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Legislative Update

Week Ending May 9, 2008

• Denlinger Sponsors Legislation to Aid Small Businesses
• House Sends KOZ Expansion Bill to Senate
• Committee Approves Bill to Open Spending Records
• Governor Pushes for Action on Health Care
• Senate Panel Approves Alternative Energy Bill
• Abandoned and Blighted Property Bill Clears Committee
  

Denlinger Sponsors Legislation to Aid Small Businesses

To allow small businesses to benefit from economic incentives recently enacted at the federal level, PICPA member Rep. Gordon Denlinger, CPA, (R-Lancaster) is sponsoring legislation to increase the amount a business may deduct for capital investments made during a tax year.

"This legislation would directly affect many local businesses," said Denlinger. "For example, a local car repair shop would like to update its engine replacement equipment, and they have been putting it off for years because of the expense. My legislation would give the car repair shop a tax incentive to purchase the new equipment, which would benefit everyone in the local community."

Under Denlinger's legislation, the amount a business may deduct as capital investments made during a tax year would be increased from $25,000 to $100,000. Pennsylvania does calculate the Commonwealth's Corporate Net Income (CNI) tax on federal taxable income, therefore businesses subjected to the CNI are eligible for this incentive. However, the Tax Reform Code limits Section 179 deductions for Personal Income Tax purposes to $25,000 – thus preventing most small businesses from achieving the full scope of this tax incentive.

"Given the current state of the economy and the fact that these small businesses employ the vast majority of Pennsylvania workers and serve as the true economic engine of our state's economy, I believe it is prudent to allow these entities to take advantage of this important economic incentive," Denlinger added.

The bill, which Denlinger plans on introducing in the near future, will be similar or identical to Senate Bill 334—legislation authored by another PICPA member, Senator Pat Browne, CPA (R-Lehigh). The bill was referred to the Senate Finance Committee, which Sen. Browne also chairs.

House Sends KOZ Expansion Bill to Senate

The state House approved legislation on May 7 to continue and expand the state’s Keystone Opportunity Zone program. The KOZ program, created in 1999, gives businesses breaks from certain state and local taxes to develop old industrial sites and other underused areas.

House Bill 2297, in addition to extending the expiration date on KOZ zones, would allow counties to swap less developable land within a KOZ zone for other land, and permit counties with no existing KOZ subzones to designate up to 300 acres of new subzones. That would add seven new counties to the program.

In addition to the actual modification of zones, the bill provides for additional recipients of sales and uses tax exemptions. Under the bill, services and tangible property to a qualified construction contractor are to be exempt from the sales tax.

Also, Section 515 of the bill, which governs the application of the corporate net income tax within a KOZ, is modified to remove the requirement that income apportionment is to include a sales factor of sales by the taxpayer in the subzone, improvement subzone or expansion subzone. In this way, income apportionment would only be a factor of payroll and property, not sales within the particular zone.

The bill also imposes a requirement that all construction and repair work done in a KOZ comply with the state’s Prevailing Wage Law.  

Over the course of the two day debate, several amendments were adopted, including limiting KOZs to areas “suffering from extreme urban blight,” requiring the Department of Community and Economic Development to monitor data related to KOZ development; requiring an independent audit of the program every two years; directing DCED to compile more information to track the program's effectiveness, including the number and type of jobs created and the average hourly wages paid to employees in those jobs; and prohibiting high-income professional partnerships—such as law firms and accounting firms—from receiving special KOZ tax benefits.

A parliamentary maneuver, however, stripped those and several other previously agreed-to provisions from the legislation.  

The measure is part of Gov. Ed Rendell’s economic stimulus package, which is part of his overall budget proposal. The bill now goes to the Senate for consideration.

Committee Approves Bill to Open Spending Records

The Senate Finance Committee on May 7 approved Senate Bill 1350, the Taxpayer Transparency Act. PICPA member Sen. Pat Browne, CPA, committee chairman, is prime sponsor of the measure.

SB 1350 would direct the Office of Budget to create and maintain a searchable budget database-driven Web site that the public can access without fee, to obtain information regarding grants and contracts provided by government agencies.  All transactions above $25,000 would be accessible to the public.

The bill now goes to the Senate Appropriates Committee.

Governor Pushes for Action on Health Care

This week, Gov. Rendell urged the Senate to immediately enact the Pennsylvania Access to Basic Care (PA ABC) for the uninsured following the release of an analysis showing that the proposal is financially sound.

“The financial analysis released today by the Governor’s Budget Office proves that we have the funds to do two things: help hundreds of thousands of Pennsylvanians by offering them access to affordable health insurance through PA ABC; and continue to help doctors pay their medical malpractice insurance,” the Governor said.

“The budget office did a thorough analysis that shows program costs and demonstrates to the taxpayers of Pennsylvania and their elected leaders that this is a financially responsible plan. With the additional revenues from the proposed 10-cents-per-pack increase in the cigarette tax and the first-time-ever tax on smokeless and other tobacco products, we will be able to fully fund this program.

“This budget analysis is the final piece to the puzzle and, with it, I hope the Senate debates and takes action on this crucial program. The biggest holdup we have been hearing is, ‘How are you going to fund it?’  Well, this analysis answers that question. Now it’s time to take action and help the people of Pennsylvania.” 

A 10-cent-per-pack hike in the state cigarette tax and a new 36-cent-per-unit tax on cigars and other tobacco products will bridge the funding gap in a House-passed plan to expand health care coverage for the uninsured, according to a financial analysis done for the state Budget Office. The taxes would generate $114 million next year and $121 million by the fifth year.

Senate Bill 1137 passed the House on March 18 and is currently pending Senate concurrence in the amendments made by House members.  

Senate Panel Approves Alternative Energy Bill

The Senate Agriculture and Rural Affairs Committee on May 6 voted to approve legislation providing incentives to farmers who plant and harvest bioenergy crops.

Senate Bill 1317, the Farms to Fuels Initiative, would provide farmers with a per-acre subsidy, which would be spread across three years to allow the crop to mature. The subsidy would be $150 per acre for the first year; for the second year, $100 per acre; and for the third year, $50 per acre, with a limit of $100,000 total over the three years.

SB 1317 also includes a $10 million appropriation for the program to be administered by the state Department of Agriculture. The state’s conservation districts would receive 10 percent of that appropriation, in exchange for providing technical assistance to participants.

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

Abandoned and Blighted Property Bill Clears Committee

The state House Urban Affairs Committee this week approved a bill to give municipalities and others more power to clean up blighted and abandoned properties. 

House Bill 2188 would provide a way for municipalities, lien holders or other interested parties to petition the courts to have conservators appointed to take control of and rehabilitate blighted or abandoned properties.

Under the bill, interested parties such as lien holders, residents or business owners within 500 feet of an abandoned building, nonprofits, municipalities and/or school districts could petition the court of common pleas to appoint a conservator to take control of a building that has not been legally occupied for the past 12 months, has not been actively marketed for sale for 60 months, and is blighted or represents a public nuisance. The conservator would act in place of the building’s owner to make necessary repairs, and could sell the building if the owner does not petition to regain possession or reimburse for all costs.

The bill is now awaiting action by the House Appropriations Committee.