Week Ending Oct. 8, 2021

by PICPA Government Relations | Oct 08, 2021


PICPA Outlines Tax Policy Concerns at State House Hearing

Appearing before the state House Finance Committee on Oct. 6, PICPA member Drew VandenBrul, CPA, outlined a series of tax policy concerns. VandenBrul is a member of the PICPA State Taxation Steering Committee and a managing director in Grant Thornton LLP’s state and local tax practice in Philadelphia.

In his testimony, VandenBrul emphasized the importance of AICPA’s guiding principles of good tax policy. (read the transcript or view a video of the testimony – VandenBrul begins at the 92:50 mark) The 12 principles offer a framework for analyzing legislative, regulatory, and administrative guidance. In the time allotted, VandenBrul focused on three of the principles as he discussed several tax topics. Two, certainty and simplicity, are vital in crafting tax legislation and are critical elements to taxpayer compliance, noted VandenBrul. He also emphasized that tax systems should not unduly impede or reduce the productive capacity of the economy.

Specific tax policy concerns VandenBrul shared include the federal cap on state and local tax deductions, the ongoing challenges with bonus depreciation in Pennsylvania, and the state’s limits on net operating loss.

VandenBrul acknowledged House Bill 1709, pending before the Finance Committee, which would provide a state/local tax cap work-around at the state level by enacting a pass-through entity (PTE) tax. Nearly 20 states have enacted similar PTE taxes, including several in our region (Connecticut, Maryland, New Jersey, and New York).

Regarding bonus depreciation, VandenBrul told the committee, “The current CNIT (Corporate Net Income Tax) bonus depreciation rules, while notably improved over prior versions, are complex, and compliance with these provisions is difficult. Currently, no other state has enacted similar provisions.” PICPA’s position is that the current CNIT depreciation provisions need to be amended to achieve the state’s objectives of Act 72 of 2018 and to promote simplicity in application.

Pennsylvania’s net operating loss provisions are uniquely uncompetitive, VandenBrul said. “Pennsylvania stands out as the only state that permanently limits the use of net operating losses calculated for CNIT purposes.” He went on to say, “These provisions may have a particularly negative impact on businesses that experience cyclical changes in earnings, as well as businesses that generate significant losses early in their life cycle.”

 

Back to Top ^

 

IRS Service Levels Continue to Founder

Like many federal and state agencies, the IRS has been hit hard by the COVID-19 pandemic. Numerous practitioners are reporting that they can’t get through to the agency or are unable to get resolution on important tax matters.

According to a recent article by Accounting Today, the dip in service levels is due to the IRS being completely inundated with returns yet to be processed and phone calls for assistance. Many factors are contributing to this, and it is overwhelming to the agency, according to Stephen Mankowski, tax chair of the National Conference of CPA Practitioners, who attended a recent IRS meeting for stakeholders.

“Paper returns have piled up – there are 5.5 million Form 1040s and over 4 million business returns that have been opened but not processed,” Mankowski said. “The goal is that, by year-end, the paper returns will be processed. However, there are an additional 4 million returns anticipated by mid-October.”

Practitioners are wondering how and when things will improve.

The PICPA and the AICPA offer the following short-term suggestions to help speed up normalization:

  • Halt compliance actions until the IRS is prepared to devote the necessary resources for a proper and timely resolution of erroneous notices, missing refunds, and other matters.
  • Align requests for account holds with the time it takes the IRS to process penalty abatement requests.
  • Provide taxpayers with targeted relief from underpayment of estimated tax penalties and late payment penalties for the 2020 tax year.
  • Offer a COVID-19 reasonable cause relief, similar to the procedures of first-time abatement and generally facilitate the easier adoption of reasonable cause relief.

PICPA members and staff are meeting with members of Pennsylvania’s congressional delegation in a few weeks to discuss the issue and some proposed solutions. In addition, we are engaging our Federal Taxation Thought Leadership Committee and our IRS Liaison to determine what role the PICPA should have in addressing these issues.

 

Back to Top ^

 

Pa. Board of Appeals Updates Operating Procedures

The Pennsylvania Board of Appeals recently updated its operating procedures. Specifically, all of the board’s hearings will be conducted virtually and will be digitally recorded. Petitioners will receive an electronic invitation from the hearing officer to join the hearing. The petitioner always has the option to waive the hearing and request that the decision be based on the record.

The Board of Appeals was established to review initial actions taken by the Department of Revenue against a taxpayer (such as an assessment); requests for refunds submitted by taxpayers; denials of property tax/rent rebate claims and charitable exemptions. If you wish to request a refund or appeal an assessment or determination, a petition must be filed with the Board of Appeals.

For more information on filing an appeal visit the Board of Appeals website, or for guidance on original and amended returns head to the Department of Revenue.

 

Back to Top ^

 

House Approves Bill to Help Students in Disadvantaged Schools

Legislation sponsored by Rep. Martina White (R-Philadelphia) to increase scholarships for students attending economically disadvantaged schools has passed the state House.

House Bill 1642 would alter the Public School Code by changing the economically disadvantaged school threshold from at least 75% to 51% of students receiving an Opportunity Scholarship Tax Credit scholarship in the previous school year.

The legislation also would allow eligible elementary and middle school students to receive up to $2,000 in scholarships, and eligible high school students to receive up to $4,000. Currently, eligible students can receive up to $1,000.

Students are eligible to receive a scholarship if their household’s annual income is no greater than $96,676 plus $17,017 for each dependent member of the household. For the 2021-2022 school year, the maximum scholarship award available to non-special-education students is $8,500, and the maximum for a special education student is $15,000.

The bill now moves to the Senate.

 

Back to Top ^

 

Joint Hearing on Pennsylvania Higher Education Funding

Members of the state House Appropriations subcommittee on education and Education subcommittee on higher education held a joint hearing on higher education funding in Pennsylvania.

The 2021-2022 budget allocates more than $1.86 billion to support higher education. The funding goes toward the Pennsylvania State System of Higher Education (PASSHE); the state-related universities of Pennsylvania State University, University of Pittsburgh, Temple University, Lincoln University, and Penn Veterinary School (Penn Vet); community colleges; and grants for students through the Pennsylvania Higher Education Assistance Agency (PHEAA).

Among those who testified at the hearing were the following:

  • Nathan Hench, senior vice president of public affairs, guaranty and strategy, PHEAA
  • Andrew Hoffman, dean, and Robert Schieri, vice dean, Penn Vet
  • Charles Gradowski, vice president finance and administration, Lincoln University
  • Hari Sastry, senior vice chancellor and chief financial officer, University of Pittsburgh
  • David Marino, interim treasurer, Temple University
  • Nick Jones, executive vice president and provost, Pennsylvania State University
  • Dr. Daniel Greenstein, chancellor, and Molly Mercer, chief financial officer, PASSHE

Testifiers focused on how this funding is being used to keep higher education accessible and affordable for students, especially those who reside in Pennsylvania. Another focus was how the universities have been able to manage their cost structure better in recent years. Marino stated that by better aligning their cost structure with changing demographics, Temple University has been able to cut its operating budget in five of the past 10 years, eliminating $136.4 million from the annual operating budget.

Watch the full hearing here.

 

Back to Top ^

 

Toll Scofflaws Beware!

In the wake of news reports that many drivers who do not have E-ZPass have not been paying highway tolls, the state House Transportation Committee took a first step to begin trying to crack down on toll scofflaws.

House Bill 1922, sponsored by Rep. Mike Carroll (D-Luzerne), would lower the threshold needed to trigger a suspension: from six violations to four, and from a $500 in total unpaid bills to $250. It would also raise the statute of limitations from three years to five years.

A recent Pennsylvania Turnpike Commission report estimates $104 million in revenue has been lost in uncollected tolls after an all-electronic tolling system went into effect last year.

The bill now goes before the full House for consideration.

 

Back to Top ^

 

September Revenue Collections Strong

Pennsylvania collected $4 billion in General Fund revenue in September, which was $495.9 million, or 14.1%, more than anticipated, reports the Department of Revenue. Fiscal year-to-date General Fund collections total $9.3 billion, which is $628.3 million, or 7.3%, above estimate.

According to the Independent Fiscal Office (IFO) monthly revenue projections, General Fund collections of $4 billion in September were $551.4 million (16%) overestimate. The monthly differential, notes IFO, was attributable to strength in all three major tax types: corporate net income tax, sales and use tax, and personal income tax (PIT). Fiscal-year-to-date General Fund collections of $9.28 billion are $714.5 million (8.3%) above estimate.

Sales tax receipts totaled $1.1 billion for September, $93 million above estimate. Year-to-date sales tax collections total $3.5 billion, which is $142.3 million, or 4.3%, more than anticipated.

PIT revenue in September was $1.5 billion, $97.8 million above estimate. This brings year-to-date PIT collections to $3.5 billion, which is $164.9 million, or 5%, above estimate.

September corporation tax revenue of $898.2 million was $233.7 million above estimate. Year-to-date corporation tax collections total $1.2 billion, which is $257.4 million, or 27.3%, above estimate.

Inheritance tax revenue for the month was $143.4 million, $25.4 million above estimate, bringing the year-to-date total to $370.6 million, which is $12.8 million, or 3.6%, above estimate.

Realty transfer tax revenue was $75.6 million for September, $14.8 million above estimate. This brings the fiscal-year total to $181.9 million, which is $16.3 million, or 9.8%, more than anticipated.

Other General Fund tax revenue – including cigarette, malt beverage, liquor, and gaming taxes – totaled $183.5 million for the month, $13.8 million above estimate. This brings the year-to-date total to $490.1 million, which is $16.3 million, or 3.4%, above estimate.

Nontax revenue totaled $39.1 million for the month, $17.5 million above estimate. The year-to-date total is $85.8 million, which is $18.3 million, or 27.2%, above estimate.

In addition to the General Fund collections, the Motor License Fund received $236.8 million for the month, $20.0 million above estimate. Fiscal year-to-date collections for the fund – which include gas and diesel taxes, as well as other license, fine, and fee revenues – total $729.8 million, which is $22.5 million, or 3.2%, above estimate.

 

Back to Top ^

 

About PICPA

The Pennsylvania Institute of Certified Public Accountants (PICPA) is a premier statewide association of more than 22,000 members working in public accounting, industry, government, and education. Founded in 1897, the PICPA is the second-oldest and fourth-largest state CPA organization in the United States.

Learn more about how you can become involved in the legislative process, through PICPA's Key Contact Program and CPA-PAC.

Contact the Government Relations Team at governmentrelations@picpa.org or (717) 232-1821.

Address:
500 N. 3rd St., Ste. 600A 
Harrisburg, PA 17101

Subscribe to Legislative Update

Get the latest news on Pennsylvania government, issues affecting CPAs, and the PICPA's advocacy work. This weekly newsletter is for PICPA members only.

Subscribe Now