Log In | About PICPA | Contact | FAQs

Legislative Update

Week Ending May 16, 2008

• Action Alert—EIT Collection Reforms Need Your Support
• “Independent Contractor” Misclassification Legislation Amended
• House Passes Economic Stimulus Initiative
• DCED Unveils Community Revitalization Desktop Guide
• Record Number of Pennsylvanians Filed Electronically
• Veto Threat Derails Smoking Ban Compromise
• Uniform CPA Laws Gaining National Momentum
  

Action Alert—EIT Collection Reforms Need Your Support

PICPA-supported legislation reforming Pennsylvania’s archaic and inefficient system of collecting local earned income taxes is poised for action in the state House. Senate Bill 1063 is currently pending in the House Finance Committee, and PICPA urges members to contact their state representative today to urge support for the bill. 

Pennsylvania is unrivaled in the number of jurisdictions levying local taxes, which, at almost 2,900, is more than quadruple that of the second highest state. About 560 local collectors are used to collect and distribute over $1.9 billion in annual revenue. Lack of standardized practices, coordination, reporting, and accountability among and between jurisdictions and collectors plague the process. Such complexity contributes to the perception that Pennsylvania is a difficult state in which to do business, hindering its ability to attract and keep much-needed jobs.

Independent studies estimate that as much as $237 million in local earned income tax revenue is not collected annually by municipalities and school districts. Lack of uniform withholding and coordination, as well as varying thoroughness of tax collectors’ records, training, and resources, all lead to loss of local revenue and pressure to increase taxes on those that do pay. This ineffectiveness is confusing to businesses, residents, and tax practitioners. It also has high associated administrative costs, and forces the government to raise other tax rates or curtails services.

Senate Bill 1063 will bring uniformity, clarity, and fairness to local earned income tax collection. Full implementation will start in 2012, with 2011 being a transition year. The proposal’s provisions include a number of important improvements:

• Establish uniform withholding, remittance, and distribution requirements;
• Require that employers withhold all local income taxes imposed on the compensation of their employees, and remit those taxes to only one collector, even if an employer operates in multiple counties;
• Institute a continually updated, comprehensive tax register, maximum twice-yearly rate changes, a uniform definition of taxable income, and a system of appeals;
• Strengthen reporting requirements so that each tax dollar is tracked from the time it is withheld until it is received by the appropriate taxing jurisdiction;
• Require that the Commonwealth issue one set of rules and regulations that apply to all collectors, taxpayers, and employers;
• Require that DCED develop uniform forms, notices, reports, returns, schedules, and codes for school districts, municipalities, and tax collection districts;
• Require that tax collectors keep a record of all public monies received and distributed, and submit monthly reports to each taxing jurisdiction and the tax collection district that must be reconciled with other records in an annual audit;
• Provide for more accountability, transparency, oversight, and enforcement; and
• Consolidate the system into tax collection districts roughly congruent with counties, but NOT a function of county government.

PICPA members have two weeks to reach out to their local representatives in support of SB 1063 before the House reconvenes on Monday, June 2.

“Independent Contractor” Misclassification Legislation Amended

On Tuesday, May 13, the House Labor Relations Committee amended and then approved House Bill 2400, formerly titled the Employee Misclassification Prevention Act.

In its original form, this bill attempted to clarify the classification of “independent contractor” across all industries for tax and insurance purposes. The legislation also introduced new, stricter penalties on those employers who misclassify legitimate employees as independent contractors, thereby avoiding providing requisite benefits and additional federal and state tax withholdings.

Among its provisions was a third degree misdemeanor charge, a fine of up to $2,500 and/or imprisonment for up to 180 day for those employers who unknowingly misclassify legitimate employees as “independent contractors.” For those employers who knowingly misclassify workers, the charge is a third degree felony and up to $15,000 and/or imprisonment for up to 3 and a half years. The fines and sentence times increase with subsequent charges. Other penalties included possible stop-work orders, debarments, administrative penalties and civil action for damages, attorney fees, and costs to the wronged worker(s).

However, an amendment was finalized at the eleventh hour that addressed many of the issues expressed by concerned stakeholders, including the bill’s overly-harsh penalty provisions, lack of conformity to current federal law, and its broad scope.

Of chief importance, the amendment restricts the application of the law to the construction industry and consequently renames the legislation the “Construction Industry Independent Contractor Act.” Appropriate adjustments were made to additional definitions to reflect this change in scope, and the penalties for employers who both intentionally and unintentionally misclassify workers were lessened—particularly as they apply to the latter.

Although the changes to HB 2400 did help alleviate some of the concerns, negotiations will continue among stakeholders and further amendments will be filed to address other provisions contained within the legislation.

House Passes Economic Stimulus Initiative

The state House on May 13 overwhelmingly passed a bill that would expand one of Pennsylvania's premier economic stimulus initiatives.

The legislature established the $300 million Business in Our Sites initiative in 2003 to clean up pollution at former industrial sites and make them "shovel-ready" for new businesses and new jobs in Pennsylvania.  

House Bill 2353 would expand the program by $100 million, which would go toward launching many new projects currently on a waiting list maintained by the state Department of Community and Economic Development.

The bill is a major component the $2.3 billion economic stimulus plan contained in Gov. Ed Rendell's 2008-09 proposed state budget. Through a wide array of tax rebates and infrastructure investment, the proposal - Protecting Our Progress - would help create jobs and revitalize local economies across Pennsylvania.

House Bill 2353 now heads to the Senate for consideration.

DCED Unveils Community Revitalization Desktop Guide

Pennsylvania this week unveiled a powerful new device in its arsenal of community revitalization tools: desktop technology that is designed to help local officials map projects from beginning to end.

Called the Community Revitalization Guide, Department of Community and Economic Development Secretary Dennis Yablonsky said the technology will give elected and appointed officials a detailed view of the stages in implementing successful revitalization projects.

The guide, which is being distributed on “jump drives,” uses state-of-the-art e-book technology.  Text can be searched automatically or cross-referenced using hyperlinks.  The guide can also be updated quickly and easily at any time. With the guide, officials can get a detailed view of the stages of projects:

• Choosing the most suitable, asset-rich development area for a community;
• Preparing the redevelopment area for market;
• Welcoming investment; and
• Applying workable strategies

“Revitalizing our older communities is essential to improving the quality of life for all Pennsylvanians,” Yablonsky said.  “The guide joins other initiatives, such as the Community Action Team and the Elm Street Program. And, coupled with the expansion of programs like Main Street and Housing and Rehabilitation Assistance, we are better able to bring new life to our older downtown districts, former brownfields, and long-neglected neighborhoods.”

Record Number of Pennsylvanians Filed Electronically  

More than 3.2 million taxpayers, or about 55 percent of all individual taxpayers, filed 2007 state personal income tax returns electronically this year, setting an all-time record for electronic filing.

“At the beginning of April, Revenue reached a milestone by processing its 20 millionth electronic return since e-filing became available in 1996,” said Secretary of Revenue Tom Wolf, who noted that the state has received 7 percent more tax returns electronically so far this year compared to the total number of returns filed last year.  “More and more taxpayers are taking advantage of electronic filing options, which are the most cost-effective and advantage-rich options for filing tax returns,”

Taxpayers who file electronically may have refunds deposited directly into bank accounts, or they can pay balances due electronically. This year, more than 619,500 taxpayers chose to directly deposit refunds; more than 235,300 paid taxes using the ACH debit/credit option; and more than 24,300 paid taxes by credit card.      

Veto Threat Derails Smoking Ban Compromise

A conference committee working on a compromise smoking ban never made it out of the starting gate this week. Some suggest Governor Rendell had a hand in the matter. Speaking at a Monday morning press conference, Rendell said he would veto a smoking ban compromise bill that had too many exemptions or pre-empted a strict smoking ban already in place in Philadelphia.

"I have told legislative leaders that if they send me a bill that is too watered-down or pre-empts, for example, what Philadelphia has done, I would veto it," Rendell said. "… We may negotiate about other jurisdictions that have nothing, but Philadelphia has taken a strong stand to support the public health of its residents and I will not backtrack on that.”

He would not elaborate on what he would consider too “watered down,” saying only that he would have to consider the entirety of the bill. “If the kitchen sink’s in there for exemptions, then you really neutered the bill, and you rendered it ineffective, and it would be perpetrating a hoax on the people of Pennsylvania who want smoke-free atmospheres,” Rendell said.

A meeting of the six-member conference committee had been scheduled for later that day to work on the compromise bill, there were not enough members present to take any formal votes. After waiting an hour and a half for the absentees, Chairman Sen. Stewart Greenleaf (R – Montgomery) recessed the meeting, which has been rescheduled for early June.

Uniform CPA Laws Gaining National Momentum

Twenty-three states have approved laws to make it less burdensome for certified public accountants to represent clients across state lines.

The total reached 23 as governors in Connecticut and Maryland prepare to sign legislation recently enacted by their legislatures. 

Bills are pending in ten other state legislatures—Alabama, Arizona, California, Delaware, Massachusetts, Michigan, New Jersey, Oklahoma, Pennsylvania and South Carolina.

The 21 states that have adopted the uniform provision are Colorado, Illinois, Indiana, Idaho, Iowa, Kentucky, Louisiana, Maine, Minnesota, Mississippi, Missouri, New Mexico, Ohio, Rhode Island, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wisconsin.

Under the provision enacted by the states, individual state boards of accountancy will automatically have jurisdiction over all CPAs and CPA firms practicing in their state.  Therefore, states will be able to discipline CPAs with out-of-state licenses, even if the CPAs are not licensed or registered in the state.  The provision is included in the Uniform Accountancy Act, which is the model CPA licensing law that is written and endorsed by the AICPA and NASBA.