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Legislative Update

Week Ending March 9, 2007

• Property Tax Rebate: Understanding the Question on the May Ballot
• Budget Hearings Continue; Secretary Masch Defends Spending
• New Legislation Introduced
• Revenue Department Adopts Graham Packaging SOP
• AMT Relief Bill Introduced
• AICPA Urges Congress to Restrict Patents for Tax Strategies
• Grassroots: The Key to Success

Property Tax Rebate: Understanding the Question on the May Ballot

On the May 15 primary ballot there will be a referendum proposing a homestead and farmstead rebate that is tied to a matching earned income tax (EIT) or local personal income tax (PIT). This statewide referendum arises from Special Session Act 1 of 2006, the Taxpayer Relief Act.

PICPA has developed a one-page question and answer fact sheet that can be used by members to educate the public on the issues before they cast their vote. Examples of the type of question addressed include,  “What is the difference between an EIT and a PIT?”, “If I don’t pay any state income tax now because my income is too low, will I need to pay a local income tax?”, and  “What if I rent instead of owning a home?”

The document is being mailed to all school districts across the state, with the exception of Philadelphia, Pittsburgh, and Scranton, as well as to members of the General Assembly and legislative staff. All PICPA members are encouraged to share this information with their clients and colleagues.

PICPA members can learn more about their association’s efforts and involvement in reforming the local earned income tax collection system by listening to this month’s podcast featuring Cheri Freeh, CPA, member of PICPA’s State Taxation Committee.

Budget Hearings Continue; Secretary Masch Defends Funding

While neither the House nor the Senate convened this week to vote on legislation, both held hearings on Gov. Ed Rendell’s proposed $27 billion budget for fiscal year 2007-08. The House has hearings next week, including Thursday’s where members get to present their own budget priorities.

Perhaps the most significant testimony came from Budget Secretary Michael Masch, who testified before the House Appropriations Committee on Thursday. Masch faced a litany of questions from the Committee regarding the governor’s proposed tax hikes, as well as to which programs the revenues would be applied.

Under Gov. Rendell’s budget plan, the state cigarette tax would rise 10 cents to $1.45 per pack, with smokeless tobacco taxed at 36 cents per ounce and cigars at 36 cents per 10 units. The new revenues are projected at $77.5 million, however, Rendell’s budget only accounts for less than a third of that amount in new spending for his “Prescription for Pennsylvania.” 

Appropriations committee members demanded to know for what the other $50-plus million would be used, while expressing their concerns that, like the proposed 1-percentage-point increase in the state sales and use tax, the monies would be going unrestricted into the state’s General Fund.

Masch clarified that the governor intended the revenues to all go towards specific health-related initiatives, such as reforming long-term living programs, building up the state’s anti-viral stockpile, implementing pay-for-performance practices in the Commonwealth’s Medical Assistance program, and expanding home- and community-based services for the mentally retarded: all told, approximately $97 million.

However, representatives maintained that, because it is not dedicated revenue, the new monies collected could actually be applied to any initiative that the governor chose to fund. One lawmaker argued that the 1 percent raise in sales tax should be used for property tax relief: “Let’s get property tax out of the way, then let’s work on the budget,” he announced.

New Legislation Introduced

With the House and Senate scheduled to reconvene next week to begin moving legislation through the committee process, PICPA is monitoring a number of recently introduced bills, many of which affect the CPA profession in one way or another. Below are a handful of pieces of legislation that the PICPA Government Relations Team is following on behalf of our members.

House Bill 528 — Amends the Tax Reform Code defining "family partnership" for purposes of realty transfer tax as a partnership in which 100% of the interests in the partnership are continuously owned by members of the same family and provides for exemption from the tax.

House Bill 553 — Amends the Tax Reform Code further providing for declarations of estimated tax by adding that the date for filing a declaration of estimated tax would depend upon when the individual, trust or estate determines that his or its income on which no tax has been withheld can reasonably be expected to exceed $20,000 (increased from $8,000).

House Bill 595 — Amends the act entitled "An act empowering the General Counsel or his designee to issue subpoenas for certain licensing board activities; providing for hearing examiners in the Bureau of Professional and Occupational Affairs; and further providing for civil penalties and license suspension" by adding that a licensee, registrant, certificate holder or permit holder has the duty to provide information, documents and records requested by a licensing board or licensing commission when the licensing board or licensing commission is investigating or prosecuting a disciplinary matter. Failure to provide information, documents or records requested by a licensing board or licensing commission would constitute unprofessional conduct and may result in license suspension or revocation, a fine up to $1,000, or both.

House Bill 654 — Amends the Tax Reform Code authorizing the offsetting of gains and losses among the various classes of income by adding that for the tax year beginning January 1, 2007, and each tax year thereafter, a taxpayer may offset the gains or losses within one class of income with the gains or losses occurring within another class of income. Gains or losses would be limited solely to that class of income. Losses within that particular class of income may not be used to offset any gain in any other class of income.

Senate Bill 114 — Amends Title 18 (Crimes and Offenses) providing for the offense of phishing by stating that an individual commits the offense of phishing under the following circumstances if the individual, with the intent to defraud or injure anyone or with the knowledge that a fraud is being facilitated or that an injury is being perpetrated by anyone: (1) the individual makes a communication under false pretenses by or on behalf of a legitimate business, without the authority or approval of the business; (2) the individual uses the communication to induce, request or solicit a person to provide identifying information; and (3) the person provides the identifying information to the individual or an accomplice. The bill also states that the Attorney General would have the authority to investigate and to institute criminal proceedings for any violation or series of violations involving more than one county within the Commonwealth or another state.

Please do not hesitate to contact our Harrisburg office with any questions or comments you may have regarding the above by calling (717) 232-1821 or e-mailing us at governmentrelations@picpa.org.

Revenue Department Adopts Graham Packaging SOP

In the March 3, 2007, Pennsylvania Bulletin, the Department of Revenue adopted a statement of policy to clarify the scope and application of the Graham Packaging Co., LP v. Commonwealth decision, which became final on October 15, 2005. In accordance with the Court's decision in Graham Packaging, canned software is considered to be tangible personal property, regardless of its method of delivery.

AMT Relief Bill Introduced  

U.S. Sen. Arlen Specter has introduced the Alternative Minimum Tax (AMT) Rate Reduction Act of 2007, which would repeal an AMT tax rate hike imposed in 1993. Combined with the continued extension of the AMT exemption, this proposal would remove millions of unintended middle-class taxpayers from the AMT rolls.

Created in 1969, the AMT targeted a small number of high-income individuals who paid little or no federal income taxes. However, as a result of inflation and bracket creep, average American families are now affected by the tax. Absent congressional action, it is estimated that the number of taxpayers subject to the AMT will jump from 3.5 million in 2006 to 23 million in 2007, with middle-income taxpayers bearing the biggest brunt, according to Specter.

PICPA members looking for more information on the AMT should read “A Creeping Disaster” written by PICPA Federal Tax Committee members Terence K. Heaney and Kenneth J. Chin.  

AICPA Urges Congress to Restrict Patents for Tax Strategies

In letters to key tax writing committees of the Congress, the AICPA has outlined its opposition to the practice of patenting tax strategies.

The AICPA’s letters underscored its belief that patents issued for tax strategies are “contrary to sound public policy because they undermine the integrity, fairness, and administrability of the tax system.” The letters also stated, “The conflict with Congressional intent highlights a serious policy reason against allowing patent protection for interpreting the law. Allowing patents on strategies for complying with any law or regulation is not sound public policy because it creates an exclusivity on interpreting the law.”

The AICPA pledged to work with Congress to “develop and enact legislation to restrict the application of this type of patent as soon as possible.”

Grassroots: The Key to Success

Every election cycle creates new faces to work with and new relationships to develop. The 2006 election shifted control of the State House to the Democrats for the first time in 12 years, plus it swept into office more than 50 new members.

Member involvement—your involvement—is critical to our advocacy efforts. PICPA’s success—or failure—depends in large part on a solid, committed and dedicated network of grassroots volunteers willing to serve as Key Person Contacts. Grassroots contact with legislators and staff has proven to significantly enhance the advocacy efforts of your PICPA government relations team in Harrisburg as it pushes to pass laws that benefit not only our members but their clients and the general public.

As a Key Person Contact, all PICPA asks is that you be willing to contact your state legislator on issues that are important to your profession.