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Legislative Update

Week Ending May 18, 2007

• Voters Overwhelmingly Reject Act  1
• House Dems Propose $700 Million in Property Tax Cuts
• Indiana Becomes Second State to Pass Mobility Legislation
• Party Endorsed Supreme Court Candidates Prevail
• AICPA Comments to Congress on Taxpayer Confidentiality
• 2007 Tax Season Sets Records for E-file, Direct Deposit

Voters Overwhelmingly Reject Act 1

Voters across Pennsylvania have overwhelmingly rejected raising income taxes to provide school property tax reductions. According to the Pennsylvania Department of State, unofficial election results show that voters in only nine school districts had approved Act 1 front-end referendum questions.
 
Although final tallies are still needed, currently these nine school districts include Bald Eagle Area (Centre County), Bedford Area (Bedford County), Bristol Borough (Bucks County), Chambersburg Area (Franklin County), Everett Area (Bedford County), Huntingdon Area (Huntingdon County), Juniata Valley (Huntingdon County), Kane Area (McKean County), and Reading (Berks County). In the Bristol Borough School District, the unofficial results show the question passing by a single vote (806-805). It is possible, therefore, that absentee ballots alone could change that.

Gov. Ed Rendell issued the following statement regarding Tuesday’s primary election results involving Act 1 referenda:

“I am not surprised by the resounding defeat of the Act 1 tax shifting proposals. Unfortunately, in many cases, the full value of the property tax relief that the shift would have provided was not clear to the voters. I believe this contributed to the lackluster voter support.

“Nevertheless, the local tax shifting proposal was an idea I accepted from the Republican leadership. They had hoped that this approach improved on Act 50 which they enacted under Governor Ridge. I expressed concerns throughout the process that voters would not embrace this sort of local tax shift. Instead, I focused on statewide funding for local property tax relief. That is why I fought so hard to enact limited gaming to fund tax relief. I am pleased that the revenues of our gaming venues seem to be high enough to ensure that property tax relief checks will go out in June, 2008.

“I expect this rejection by the voters of the local tax shifting may also give some impetus to the General Assembly to consider my proposal – which I included in my FY 2007-08 budget request -- to modestly increase the sales tax and use these new revenue to lower property taxes this year. As we enter into a tough budget process, we may find that a sales tax increase is necessary and I want to be sure that if we need to increase this tax, we dedicate a substantial portion of any such increase to lower property taxes statewide.”

House Dems Propose $700 Million in Property Tax Cuts

On the heels of the Act 1 debacle, House Democratic leaders on Thursday, May 17, announced a plan to further reduce residential property taxes statewide. It calls for increasing the state sales tax to 6.5 percent (7.5 percent in Philadelphia and Allegheny Counties), and would devote the additional $712 million to trim property taxes in each school district.

“While I realize that there are many plans that will raise myriad taxes to either cut or abolish property taxes, I have watched for 30 years as we sacrificed the possible while waiting for the perfect. It is my hope that this simple, straightforward bill will be the beginning of a real debate on what is possible in our effort to cut property taxes,” said Majority Leader Bill DeWeese. “Paired with the anticipated $1 billion in revenue from gaming, this sales tax boost will enable all homeowners to see real, significant and immediate relief.”

“This week’s failure of Act 1 has shown that voters want Harrisburg to take responsible action to cut property taxes, not leave confusing local taxing decisions in the hands of 498 individual school districts. Imminently, I will introduce legislation to increase the state sales tax by one-half percent statewide, using the proceeds for dollar-for-dollar property tax cuts totaling $712 million statewide,” he said.

“We know that all tax reform plans are in fact tax shifting plans. All of us recognize how difficult, even in our caucus, it is to achieve a meaningful consensus; and for good reason, because each and every one of us has strong and deeply held feelings on these issues. This process, and this issue, is challenging; but it is possible,” said Majority Whip Keith McCall.

DeWeese currently is seeking co-sponsors for the legislation.

Indiana Becomes Second State to Pass Mobility Legislation

On May 8, Indiana Gov. Mitch Daniels signed into law a CPA mobility bill, HB 1312. The new law, which will take effect July 1, establishes no notification requirement for a CPA who wishes to do business in Indiana as long as s/he has a valid certificate or similar qualifications from another state. Indiana joins Tennessee in successfully passing mobility legislation this year.

PICPA’s mobility legislation, Senate Bill 838, was recently introduced by Sen. Jake Corman. The bill would add a concept called “substantial equivalency” to the CPA Law. This new section is designed to enhance the mobility and portability of the CPA license across state lines, the ease of which having become critical as more individuals and businesses are increasingly in need of CPAs who can conduct business in multiple states, unfettered by parochial state regulations.

The bill proposes other changes to the law:

• Requiring that a person complete at least 150 semester hours of post-secondary education before receiving a CPA certificate, beginning in 2012.
• Eliminating the current two-tiered structure on experience requirements, setting a one year of experience requirement for all CPA candidates, beginning in 2012.
• Requiring experience of internal auditors qualifies only if the internal auditor reports to an independent board or similar body responsible for oversight of the financial reporting process.
• Allowing up to 49 percent of a CPA firm to be owned by non-CPAs.
• Updating peer review terminology to reflect changes in the AICPA Peer Review Program.

The Pennsylvania CPA Law was last amended in 1996. The bill is now pending in the Senate Committee on Consumer Protection and Professional Licensure.

PICPA’s Government Relations Team will continue to update members as SB 838 makes its way through the legislative process though future editions of Legislative Update.

Party Endorsed Supreme Court Candidates Prevail

Both the Democratic and Republican Party endorsed candidates for Pennsylvania Supreme Court survived challenges from unendorsed candidates on Tuesday. There are two seats open on the Court this year.

Judge Maureen Lally-Green and Judge Mike Krancer won in the Republican Primary. Lally-Green has been a Judge on the state Superior Court since 1998. Krancer most recently served as chief judge on the Pennsylvania Environmental Hearing Board. Philadelphia County Court of Common Pleas Judge Paul Panepinto was also seeking one of the Republican nominations.

Members of Democrat State Committee went against the wishes of Governor Rendell in endorsing Judge Debra Todd and Judge Seamus McCaffery, but both emerged victorious. The Governor called for an "open" primary at the DSC endorsement meeting, and after endorsements were made, began actively supporting the candidacy of unendorsed Judge C. Darnell Jones, II, who finished third among the four Democrats seeking the two ballot spots. McCaffery has served on the Pennsylvania Superior Court since 2003. Todd has been a judge on Pennsylvania Superior Court since 1999.

For complete election results, please visit the Department of State Web site.

AICPA Comments to Congress on Taxpayer Confidentiality

The AICPA recently submitted written testimony for the record of the Senate Finance Committee’s April 12, 2007 hearing to examine tax administration and tax gap initiatives. While a good portion of this testimony is similar to the testimony AICPA submitted in April to the House Ways and Means Committee, the section in which the Institute lays out its opposition to a particular taxpayer confidentiality provision is new and likely to be of interest to tax practitioners.

In its testimony, the AICPA also commented on other provisions in S. 1321 regarding the understatement of taxpayer’s liability by tax return preparers, the penalty for aiding and abetting the understatement of tax liability, and the doubling of certain penalties, fines, and interest on underpayments relating to certain offshore financial arrangements.

2007 Tax Season Sets Records for E-file, Direct Deposit

The recently completed 2007 tax filing season set a number of electronic records, highlighted by over 76 million electronically-filed individual tax returns and more than 140 million visits to IRS.gov, the IRS said recently.

New records were also set for the number of returns e-filed by home computer users, the number of balance-due returns filed electronically and the number and amount of direct-deposit refunds. Among the highlights of new statistics released:

• The over 76.7 million e-filed returns accepted through May 4 topped the more than 73.2 million electronically-filed returns received for all of 2006. It’s also an 8.9 percent increase over last year at this time, with most of the increase coming in March and April. Based on current trends, the agency expects about 58 percent of all returns to be e-filed this year.
• A record 22 million taxpayers e-filed from a home computer, up 11 percent over the same time last year and eclipsing 2006’s year-long total of 20.3 million.
• This filing season. visits to IRS.gov, the agency’s popular Web site, climbed almost 10 percent to more than 140 million.
• The average refund this year is $2,255, a 2.5 percent increase over last year at this time. More than 59 million refunds, a new record, were deposited directly into savings, checking and brokerage accounts, representing more than 61 percent of all refunds issued. Taxpayers claiming refunds who have not yet filed may want to consider using direct deposit to get a head start on their 2007 IRA contribution.
• Nearly $158 billion have been directly deposited so far this year, an 11 percent jump over last year at this time. This surpasses the 2006 year-end total of $149.2 billion.

The number of balance-due returns filed electronically surged 14.2 percent to a record 9.4 million. For all of last year, almost 8.9 million balance-due returns were filed electronically.