By Peter N. Calcara, vice president – government relations

Most CPA eyes have understandably been on the federal Tax Cuts and Jobs Act, so it may come as a surprise to many PICPA members that state tax reform efforts are already under way in Harrisburg for the legislative session that begins in January 2019. The last significant tax reform debate in Pennsylvania came in 2004, when then Gov. Ed Rendell convened his Business Tax Reform Commission. Most of the reforms in the final report, however, were not acted upon by the General Assembly.

Election results from the November gubernatorial and state legislative races will impact the direction and scope that reform takes, but the ground work is being laid. Talk of reform stems from two separate efforts that the PICPA has been monitoring for some time—one involving a committee of the state House and the other from an out-of-state tax policy think tank.

The 10-member House Finance Committee Select Subcommittee on Tax Modernization and Reform was established by House Resolution 327, sponsored by Rep. Jake Wheatley (D-Allegheny). The bipartisan subcommittee has held several hearings and heard from key stakeholders, including the PICPA, in its investigation and review of Pennsylvania’s tax laws and other states’ best practices and methods for levying various taxes. Recommendations for appropriate legislation or other action are expected by Nov. 30, 2018, but the subcommittee is likely to ask for an extension.

In early September, the Tax Foundation, one of the nation’s leading independent tax policy organizations, released Pennsylvania: A 21st Century Tax Code for the Commonwealth. The report outlines the many barriers within the state tax code that hobble Pennsylvania’s economic competitiveness.

“Policymakers from across the spectrum recognize that the Commonwealth’s tax code has not kept up with a 21st century economy, even if they cannot always agree on a course of action. This book is intended to help fill in the gaps,” writes the Tax Foundation.

The 157-page report examines the state’s economy, outlines the existing tax structure, and offers recommendations for reforming the tax code. It is a comprehensive and well-thought-out package of reforms that address the corporate net income tax rate, personal income tax, sales tax, property and related taxes, and so-called nuisance taxes. It offers concrete solutions on how Pennsylvania’s outdated tax code can better reflect today’s economy.

The PICPA believes both the House Select Subcommittee’s efforts and the Tax Foundation report are excellent catalysts for starting a thorough and much-needed discussion between state policymakers and stakeholders on state tax reform. PICPA’s Committee on State Taxation will take on a prominent role in the debate by educating policymakers and acting as a technical resource.   

How can you help? Members should be prepared to engage with their local state lawmakers. A large class of new legislators may be coming to Harrisburg in January, so PICPA members should familiarize themselves with our Guiding Principles of Good Tax Policy, which outlines a framework of appropriate tax principles. You can discuss these points with your legislator as they prepare to analyze proposals to change tax rules and tax systems, and we can best ensure Pennsylvania gets an effective tax system based on good tax policy.

Ready or not, state tax reform is coming. Make sure you are ready.