Apr 23, 2018

EIT Bill Common Sense, but Making Law Is a Practice in Patience

Alexandra FabianBy Alexandra Fabian, manager, government relations

“Be patient. Good things take time” is a phrase applied broadly and frequently. It can be seen on bumper stickers, billboards, and paired next to adorable memes of dogs and cats on social media sites. One area we don’t typically apply that phrase to is politics.

In an ideal world, a group of open-minded individuals would brainstorm an idea for improving policy – like how to collect local income taxes in a more efficient manner – introduce a bill, guide it through a broad and helpful debate, and within a couple weeks it would become law. Not so hard, right?

Rules and Regulations: stamps and papersThe reality is that this utopian progression is very much the exception when it comes to the legislative process. In fact, it’s pretty much the norm for most bills to be “halted” at some point by the unexpected. As commonly stated, “Laws are like sausages, it is better not to see them being made.”

Such has been the case for House Bill 866, a legislative priority the PICPA government relations team has been working on for more than three years. During the 2015-2016 legislative session, House Bill 866 (then House Bill 245) breezed through the House and the Senate, passing overwhelmingly with votes of 169-31 and 36-12, respectively. When it came to the final hurdle of the legislative process, Gov. Tom Wolf’s desk, it was unexpectedly vetoed to our dismay.

Refusing to give up, a nearly identical bill was introduced during the 2017-2018 legislative session, House Bill 866.

The bill again breezed through the process, passing the House unanimously and the Senate (after being delayed for several months due to unsettled budget negotiations) by a vote of 44-6. The legislation has yet again reached its final hurdle, Wolf’s desk.

The governor has 10 days to sign or veto the bill, and we remain (cautiously) hopeful that Wolf will sign the bill this time around. “Good things take time,” and it was well worth fighting for in this instance.

As you may be aware, Act 32 of 2008 ushered in significant reforms and the consolidation of Pennsylvania’s earned income tax (EIT) collection system. Under the law, which became effective on a statewide basis on Jan. 1, 2012, the collection process was restructured into 69 countywide Tax Collection Districts (TCDs), and the number of tax collectors was reduced from 560 to less than two dozen today. The PICPA supported the passage of this important legislation. During the Act 32 implementation period, PICPA members discovered several issues with the application of the new law. While the new tax collection process has been mostly beneficial, House Bill 866 will clean up several unintended issues that arose as a result of implementation.

The legislation provides consistency to the local EIT crediting provisions to protect taxpayers from double taxation. Some tax collectors have used Act 32 of 2018 as an opportunity to limit the local tax crediting provisions historically available to Pennsylvania taxpayers.

Other important taxpayer protections include a safe harbor provision that is consistent with the Internal Revenue Code; limited oversight of the system by the Department of Community and Economic Development; a prohibition against charging taxpayers with no income a penalty when they do not file a return; clarification of the withholding tax rates for employees who are on a temporary assignment; prohibition of assessment of EIT more than five years after the date on which the tax should have been filed (except in cases of fraud); prohibition of the collection of delinquent taxes through contingent fee audits; and authorization for the local tax collector to abate any penalty imposed under the law.

A level of clarity, consistency, and fairness related to the Act 32 crediting provisions will (hopefully) be restored, which would be a huge win for both the PICPA and taxpayers in the commonwealth.

A special thanks to the PICPA Act 32 working group who invested time and resources (and maybe a couple gray hairs) over the past few years assisting with this effort.

Here’s to hoping HB 866 will finally become law!

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PICPA Staff Contributors
Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.
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