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Legislative Update

Week Ending March 30, 2007

• PICPA Urges Delay in “Zero” Unclaimed Property Reports
• Governor Outlines Major Reforms of State Government
• Finance Committee Approved Eminent Domain Measure
• Hearing Examines Refund Anticipation Loans Legislation
• Senators Hear about Impact of Rendell’s Oil Tax
• Military Tax Bills Clear Committee
• Senate Will Study Proposed Blue Merger
• Electronically Filed Returns Up More Than 5 Percent
• Immigration Reform Package Introduced
• Poll Finds Voters Back Sales Tax Hike

PICPA Urges Delay in “Zero” Unclaimed Property Reports

In a letter this week to the Pennsylvania Treasury Department, PICPA President Andrew Weidman urged the department to delay requiring all holders of unclaimed property to file “zero” reports until 2008.

Arguing that the new requirement is a significant deviation from past practice, Weidman wrote, “Our members have contacted us expressing their dismay with this change. First, there does not appear to be any legal basis allowing the Treasury to require a “zero” report filing. Second, the lack of adequate notification and the rationale of requiring a report when there is nothing to report seem to be poorly timed and illogical. There is not enough time for our members to assist their clients in preparing these reports while meeting the April 15 filing deadline.”
 
Section 1301.11 of the Pennsylvania Abandoned and Unclaimed Property Act states that "every person holding property" must report; however, there is no requirement that anyone not holding property subject to the Act file a report. Further, there are no published regulations that require a zero report filing.

Weidman requested the legal basis for the zero report requirement.

Governor Outlines Major Reforms of State Government

Appearing before the Pennsylvania Press Club, Gov. Ed Rendell on Monday unveiled a series of reform measures that he says would dramatically change the way Pennsylvania government operates and help restore the public’s trust.

The package would give the public and the press a wider look at the business functions of state government, impose limits on campaign contributions and otherwise tighten campaign finance rules, change the constitution to limit lawmakers’ time in office, establish new requirements for legislative redistricting, provide for the merit selection of judges, and have the General Assembly form a commission to make recommendations on how to reduce the size of the legislature.

The earliest proposals requiring amendments to the Pennsylvania Constitution could be put before voters would be November 2009. That date assumes that the current General Assembly will first adopt the proposals by June 2008 and the next General Assembly adopts them by June 2009. The campaign finance changes would take effect immediately following the 2008 general election.

Finance Committee Approves Eminent Domain Measure

A bill that would provide relief to property owners who realize a gain on an eminent domain transaction was approved this week by the state Senate Finance Committee. The bill, introduced by Committee Chairman and PICPA member Senator Pat Browne, would provide conditions for the deferment of taxes on gains resulting from eminent domain transactions.

Senate Bill 342 would amend the Tax Reform Code to adopt the provisions of Internal Revenue Code section 1033 with respect to involuntary conversions of property. When property is converted involuntarily and a gain results, recognition of that gain may be deferred to the extent that the gain is reinvested in other property that is similar or related in service or use to the converted property.

The bill will now be referred to the Senate Appropriations Committee.

Hearing Examines Refund Anticipation Loans Legislation

On Tuesday, the Senate Banking and Insurance Committee met in a public hearing to listen to testimony regarding Senate Bill 335, which would reduce the detrimental effects of Refund Anticipation Loans (RALs) on taxpayers of limited means.

Also called the Tax Refund Anticipation Loan and Check Regulation Act, SB 335 would require all tax preparation companies offering RALs to be licensed by the Department of Banking, comply with an annual interest rate cap of 36 percent on RALs and checks, and file a yearly report with the Secretary of Banking. The application for a license would be accompanied by a bond in the penal sum of $100,000. It is also anticipated that an additional disclosure provision will be adopted, ensuring that the taxpayer is aware that the monies he or she will be receiving is, indeed, a loan, as well as the interest rates and fees involved with the transaction.

Similar legislation has been considered by other states, as well as by the U.S. Senate, with tax preparers such as Jackson Hewitt and H&R Block contending that such new rules violate the National Bank Act. Consumer protection groups argue that RALs are marketed to taxpayers without full divulgence of, or regulation over, associated costs.

Members who have an interest in this legislation should contact PICPA. We will continue to monitor the proposal and update members as needed.

Senators Hear about Impact of Governor's Oil Tax

Tuesday’s state Senate Transportation Committee hearing on Gov. Ed Rendell's proposed new tax on oil companies only seemed to create more questions than answers, as senators were warned about an economic impact that could spread far beyond the major oil companies.

Tom Wolf, Rendell's acting revenue secretary, defended the proposed tax, telling senators that, constitutionally, the state cannot tax just a few big oil companies. So Rendell chose an entire sector as defined by the Internal Revenue Service, he said.

According to Sec. Wolf’s testimony, the oil company gross profits tax would be defined as the total sales of an oil company minus the costs of goods sold, which is Line 3 of the federal corporate tax return.

In addition, the tax would be imposed on oil companies, defined in the proposed bill as “entities that perform exploration, drilling, importation, refining or wholesale distribution of petroleum products. Petroleum products are any products that contain or are made from petroleum or a petroleum derivative that are used for motor vehicle internal combustion engines and heating.”

The tax is designed to go into effect January 1, 2008, although legislation for it has not been introduced.

Even if it becomes law, some legislators say it is legally questionable whether the state can prevent oil companies from passing the extra cost down to consumers, as Rendell as pledged to do.

Out of that sector, 274 companies benefit from the sale of vehicle fuel, heating oil and propane in Pennsylvania, whether they drill for it, refine it or deliver it. In all, those companies are projected to rack up $346 billion in gross profits in 2007, Wolf said.

Company shareholders, not consumers, would bear the cost of the $830 million that the 6.17 percent tax would raise, Wolf said. He also said that companies that stop supplying fuel in Pennsylvania to avoid the tax would be replaced quickly.

But oil industry representatives, including the American Petroleum Institute, who testified after Wolf, said the dividends of oil companies also benefit shareholders in Pennsylvania and the state's major retirement systems. They also sought to dispel the notion that big oil is gouging consumers, saying oil companies are no more profitable than the rest of the nation's manufacturing sector.

Military Tax Bills Clear Committee

The Senate Finance Committee this week approved four bills impacting military personnel. All four bills must next be referred to the Senate Appropriations Committee for a fiscal note.

Senate Bill 143 would exempt military personnel from occupational assessment, per capita, poll or other similar taxes levied on any individual who is on active duty outside the state.

Senate Bill 172 would relieve members of the United States Armed Forces or other civilians serving in the Persian Gulf area or in support of the armed forces from certain local tax filing deadlines.

Senate Bill 188 provides for an extension of exemption to the surviving spouse of a veteran who was killed or mission in action, provided that the State Veterans’ Commission determines that such spouse is in need of an exemption.

Senate Bill 330 amends the Tax Reform Code providing for a $1,000 tax credit for employers of members of a reserve component of the armed forces. The tax credit would be capped at $5 million per fiscal year and could be credited against the employer’s personal income tax, corporate net income tax, or capital stock and franchise tax. The credit also may be carried forward up to three years.

Senate Will Study Proposed Blue Merger

On the heels of this week’s announcement by the boards of Highmark Inc. and Independence Blue Cross to merge the two companies, the state Senate unanimously approved legislation—Senate Bill 550—on Wednesday giving the Insurance Department additional oversight power over mergers involving non-profit health care insurers.

In addition, Senate Banking and Insurance Committee chairman Sen. Don White said he is planning to study the proposal and will likely call a public hearing of his committee to study the merger’s ramifications on health care in the Commonwealth.

Electronically Filed Returns Up More Than 5 Percent

The IRS announced this week that electronically filed tax returns are up more than 5 percent from the same period last year. According to statistics for the week ending March 16, 2007, self-prepared e-filed returns have grown more than 8 percent from last year, while e-filed returns from tax professionals have climbed more than 4 percent.

So far this tax filing season, 73 percent of all returns have been e-filed, compared to 70 percent for the same period last year. As of last Friday, 29 percent of e-filed returns were filed by people using their home computers, up from 28 percent of e-filed returns for the same period last year.

Immigration Reform Package Introduced

Last week, a bipartisan coalition of state representatives introduced a comprehensive, five-bill package of legislation, also called National Security Begins at Home, which would shut off public benefits, employment access and other economic faucets contributing to illegal immigration in Pennsylvania.

The reform measures include, among other provisions, the ability of the state to revoke the license of any licensed professional that knowingly employs an unauthorized alien.

While federal immigration law limits the remedies which a state can use to discourage employment of unauthorized aliens, it does allow the use of civil sanctions “through licensing and similar laws.”  This particular legislative piece of the reform package, House Bill 753 – also known as the Professional Licensees Illegal Employment Act – utilizes this condition and would affect all licensed professions, including certified public accountants.

The bill was referred to the House Professional Licensure Committee.

Poll Finds Voters Back Sales Tax Hike

By a 54 – 40 percent margin, Pennsylvania voters back a proposal by Gov. Ed Rendell to hike the state sales tax one percent and use part of the money to reduce local property taxes, according to a Quinnipiac University poll released this week.

Gov. Rendell’s overall approval rating is 57 – 33 percent, down slightly from his all-time high 61 – 30 percent approval in a February 7 poll by the independent Quinnipiac University poll.

Voters disapprove 45 – 41 percent of the way Rendell is handling taxes and disapprove 49 – 34 percent of the way he is handling property taxes.

A total of 63 percent of Pennsylvania voters say it is “very likely” or “somewhat likely” that revenue from the state’s new slot machine gambling program will reach $1.7 billion, while 31 percent say that’s “not very likely” or “not likely at all.”  

Voters also back 49 – 41 percent a proposal to lease the Pennsylvania Turnpike to a private company, while maintaining state control over tolls and maintenance.

By a 71 – 24 percent margin, voters back a proposal by Gov. Rendell to raise cigarette taxes 10 cents per pack.