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Legislative Update

Week Ending Nov. 2, 2007

• House Panel Approves Tax Shift; No Sales Tax Base Expansion
• Nov. 6 is Election Day: Remember to Vote
• Hazardous Sites Cleanup Act Funding Legislation Passes Senate
  
• Senate Approves Bill Extending MCARE
• Revenue Department Releases October Collections
• Statewide Foreclosure Prevention Initiatives Launched
• President Signs Internet Tax Moratorium Bill
  

House Panel Approves Tax Shift; No Sales Tax Base Expansion

The state House Finance Committee voted 21-8 on Oct. 31 for a bill that would cut Pennsylvania homeowners' school property taxes, but raise income and state sales taxes.

“The legislation fully funds the homestead exclusion allowed by the Pennsylvania Constitution and will result in the Commonwealth providing greater than 50 percent of the funding for public education in the Commonwealth for the first time in over 30 years,” noted committee chairman  and prime sponsor of the bill Rep. David Levdansky.

House Bill 1600 proposes raising nearly $2.5 billion annually to reduce school property taxes. The bill would:

• Raise the state sales tax by 0.5 percent, making it 6.5 percent in most counties but 7.5 percent in Allegheny and Philadelphia counties.
• Raise the personal income tax rate by 0.22 percent, to a total of 3.29 percent.

The committee also voted 18-11 on House Bill 1489, sponsored by House Majority Leader Bill DeWeese, which would raise only the sales tax and provide $1.75 billion in school property tax relief.

On the same day the committee approved these bills, a group of House lawmakers announced the introduction of legislation they say will eliminate school property taxes paid by homeowners. The School Property Tax Elimination Act (SPTEA) of 2007 would raise the personal income tax by 0.85 percent, to a total of 3.92 percent, and expand the current 6 percent sales tax to include a long list of "services."

A partial list of professional services that would be taxable would include accountants, lawyers, architects, plumbers, computer fixers, electricians, lawn care services and many others.

The services that would not be subject to the sales tax would include hospitals, doctors, dentists, advertising and wholesale manufacturing purchases. Prescription drugs and public transportation fees also would not be taxed. Food and clothing and food stamp purchases would remain exempt.

Proponents of SPTEA have yet to make available the legislative language for their proposal, or any data that supports their claim that this plan totally will eliminate the $10 billion in annual funding for the operation of Pennsylvania schools.  

With legislators home on their election recess, PICPA urges members to contact your state legislators to express your opposition to the expansion of the sales tax to accounting and other professional services.

Debate on property tax relief is tentatively scheduled to begin on the House floor in November.

Nov. 6 is Election Day: Remember to Vote

The PICPA CPA-PAC Board of Directors reminds members that Election Day is Tuesday, Nov. 6. Do you know who you will vote for? You may have seen ads or commercials or received campaign literature for some of the higher-profile candidates, but do you know much about the rest of the candidates on the ballot?

Through the Prosperity Project, you can easily access information about virtually every candidate running for local and judicial offices, including candidate profiles, biographies, and more information.

By exercising your right to vote, you are affecting the way our communities, our state and our nation are governed.

Please take time to visit www.pennsylvaniaprosperity.org and be sure to cast your ballot next Tuesday, Nov. 6. All polls are open from 7:00 AM until 8:00 PM.

Hazardous Sites Cleanup Act Funding Legislation Passes Senate

Legislation to provide funding for the Hazardous Sites Cleanup Act Fund (HSCA) passed the Senate unanimously on Oct. 30. The bill now goes to the House for consideration.

Senate Bill 1100 would transfer about $17 million to HSCA from legislative accounts for the current fiscal year. Recent estimates indicate that amount is enough to keep the program afloat through the end of June. 

Under Senate Bill 1100, $40 million in existing revenues from the Capital Stock and Franchise Tax will be earmarked for HSCA beginning in fiscal year 2008-2009 and continuing through 2010-11. This proposal will not change the scheduled phase-out of the Capital Stock and Franchise Tax.

Senate Approves Bill Extending MCARE

The Senate approved on Oct. 30 Senate Bill 1137, a measure to extend the MCARE program. The five-year-old MCARE program helps physicians pay a portion of their medical malpractice insurance premiums.

Senate Bill 1137 allows the state Insurance Commissioner to more gradually shift health care providers from publicly-funded to privately-purchased medical malpractice insurance coverage. It would also:

• Require the Insurance Commissioner to make an annual determination, no later than July 1, on the capacity of medical malpractice insurance available to providers in the Commonwealth. Under current law, the Commissioner makes a determination bi-annually. An annual determination will allow the Insurance Commissioner greater flexibility in determining the overall availability of private medical liability insurance coverage.
• Permit the Insurance Commissioner to increase the threshold of private coverage required to be carried by providers in increments as little as $50,000. Current law requires the commissioner to increase the level of medical liability coverage in increments no less than $250,000.

The fund helps pay toward the cost of the $500,000 in MCARE fund coverage that the state requires each doctor to secure, in addition to the $500,000 in primary coverage from the private marketplace. MCARE assistance is financed primarily by a 25-cent tax on cigarettes and a surcharge on traffic citations.

The bill now goes to the House for consideration.

Revenue Department Releases October Collections

Secretary of Revenue Tom Wolf reported on Oct. 31 that the state collected $1.8 billion in General Fund revenue in October, $25.5 million, or 1.4 percent, less than anticipated. Fiscal year-to-date General Fund collections total $7.8 billion, which is $46.4 million, or 0.6 percent, above estimate.

Sales tax receipts totaled $741.8 million for October, which was $8.4 million below estimate. Sales tax collections, year-to-date, total $2.9 billion, which is $12.1 million above estimate, or 0.4 percent, more than anticipated.

Personal Income Tax (PIT) revenue in October was $696 million, which was $6 million above estimate. This brings year-to-date PIT collections to $3 billion, which is $2.7 million, or 0.1 percent, below estimate.

October corporation tax revenue of $165.2 million was $34.8 million below estimate. Year-to-date corporation tax collections total $879.4 million, which is $1.7 million, or 0.2 percent, above estimate.

Statewide Foreclosure Prevention Initiatives Launched

Gov. Ed Rendell announced this week two new resources to help homeowners across the state who are facing foreclosure keep their homes.

The REAL program offers refinancing to homeowners whose adjustable-rate or other exotic mortgage has become unaffordable. By combining 100 percent financing with flexible credit underwriting, REAL provides relief for homeowners with good credit who may not otherwise qualify for typical refinance programs.

HERO offers loans for homeowners who, because of credit or other issues, cannot afford their current mortgage payments and are not eligible for other programs that could save their homes from foreclosure.

Credit counseling and financial management education are part of the programs.

President Signs Internet Tax Moratorium Bill

On Oct. 30, the U.S. House of Representatives voted 402-0 to extend the Internet tax moratorium for seven years, and President Bush signed the legislation on October 31, just before the current moratorium was set to expire.

The U.S. House had originally passed a four-year extension of the ban on Internet access taxes, but House leaders ultimately agreed to the version passed by the Senate last week. Extended twice since 1998, the moratorium prevents states and localities from levying taxes on Internet service.

The bill (H.R. 3678) signed by the president also expands the definition of Internet access to include ancillary products and services like email and instant messaging that are provided independently or not packaged with Internet access.