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Legislative Update

Week Ending April 27, 2007

• PICPA Provides Testimony on “Prescription for Pennsylvania”
• Wolf Confirmed as Next Revenue Secretary
• Finance Committees Approve Legislation
• Oversight of Health Insurance Mergers
• Measure Calls for Examination of KOZ Program
• Bill Proposes Economic Education Program
• Energy Independence Bills Introduced
• GASB Performance Measures Now Available
• AICPA Opposes Proposals to Expand Self-Employment Tax Base
• State Supreme Court Overturns UC Ruling
• Bill Would Provide Flexibility for Education Spending

PICPA Provides Testimony on “Prescription for Pennsylvania”

PICPA Past President Bill Lazor testified before a joint State Senate committee this week to discuss the proposed “fair share tax,” which is part of Gov. Ed Rendell’s health care reform plan—Prescription for Pennsylvania.

“Tax law should be simple, so taxpayers can understand the rules and can comply with them correctly and in a cost-efficient matter. Simplicity in a tax system is important both to taxpayers and to those who administer it. Ambiguous rules lead to errors and, more importantly, to non-compliance,” Lazor told members of the Senate Banking and Insurance, and Finance committees at Tuesday’s joint public hearing. “For all involved, the rules need to be clear and unambiguous from the start.”

The governor’s health care plan calls for a 3 percent tax on wages paid by all Pennsylvania employers beginning sometime in 2007, and increasing to 3.5 percent after 2010, whether they already provide health care insurance for their employees or not. The tax would fund state health care coverage for the uninsured.

Lazor noted to senators that the refund provision is particularly troubling to PICPA.

“Section 7203(g) of the legislation,” according to Lazor, “states that ‘the Department of Labor and Industry may at its discretion either allow a credit, without interest, against subsequent fair share tax payments or shall refund from the CAP [“Cover All Pennsylvanians”] fund, without interest, the amount erroneously paid. Furthermore, this section leaves open to interpretation timelines for filing for a fund."

“Good tax policy should clearly specify when a tax is to be paid, how it is to be paid, and how the amount to be paid is to be determined. Giving the department, or any state agency, unfettered discretion in how it wants to implement such a provision is ripe for mismanagement,” concluded Lazor.

Wolf Confirmed as Next Revenue Secretary

Thomas W. Wolf was confirmed as Secretary of the Pennsylvania Department of Revenue by the State Senate on Wednesday, April 25, 2007. Wolf was nominated in January 2007 by Gov. Ed Rendell to replace PICPA member Greg Fajt.

Wolf was appointed by the Governor to serve on the 12-member Pennsylvania Business Tax Reform Commission, which issued a report in 2004 recommending changes to make business taxes fairer, simpler and more competitive with other states.

Wolf last served as Chairman of the Board and President of the Wolf Organization, Inc., a family-owned building materials business based in York, Pa. The Wolf Organization distributes building materials through 30 branches located along the eastern seaboard.

Wolf earned his doctorate degree from the Massachusetts Institute of Technology in 1981 and his master’s degree in philosophy from the University of London in 1978. He graduated magna cum laude from Dartmouth College with a Bachelor of Arts degree in 1972.

Wolf has a long history as a volunteer for many community and charitable organizations. He has served as President of Better York, Inc.; Chair of the Board of Trustees for York College of Pa.; Board Member of the Keystone Research Center and the Pennsylvania Business Roundtable; Chair of the Lancaster York Heritage Region, York County Chamber of Commerce, United Way of York County, WITF, Inc., and The York County Community Foundation.

Finance Committees Approve Legislation

On Wednesday, the Senate Finance Committee approved an amendment to the Municipal Claim and Tax Lien Law to change the date from which, and the rate of which, interest is charged on certain delinquent taxes and other municipal claims. Senate Bill 777 also provides for the duties of third-party collectors, adoption of ordinance for the exclusive collection of taxes, and modernization of the law relating to collection of such taxes and claims.

Also this week, the House Finance Committee approved House Bill 518. The bill amends the Tax Reform Code by stating that if a PA S corporation does not have an eligible tax liability against which the neighborhood assistance tax credit may be applied, a shareholder of the corporation is entitled to a neighborhood assistance tax credit equal to the credit determined for the corporation for the taxable year multiplied by the percentage of the corporation's distributive income to which the shareholder is entitled. Also, a PA S corporation and a shareholder of the corporation may not claim a credit for the same qualified neighborhood assistance expense.

The committee adopted an amendment to the bill that, among other changes, allows for the sale of tax credits and establishes a $2 million carve-out for small businesses. Another amendment reduced the $2 million per company cap to $1.25 million. Both amendments were adopted.

Chairman David Levdansky also noted that the committee will meet next Tuesday, May 1, to discuss potential legislation on the municipal services tax. Senate Bill 218, which amends the Emergency and Municipal Services Tax Act of 2005, passed the Senate on Feb. 12, 2007, and is currently pending in the House committee. Levdansky added that the committee will meet on Wednesday for an informational meeting on goodwill in banking.

Look for details in next week’s PICPA Legislative Update.

Oversight of Health Insurance Mergers

The State House this week approved a measure that would create additional oversight to ensure that all mergers between Blue Cross and Blue Shield are not detrimental to Pennsylvania’s residents.

House Bill 112 requires that at least one public hearing be held on any proposed merger, consolidation or other acquisition of control of a hospital plan corporation or a professional health services plan corporation – otherwise known as Blue Cross and Blue Shield.

The bill includes provisions that preserve the Attorney General’s authority regarding oversight of charitable organizations and enforcement of federal antitrust laws and establishes an eight-member executive board consisting of the Attorney General, the Secretary of Health, the Secretary of Public Welfare, and appointees by the Governor and each of the four legislative caucuses.

The bill was passed by a vote of 189-6 and will now be sent to the Senate for consideration.

Measure Calls for Examination of KOZ Program 

On Wednesday, the State House passed a resolution calling for an examination of Pennsylvania's Keystone Opportunity Zones (KOZs).

Under House Resolution 115, the Legislative Budget and Finance Committee (LBFC) will examine the effectiveness of the KOZ program. Specifically, it requires the LBFC to examine the job creation impact KOZs have in these areas, as well as the use of KOZs in both blighted areas and prime real estate locations.

The Keystone Opportunity Zone and Keystone Opportunity Expansion Zone Act of 1998 provided for the creation of KOZs and other related improvement and expansion zones. Property, businesses and individuals located within these zones receive certain local and state tax exemptions for up to 15 years. KOZs have been designated by local communities and approved by the state.

A report with recommendations is due in six months.

Bill Proposes Economic Education Program

A proposal to establish an economic and consumer education program and clearinghouse of information in the Pennsylvania Department of Education passed the House on Wednesday.

Under House Bill 111, the Pennsylvania Department of Education would collect and distribute materials to schools and consult with economic and financial literacy experts in the educational community. In addition, the department would identify and reward exemplary programs of economic education in Commonwealth schools.

If enacted, House Bill 111 would take effect immediately. It now proceeds to the Senate for consideration.

Energy Independence Bills Introduced

Legislation was introduced this week in the State House that would implement Gov. Ed Rendell’s plan to make Pennsylvania more energy-independent. The centerpiece of the plan is an $850 million bond to fund grants and loans for renewable energy and conservation projects. It would also include mandates that a percentage of gasoline and diesel fuel consist of alternative energy sources.

To establish the $850 million fund, the state would assess electric customers a “systems benefit charge.” For residential users, that would be about $6 a year. Commercial users would pay about $300 a year and large industrial customers would owe no more than $10,000 annually for the new fee, according to the governor.

The four-bill package will now be referred to committee for review.

GASB Performance Measures Now Available

The staff of the Governmental Accounting Standards Board (GASB) routinely responds to inquiries regarding its standards and related technical matters. In accordance with the GASB’s strategic plan, indicators measuring the GASB’s performance of its technical inquiry activities are posted to the GASB Web site every quarter.

Measures for the January to March 2007 period are now available. In this quarter, the GASB has added a new measure of the time between when an inquiry is received and when initial contact is made with the inquirer by the GASB staff.

AICPA Opposes Proposals to Expand Self-Employment Tax Base

The Congressional Joint Committee on Taxation (JCT) has made two proposals that would expand the self-employment tax base as part of an effort to close the tax gap. The AICPA has submitted comments to Congress opposing these proposals, and the comments may be of interest to tax practitioners.

The AICPA said in its cover letter, “We believe the JCT proposals are fundamentally wrong in that any abuse with the current system is not related to the SECA/FICA tax base and therefore such tax base should not be expanded to combat the tax gap. The tax gap represents an underpayment by taxpayers who are not complying with existing law. The tax gap is not closed one penny by expanding the tax base and tapping new sources of revenue. Closing the gap should focus on just that. Policy decisions must be made in a much more public forum without the cover of closing the tax gap – which is clearly and correctly perceived by the public to be solely an enforcement issue.”

AICPA’s recommendations include: (1) effectively enforce existing law; (2) issue regulatory guidance for LLC members; (3) allow the IRS National Research Program’s S corporation audits to run their course, analyze the results of that program, and then consider options based on those results; (4) listen to the affected public by conducting hearings and encouraging public comment.

State Supreme Court Overturns UC Ruling

The Pennsylvania Supreme Court recently overturned a lower court ruling requiring employers to be represented by attorneys at unemployment compensation appeals hearings.

Pennsylvania’s UC statute expressly allowed non-attorney representation for claimants, but was silent with respect to employers. However, the practice of employers using third-party administrators or other non-attorneys had been permitted prior to the February 2005 Commonwealth Court ruling. 

Bill Would Provide Flexibility for Education Spending

School districts would have more choices in how to use their annual Accountability Block Grants if legislation approved recently by the Senate Education Committee is signed into law.

Senate Bill 399 would allow school districts to expend block grant funds on foreign language programs offered to elementary school students. An amendment adopted in committee expands the list of approved programs for which Block Grant funds can be used.

The accountability block grant program was established in 2003 in order to provide school districts with state funds to finance any of ten approved initiatives.