Testimony

Testimony Before the Pennsylvania House Finance Committee on Senior Citizens PIT Filing Requirements

Presented by Cheri H. Freeh, CPA, and Timothy D. Billow, CPA
Representing Pennsylvania Institute of Certified Public Accountants

August 29, 2006

Good morning, Chairman Leh, Chairman Levdansky, and members of the committee. Thank you for the opportunity to appear before you today to discuss improving the personal income tax filing system for Pennsylvania's senior citizens.

My name is Cheri Freeh, and I am a CPA and partner with Hutchinson, Gillahan and Freeh PC, located in Quakertown, Pennsylvania. I am a member of the Pennsylvania Institute of Certified Public Accountants (PICPA), and past chair of its Committee on State Taxation. I am the current chair of the Local Taxation Task Force.

PICPA represents 19,000 Pennsylvania CPAs in business and industry, public practice, government, and education. Our members advise clients on federal, state, and international tax matters, and prepare income and other tax returns for thousands of Pennsylvania taxpayers. They provide services to individuals, not-for-profit organizations, small and medium-sized employers, as well as Pennsylvania's largest employers. It is from this broad perspective that we offer our thoughts today.

Joining me this morning is Tim Billow, a CPA and tax manager at Highmark, Inc. Tim works in Highmark's Harrisburg office, and specializes in state and local tax compliance and consulting. He is on PICPA's Local Tax and Multistate Conference Planning committees, and currently chairs the State Taxation Committee.

PICPA is not here today to support or oppose any particular legislative proposals. Our objective is to offer technical information that will ensure that the public policy created through this process is done in an informed manner, and to continue to act as a resource for this committee in matters such as this.
My firm services about 1,000 clients and prepares close to 900 personal tax returns. As a result, we are well aware of the challenges senior citizens face when trying to file their state income tax returns.

The committee's underlying premise for this public hearing is good, and we applaud your efforts. We agree that filing a single-page certification, rather than filing a return, would be greatly beneficial for our senior citizens.

In most cases, once seniors reach the point where they qualify for 100 percent tax forgiveness, they remain in that situation for the rest of their lives. As such, we suggest including language in any proposed bills that requires the Department of Revenue to honor the original certificate each year, unless they are notified of a change in the information. This would save seniors from having to file a new certificate each year, it would save the department processing time, and it would save a few trees.

One notable exception to most seniors' typically static income level occurs if they sell their homes. Pennsylvania allows for the exclusion of that gain from income tax, but the gain must be included as eligibility income for the special tax forgiveness provisions. This means that most seniors will not qualify for any tax forgiveness in the year they sell their home, regardless of whether they ever received any of the funds -- which may have been used to pay off mortgages or other debts, put toward the purchase of a home in a life-care facility, or gone to pay for nursing home care.

We suggest amending the special tax forgiveness provision of the law so that eligibility income only includes proceeds a senior citizen receives from the sale of the home that is not reinvested in another home or nursing home. This would ensure that they would only have to include funds that they have available to pay as taxes.

We also suggest combining the tax return and rent rebate forms, similar to the way New Jersey couples its tax return and Homestead Rebate form. Many of our state's seniors are unaware that they are eligible for a rebate unless their state representative alerts them.

Finally, we recommend the setting of a minimum income level to file, similar to the federal requirement. Such a proposal would likely require, however, a change in the state constitution.

Once again, thank you for the opportunity to provide testimony. We are happy to answer any of your questions.