Budget Update: HB 1667 and State Budget Negotiations

Pennsylvania entered its new fiscal year on July 1 without an enacted state budget, the fifth consecutive year this has happened. Governor Shapiro and legislative leaders continued talks through the June 30 deadline but did not reach agreement. Both sides describe discussions as productive, though no enactment timeline has been set.

The absence of a budget does not immediately halt state operations. Payroll for most state employees and funding for federally mandated programs continue under existing law. An extended impasse, however, could delay payments to school districts, counties, nonprofits, higher education institutions, and other entities that depend on state appropriations.

Issues still under negotiation:

• General Fund spending levels and the Commonwealth's structural deficit
• Public transit funding, including long-term mass transit support
• K-12 and higher education funding levels
• Economic development initiatives and business incentive programs
• Expansion or modification of business tax credit programs

Broad-based tax increases are not a central focus of current talks, but several tax proposals remain in play, most notably taxation of skill games and how the resulting revenue would be allocated. The Pennsylvania False Claims Act does not appear to be part of budget discussions; officials have consistently said it's unlikely to be included this year given the election-year dynamics and the complexity of the legislation.

Discussions also continue on the Pass-Through Entity Tax (PTET), the Resident Tax Credit fix, and the Research and Development Tax Credit. These could be addressed if a Tax Reform Code bill is included in the final budget, but it's too early to say whether any will make the final agreement.

The PICPA will continue monitoring these negotiations and will update members as developments occur.

HB 1667: Tax Proposals

House Bill 1667 has become one of the vehicles for several tax proposals under consideration in the budget process. The bill has changed significantly in both chambers over the past week.

The Senate-passed version would:

• Repeal the gross receipts tax on electricity
• Establish an annual two-week sales tax holiday for back-to-school purchases
• Eliminate the tax incentive for data center owners and operators
• Preserve the EITC and OSTC programs while adding $25 million in funding, bringing combined authorization to $705 million

The House Rules Committee amended the bill this week. The House version keeps the sales tax holiday and the data center incentive repeal, but changes the electricity tax provision to exempt residential customers directly rather than repealing the tax and relying on utilities to pass savings through.

The House amendment also adds several new proposals:

• Mandatory combined reporting for the Corporate Net Income Tax
• Restructuring of EITC and OSTC into a single tax credit program for students in low-achieving school districts, while keeping the additional $25 million in funding
• New reporting and transparency requirements for education tax credit scholarship programs
• A tax on digital advertising revenue, dedicated to property tax relief for senior citizens

HB 1667 remains under consideration. PICPA will provide updates as the bill develops. You can read the full bill here.