Tax Proposals Could Dominate Legislative Session Early

by Peter N. Calcara, CAE | Mar 01, 2021

The 205th Pennsylvania General Assembly was seated Jan. 5, 2021. Swearing-in day, typically a festive affair, had a decidedly different feel, and not just because of restrictions brought on by the pandemic.

The sudden Jan. 2 death of 42-year-old state Rep. Mike Reese, a Republican from Washington County, made for a solemn day for members of the House. Then, over in the state Senate, lawmakers fought over whether to seat incumbent Sen. Jim Brewster (D-Allegheny/Westmoreland). Despite his victory having been certified by the state, the results were being challenged by his opponent in federal court. On Jan. 12, a federal appeals court ruled in Brewster’s favor, and he was sworn in the following day.

Despite the inauspicious start, all eyes are now focused on the state economy, the current year budget, and the fiscal year 2021-2022 budget that begins July 1.

Gov. Tom Wolf’s proposed fiscal year 2021-2022 spending plan focuses on protecting the health and safety of Pennsylvanians, as well as directing an economic recovery plan. The pandemic and subsequent shutdown of large swaths of Pennsylvania’s economy wreaked havoc on the state’s balance sheet. Last May, many had projected a revenue shortfall approaching $5 billion or more. However, the fiscal hit has not been as bad as initially expected, mostly due to a combination of improved revenues, one-item transfers, and federal assistance. 

Still, fiscal challenges remain. In a January op-ed in The Morning Call, Sen. Pat Browne (R-Lehigh), a PICPA member and chair of the Senate Appropriations Committee, wrote, “Preliminary estimates under current conditions, assuming level funding of core services, provide for a $3.5 billion deficit in the upcoming 2021-2022 budget.” With this backdrop, tax legislation will draw lawmakers’ attention in the early part of the new session.

PICPA’s top priority at the beginning of 2021 has been the taxation of Paycheck Protection Program (PPP) loan forgiveness. The Pennsylvania Department of Revenue’s position has been that PPP loans used to pay business expenses during the COVID-19 pandemic that are subsequently forgiven by the lender will constitute taxable income for Pennsylvania personal income tax purposes. Corporate net income tax (CNIT), because Pennsylvania is a rolling conformity state, follows the federal tax code; therefore, PPP loan forgiveness would not be taxable for CNIT filers.

The PICPA sought to address this unfair dual treatment last session, but the bill did not make it to the governor’s desk and had to be reintroduced. The new bill, House Bill 385, sponsored once again by Rep. George Dunbar (R-Westmoreland), is pending before the Pa. House of Representatives, as of this writing. However, in early February, at the urging of the PICPA, state lawmakers worked quickly to address the issue. Thus, the provisions of House Bill 385 were amended into Senate Bill 109, a COVID-19 relief package that had already passed one chamber. As such, the PICPA-supported PPP loan forgiveness provision was adopted by both the House and Senate. Wolf signed Senate Bill 109 into law on Feb. 5, making it Act 1 of 2021.

Combined reporting will be back once again for state lawmakers. In each of his previous six budgets, Wolf proposed mandatory unitary combined reporting for (CNIT). Wolf’s call for combined reporting is tied to a decrease in the state’s CNIT rate (currently one of the highest in the nation at 9.9%).

Combined reporting requires a multistate corporation to add together the profits of all of its subsidiaries, regardless of their location, into one report. Currently, 28 states plus the District of Columbia require combined reporting for state CNIT. The PICPA is neutral on combined reporting. We will use our resources to educate lawmakers on the pros and cons of this legislation and its impact on Pennsylvania businesses.

Expansion of the state sales tax has seemingly been considered for the past 20 years or more. Expansion in most states has been tied to closing deficits or expanding programs and services. That is not the case in Pennsylvania. Here, sales tax expansion has been linked to property tax reform or elimination. Lawmakers have been calling for property tax reform for three decades, but a solution has been elusive.

After the budget is resolved, Pennsylvania lawmakers will have to address congressional reapportionment and state legislative redistricting. Every 10 years the results of the census require Pennsylvania to adjust both its congressional district map and state legislative districts to equalize their population. This year, Republicans control both the state House (112-90) and Senate (29-21), but Democrats control the governor’s office and the state Supreme Court. This will impact how the maps take shape.

Other issues that will be looked at this session likely include transportation funding, election reform, criminal justice reform, alternative energy standards, expanding gaming options, and legalizing recreational marijuana, to name a few.

PICPA members should rest assured that their voices will be heard by state lawmakers on these and other issues that gain traction in Harrisburg.

Peter N. Calcara, CAE, is PICPA vice president - government relations. He can be reached at

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