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Legislative Update

Week Ending May 2, 2008

• PICPA Supported EIT Reforms Clear Senate; Move to House
• Education Department Releases School District Tax-cut Estimates
• Changes to Municipal Claim and Tax Lien Law Explored in House
• Revenue Department Releases April Collections
• CPA Mobility Bill Passes in Connecticut
• Register Now for PICPA’s 2008 Local Government Conference
• 8th Annual Eastern Pennsylvania Working Together Conference
  

PICPA Supported EIT Reforms Clear Senate; Move to House

The state Senate on April 30 overwhelmingly approved, by a vote of 41-8, legislation supported by PICPA and others related to the collection of earned income tax. Sponsored by Sen. Jane Earll (R-Erie), the bill would streamline and consolidate the system to a countywide level for municipalities and local school districts.

Senate Bill 1063 is a direct result of a 2004 report published by the Department of Community and Economic Development (DCED), which found the current system Pennsylvania follows to be fragmented, complex and inefficient. Pennsylvania also holds the distinction of having more local EIT collectors and taxing jurisdictions than all other states combined. According to the DCED report, municipalities and school districts in the Commonwealth use 560 tax collectors to collect and distribute nearly $2 billion in annual EIT revenue. These 560 tax collectors handle earned income tax exclusively, not real estate tax collection. Real estate tax collectors, who are elected rather than appointed, will not be affected by SB 1063.

Consolidation would reduce the number of earned income tax collectors from 560 to 66. This number corresponds with the number of Pennsylvania counties to be affected by the change. (Philadelphia will not be included, as it falls under the Sterling Act.)

The Senate adopted two amendments to the bill. An amendment mandating statewide collection was withdrawn, while another consolidating collection at the school district level was defeated.  The first amendment to be adopted was offered by Sen. Jane Orie (D-Allegheny), and would allow Allegheny County—the state’s only second-class county—to have its local tax collection districts consolidated into four tax collection districts, instead of one countywide district. The other adopted amendment was technical in nature and sponsored by Sen. Earll.

Despite the number of tax collectors streamlined to roughly match the state’s number of counties, earned income tax collection would not become a county government function. Rather, the process for choosing tax collectors would be a function of tax district committees comprising municipal and school district representatives.

With consolidation, there would be standardized collection practices, coordination, reporting and accountability among and between jurisdictions and collectors—all important changes advocated by PICPA.  This would reduce the loss of revenue, which is estimated at $237 million annually in earned income tax revenue does not arrive at the municipality or school district where it rightfully belongs.

PICPA now takes its fight to the state House. All PICPA members are urged to contact their state House members now to urge support for SB 1063.

Education Department Releases School District Tax-cut Estimates

The Pennsylvania Department of Education on May 1 informed the state’s 501 school districts of the amounts each will receive from state gaming revenues to fund property tax relief for the coming fiscal year. The total amount being distributed is $613 million. 

Homeowners in 452 of the 501 school districts (the data has yet to be determined in the others) now have a better idea of how much they can expect to see in the way of gaming-funded property tax cuts later this year. Details on the amount each district will receive for the purpose of property tax relief, along with estimates of the amount of tax relief provided to eligible property owners in each district, are available at www.pde.state.pa.us.

Amounts range from a low of $54 per homeowner in the Dallas School District in Luzerne County to a high of $623 in the Chester-Upland School District in Delaware County. Three districts—Chester-Upland, the Allentown City School District in Lehigh County, and the York City School District in York County—saw average tax breaks of more than $500 per homeowner, while 37 school districts got average tax cuts of less than $100.

The Philadelphia School Districts will receive $56 million to reduce the city wage tax rate. 

This year’s distribution marks the first-ever provided under this law.

Changes to Municipal Claim and Tax Lien Law Explored in House

The House Finance Committee held a public hearing on April 28 to air concerns and hear comments from a variety of interest groups regarding Senate Bill 777—legislation that would amend the Municipal Claim and Tax Lien Law (MCTLL).

Senate Bill 777 was introduced by PICPA member Sen. Pat Browne, CPA, last April. The legislation would amend current state laws to help school districts, cities, townships and boroughs more efficiently collect delinquent real estate taxes and municipal fees. The bill also refines and improves the process by which municipalities hire third party collection firms, improves the public information requirements set by statute, and clarifies ambiguities in the current law.

Chairman Dave Levdansky (D-Allegheny) noted that the bill was introduced as a response to court decisions stemming from the confused interpretation and use of conflicting provisions contained in the two statutes governing the collection of delinquent taxes: the Real Estate Tax Sale Law (RETSL) and the MCTLL.

Rep. Levdansky stated that the testifiers were there to help clarify three main issues for committee members: must a tax collector turn over delinquent tax records to a county, even if a third party collector is used; what restrictions should exist for fees for collection and applicability to a third party collection; and who should be responsible as the depository of records regarding delinquent taxes?

While no votes were taken Monday, the committee will continue to consider the comments and concerns of interested parties, and Chairman Levdansky will likely bring the bill up for committee consideration this spring. 

Revenue Department Releases April Collections

Pennsylvania collected $3.7 billion in General Fund revenue in April, $256.1 million, or 7.4 percent, more than anticipated, the Department of Revenue reported this week. Fiscal year-to-date General Fund collections total $23.5 billion, which is $436.6 million, or 1.9 percent, above estimate.

Sales tax receipts totaled $729.5 million for April, which was $24.2 million below estimate. Sales tax collections year-to-date total $7.1 billion, which is $3.5 million above estimate.   

Personal income tax (PIT) revenue in April was $1.9 billion, which was $182.1 million, or 10.3 percent, above estimate. Year-to-date PIT collections are at $9.2 billion, which is $264.6 million, or 3 percent, above estimate.

“In part, April’s good income tax collections reflect the fact that business profits and investment earnings were fairly strong in Pennsylvania last year, particularly in the early months of the year before the economy began to slow down,” Revenue Sec. Tom Wolf said. “However, it is also true that the Revenue Department is making significant strides in improving collection processing, and annual income tax returns were processed much more quickly this April than in prior years.

April corporation tax revenue of $652.3 million was $29.2 million above estimate. Year-to-date corporation tax collections total $4.8 billion, which is $125.3 million, or 2.7 percent, above estimate.

Realty transfer tax was $31.3 million for April, bringing the total to $362 million for the year, which is $0.5 million less than anticipated.

The Gaming Fund received $50.7 million in unrestricted revenues for April. Fiscal year-to-date collections for the fund total $638.8 million. Gaming Fund receipts include taxes, fees and interest. Of the total for the month, $50.3 million was collected in state taxes for property tax relief, bringing the year-to-date total to $380.5 million.  

CPA Mobility Bill Passes in Connecticut

On April 29, the Connecticut House joined the Senate and voted unanimously to pass mobility legislation consistent with the substantial equivalency provision in the new Uniform Accountancy Act. The measure has been sent to Governor M. Jodi Rell for signature.

Connecticut becomes the 23rd state to enact a full mobility provision and the 12th state in 2008.

After gaining gubernatorial signature, Connecticut will join Illinois, Indiana, Idaho, Iowa, Kentucky, Louisiana, Maine, Minnesota, Mississippi, Missouri, New Mexico, Ohio, Rhode Island, Tennessee, Texas, Utah, Virginia, Washington, West Virginia and Wisconsin.

Along with Connecticut, legislation is awaiting gubernatorial approval in Colorado, Georgia and Maryland.

Pennsylvania and 10 other states currently have mobility legislation pending: Alabama, Arizona, California, Delaware, Hawaii, Massachusetts, Michigan, New Jersey, Oklahoma, and South Carolina.

Register Now for PICPA’s 2008 Local Government Conference

PICPA’s 2008 Local Government Conference is scheduled for July 14-15, 2008 at the Hershey Lodge & Convention Center in Hershey, Pa. Invest two days and learn about required audits and initiatives for local governments from the Auditor General, discover what GASB issued this year, examine AICPA and federal activities in response to the federal government’s study on the quality of single audits, understand effective approaches to uncover evidence of a financial crime, and more! You can also personalize this conference by selecting your concurrent sessions! Register by May 20 and SAVE!

8th Annual Eastern Pennsylvania Working Together Conference

The IRS, PICPA and others will be hosting “A Joint Effort of Public & Private Tax Professionals” on Wednesday, May 21, 2008, from 7:30 a.m. to 4:30 p.m. at Philadelphia University. The Working Together program promotes the positive ongoing relationship between the tax practitioner community and two taxing agencies, the Internal Revenue Service and the Pennsylvania Department of Revenue. The annual meeting has become a “mark your calendar” event for many Pennsylvania tax professionals. The intent is to engage in ongoing, meaningful dialogue aimed at improving our dealings with one another, thereby improving service to our common customer- the taxpaying public. For additional information on the Conference, please visit the IRS Web site.