissioner, SB/SE, will become Deputy Commissioner for Operations Support, responsible for the agency’s human capital office, IT offices, the CFO, security, procurement and facilities.

Brown and Stiff replace outgoing Deputy Commissioner for Services and Enforcement Mark Matthews and Deputy Commissioner for Operations Support John Dalrymple, respectively.

Everson also announced that Kathy Petronchak, currently serving as his Chief of Staff, will replace Brown as Commissioner of SB/SE. Chief Human Capital Officer, Beverly Ortega Babers, will step in as the new Chief of Staff.

2007 Inflation Adjustments Widen Tax Brackets, Expand Tax Benefits

IRS announces the inflation-indexed tax items for tax year 2007. Personal exemptions and standard deductions will rise, tax brackets will widen and income limits for IRAs will increase in 2007. Revenue Procedure 2006-53 contains a complete rundown of inflation adjustments.