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Legislative Update

Week Ending Feb. 2, 2007

• Senate Finance Committee Approves EMS Tax Reform Measure
• PICPA Responds to GASB Proposal
• House Standing Committee Members Finalized
• 2006 State Income Tax Deadline Is Extended To April 17
• Senate Acts on Emergency Responders Bill
• Taxpayer Protection Act Unveiled
• Mistakes Abound on Telephone-Tax Refund Requests
• Revenue Collections Up in January
• Rendell Unveils Energy Independence Strategy

Senate Finance Committee Approves EMS Tax Reform Measure

PICPA member Sen. Pat Browne's efforts to bring about significant reforms to the Emergency Municipal Services (EMS) Tax took a step forward with the Finance Committee's approval on Tuesday of Senate Bill 218.

Senate Bill 218, the first bill reported out of the Finance Committee since Browne took over as Chairman for the 2007-08 Legislative Session, would end the lump-sum maximum payment of $52 and set specific restrictions on how taxing entities may use revenues raised by the levy.

The bill is now headed to the Senate Appropriations Committee and could come before the full Senate for consideration as early as next week.

Sen. Browne's bill mirrors the language of last session’s Senate Bill 157, of which he was the prime sponsor. That measure was approved by the General Assembly, but vetoed by the Governor, who said the legislation did not provide adequate time for municipalities to prepare for the changes.

SB 218 would require that the tax, which would be renamed as the "Local Services Tax," be withheld on a payroll-period basis with a maximum deduction of $1 per week. Employers would be required to remit the LST collections on a quarterly basis. It also exempts those earning $12,000 or less per year from the tax.

The measure restricts the use of the revenue raised by the LST to only the following:

• Emergency services including police, fire and emergency medical services;
• Road construction and maintenance;
• Property tax reduction; and/or,
• Property tax relief through the use of homestead/farmstead exemption.

PICPA Responds to GASB Proposal

PICPA’s Committee on Local Government Auditing and Accounting developed and submitted this week extensive comments related to the GASB's project on fund balance reporting and governmental funding type definitions.

The Invitation to Comment (ITC) identifies and describes several issues according to the GASB that may significantly diminish the usefulness of fund balance information reported to users of governmental financial statements. 

In its comments to GASB, PICPA notes that all issues being raised in the ITC are legitimate and will improve financial statement reporting by making more consistent usage of fund types, allowing for better comparisons between governments. More concise definitions for fund balance categories will also lead to more consistency and eliminate the discrepancies that currently exist between governments.

House Standing Committee Members Finalized

While again a relatively quiet few session days at the Capitol for the House of Representatives, an essential task has been completed: members have finally received their standing committee assignments for the 2007-08 legislative session.

Standing committees – and their Majority and Minority Chairs, in particular – are responsible for deciding which bills will be taken into consideration after they have been introduced by individual members. Committee assignments are typically largely in place at the beginning of a session, but the radical changes the House faced following the November elections delayed the process.

The House Professional Licensure Committee is now under the direction of Majority Chairman Rep. Mike Sturla (D-Lancaster). Rep. Bill Adolph (R-Delaware) will serve as Minority Chairman.

As reported last week, the House Finance Committee will be chaired by Rep. Dave Levdansky (D-Allegheny). The Republican caucus has named Rep. Steve Nickol (R-York) as Minority Chair, with a handful of new members joining him as committee members, including newly-elected Rep. Mike Peifer, CPA (R-Wayne). PICPA looks forward to working with all of the Freshman Legislators, and has already begun reaching out to both sides of the aisle to discuss issues important to the CPA profession.

If you have an interest in joining us in introducing PICPA and our members to the incoming class of legislators, please consider becoming a Key Person Contact. For more information, please visit our Web site or call the Government Relations Team in their Harrisburg office at (717) 232-1821.

2006 State Income Tax Deadline Is Extended To April 17

Pennsylvanians have until Tuesday, April 17, 2007, to file their 2006 state income tax returns and pay any taxes due, Secretary of Revenue Greg Fajt announced this week.

Fajt said the extension will apply to other taxes. For a complete list of 2007 state tax due dates, please visit the Tax Due Date Calendar on the department's Web site.

Pennsylvania's one-day extension was prompted by a similar action taken by the IRS’s Jan. 24 announcement extending the federal income tax deadline to April 17 because April 15 falls on a Sunday, and Monday, April 16, is Emancipation Day, a legal holiday in the District of Columbia.

Fajt also noted that the December 2006/January 2007 edition of the Pennsylvania Tax Update is now available on the department’s Web site.

Senate Acts on Emergency Responders Bill  

On Wednesday, the Senate Veterans Affairs & Emergency Preparedness Committee unanimously approved legislation that would reauthorize a state grant program that provides essential financial support for volunteer firefighters and ambulance services.

Since 2000, the General Assembly has regularly appropriated $25 million to the PA Emergency Management Agency to provide grants to volunteer fire and EMS departments. Senate Bill 10 would update and reauthorize the grant program for 2007.

Senate Bill 10 now moves onto the full Senate for consideration.

Taxpayer Protection Act Unveiled 

Legislation unveiled this week in the Senate would tighten the reins on state spending.

The bill would limit annual expenditures from the Commonwealth's General Fund to the lesser of: 1) the average rate of personal income growth for the three preceding years; or 2) the average inflation rate for the three preceding years plus the average percentage change in population growth for the three preceding years. If the cap were in effect for the upcoming fiscal year, expenditures from the General Fund would be allowed to increase by 3.15 percent.

Seventy-five percent of surplus tax dollars would be returned to the taxpayers through an offsetting reduction in the rate of the state Personal Income Tax (PIT); twenty-five percent of surplus tax dollars would be deposited into the state's "Rainy Day Fund."

The proposal allows for the spending cap to be voided during emergencies, provided that two-thirds of both the House and Senate approve suspending the cap.

A companion bill to amend the Pennsylvania Constitution to make taxpayer protection permanent also was introduced.

Mistakes Abound on Telephone-Tax Refund Requests

The IRS this week offered taxpayers tips for requesting the Telephone Excise Tax Refunds (TETR), after early tax returns show some people are making basic mistakes, others are requesting excessive refunds and many are missing out on the refunds, altogether.

The government stopped collecting the long-distance excise tax last August after several federal court decisions held that the tax does not apply to long-distance service as it is billed today. Federal officials also authorized a one-time refund of the federal excise tax collected on service billed during the previous 41 months, stretching from the beginning of March 2003 to the end of July 2006. The tax continues to apply to local-only phone service.

The IRS is investigating potential abuses among early filers who requested large and apparently improper amounts for the telephone tax refund. The IRS will take prompt action against taxpayers who request improper refund amounts and the return preparers who help them.

Revenue Collections Up in January

The state collected $2.3 billion in General Fund revenue in January, $28.2 million, or 1.3 percent, more than anticipated. Fiscal year-to-date General Fund collections total $13.7 billion, which is $95 million, or 0.7 percent, above estimate.

Sales Tax receipts totaled $856 million for January, which was $11.9 million above estimate. Sales Tax collections year-to-date total $5.1 billion, which is $42.5 million below estimate, or 0.8 percent less than anticipated.

Personal Income Tax (PIT) revenue in January was $1.1 billion, which was $7.8 million above estimate and brings year-to-date PIT collections to $5.3 billion, or $73.5 million above estimate.

January Corporation Tax revenue of $135 million was $24 million above estimate. Year-to-date Corporation Tax collections total $1.7 billion, which is $86.6 million, or 5.4 percent, above estimate.

Other General Fund revenue figures for the month included $70.5 million in Inheritance Tax, which was $7.9 million above estimate and brought the year-to-date total to $429.8 million, or $19.6 million below estimate.

Realty Transfer Tax revenue was $52.4 million for January, bringing the total to $352.8 million for the year, which is $21.2 million less than anticipated.

Other General Fund revenue, including the Cigarette, Malt Beverage and Liquor Tax, totaled $94.2 million for the month, which was $23.5 million below estimate. Year-to-date collections have totaled $802.9 million, which is $18.2 million above estimate.

In addition to the General Fund collections, the Motor License Fund received $204 million for the month, which was $16.8 million above estimate. Fiscal year-to-date collections for the fund total $1.4 billion, which is $0.9 million, or 0.1 percent, below estimate.

The Gaming Fund received $66.8 million in unrestricted revenues for January. Fiscal year-to-date collections for the fund total $175.7 million. Gaming Fund receipts include taxes, fees and interest. Of the total for the month, $16.3 million was collected in state taxes for property tax relief, bringing the year-to-date total to $24.8 million.

Rendell Unveils Energy Independence Strategy

Citing the urgent need to cut energy costs, move toward energy independence and stimulate the economy, Gov. Rendell this week released his Energy Independence Strategy.

The Governor’s plan will push Pennsylvania into the top tier of states taking steps to cut consumer energy costs, and significantly expand the alternative fuel, clean energy and conservation sectors.

The enactment of new laws, regulatory policies and the creation of the $850 million Energy Independence Fund will enable Pennsylvania to achieve certain goals outlined by the governor.

The Energy Independence Fund will be capitalized by a systems benefits charge on electric power consumers. Charges of this kind are already in place in 15 states and the District of Columbia.