Legislative Update - Week Ending March 4, 2022

by PICPA Government Relations | Mar 04, 2022


Corporate Tax Reform Measure Set to Be Introduced

As a part of his 2022-2023 state budget proposal, Gov. Tom Wolf outlined changes to Pennsylvania’s corporate tax law. State Sen. Steven Santarsiero (D-Bucks) and Rep. Mary Jo Daley (D-Montgomery) will introduce the governor’s plan and are asking their colleagues to support the measure.

Specifically, the legislation will do the following:

  • Cut the corporate net income tax (CNIT) rate by 2% from 9.99% to 7.99% beginning Jan. 1, 2023. The CNIT rate will be further reduced to 6.99% in 2026 and 5.99% in 2027. These reductions will result in tax cuts of nearly $1.3 billion over five years. The proposal ultimately puts Pennsylvania on a path to 4.99%, a rate that would be competitive with other, more economically friendly states.
  • Strengthen the commonwealth’s add-back provisions by adding intercompany management fees, royalties, and interest, which are currently unaccounted for.
  • Codify economic nexus rules, as described in the Department of Revenue’s Corporation Tax Bulletin 2019-04, that require out-of-state businesses operating in Pennsylvania to be subject to the same rules as Pennsylvania-based businesses.
  • Seeks to align current sourcing rules for the sales of intangibles to those used for services.

The PICPA’s PA Corporate Tax Thought Leadership Committee is reviewing the legislation and will be advising state lawmakers. 

 

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PICPA Advocates for Additional K-2, K-3 Relief

Continuing its advocacy efforts on behalf of members with compliance difficulties, the PICPA joined the AICPA and other state CPA societies in sending a letter to Assistant Treasury Secretary Lily Batchelder and IRS Commissioner Charles Rettig regarding widespread concerns over Schedules K-2 and K-3.

The PICPA recently hosted a town hall covering K-2 and K-3 filing as well as another top-of-mind issue for many practitioners this tax season: IRS service issues.

Additionally, PICPA’s Federal Tax Thought Leadership Committee convened a meeting with Rich Furlong, senior IRS stakeholder liaison, regarding the IRS service issues. Furlong also shared the following with regard to the status of processing Form 941, Employer’s Quarterly Federal Tax Return:

The IRS is now opening mail within normal timeframes. As of Feb. 2, 2022, we had 1.5 million unprocessed Forms 941. Tax returns are opened in the order received. If you filed electronically and received an acknowledgement, you do not need to take any further action other than promptly responding to any requests for information. We’re working hard to get through the carryover inventory. Please don’t file a second tax return or contact the IRS about the status of your return.

As of Feb. 2, 2022, our total inventory of unprocessed Forms 941-X was approximately 444,000, some of which cannot be processed until the related 941s are processed. While not all these returns involve a COVID credit, the inventory is being worked at two sites (Cincinnati and Ogden) that have trained staff to work possible COVID credits.

 

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House, Senate Hearings on State Budget Continue

Appropriations hearings continue as state lawmakers in both the House and Senate delve into the details of Gov. Wolf’s proposed $43.7 billion spending plan for the new fiscal year that begins July 1, 2022.

Recent appearances before the Senate Appropriations Committee included Attorney General Josh Shapiro and representatives from the departments of Community and Economic Development, Conservation and Natural Resources, and Agriculture. Senators also heard from Pennsylvania’s state-related universities on proposed funding.

The presenters before the House Appropriations Committee included the departments of Environmental Protection, State, Agriculture, Labor & Industry, Health/Drug & Alcohol Programs, and PennDOT. Representatives from the Pennsylvania State Police highlighted a proposed $7.7 million to provide additional technology for state troopers.

 

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DOR Restaurant Industry Support Initiative

The Pennsylvania Department of Revenue (DOR) is undertaking an initiative to help improve tax compliance in the restaurant industry. The two-fold approach is designed to first provide additional resources and guidance for the industry and then to promote better use of DOR resources and ease the burden on compliant businesses.  

The DOR’s guidance and resources include tips that explain how to handle sales tax, recordkeeping, and other tax obligations. In addition to mailing information to restaurants, DOR employees will be traveling to some Pennsylvania restaurants to go over these available resources and review compliance issues that may exist.

The DOR is also planning adjustments to the process it uses for audits in the restaurant industry to help ease the burden on the compliant. When restaurants are selected for audit and have been found to meet certain compliance requirements, the audit can be limited to a current period, rather than the traditional three-year lookback. Important details related to the revised audit approach can be found on the web page setup for this initiative.

 

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Update on Newly Introduced Legislation

Many House and Senate lawmakers are focused on the state budget hearings, but legislation is still being proposed and introduced. Here are some of the bills the PICPA government relations team and multiple PICPA thought leadership committees are keeping an eye on.

Sen. Patrick M. Browne, CPA (R-Lehigh), introduced Senate Bill 1036. The bill, which would update bonding requirements for tax collectors, has been referred to the Senate Local Government Committee.

Senators Lisa Boscola (D-Northampton) and Marty Flynn (D-Lackawanna) plan to introduce legislation to appropriate $500 million of the approximately $2.4 billion in funds remaining from the American Rescue Plan to assist small businesses through the Main Street Business Revitalization Program. This is a companion piece to the $500 million proposal for the Historically Disadvantaged Business Revitalization Program.

Boscola is also readying legislation that would create a two-month sales tax holiday in Pennsylvania. If passed, the state will not collect the 6% sales tax in June or July this year.

Rep. Wendi Thomas (R-Bucks) introduced House Bill 2215, a bill to create a Startup Investor Tax Credit. The bill is pending before the House Finance Committee.

Rep. Craig Williams (R-Chester) introduced legislation that will temporarily allow delinquent taxpayers to make good on their bill without the financial burden of paying late fees, penalties, or interest. House Bill 2274 has been referred to the House Finance Committee.

Rep. Robert Merski (D-Erie) is preparing legislation that would appropriate money for small start-up businesses that were ineligible for previous COVID-19 assistance. This county block grant program will award eligible applicants that began operations between Jan. 1, 2020, and Dec. 31, 2021, with grants of up to $15,000.

State Reps. Christopher Rabb (D-Philadelphia), Elizabeth Fiedler (D-Philadelphia), Sara Innamorato (D-Allegheny), Rick Krajewski (D-Philadelphia), and Summer Lee (D-Allegheny), will introduce the Fair Share Tax Plan. First, the personal income tax on wages and interest would decrease from 3.07% to 2.8%. Then, the income tax on passive income would increase to 6.5%. Passive income sources would be things such as net profits, dividends, net gains derived from rents, royalties, patents and copyrights, gambling and lottery winnings, and net gains derived through estates and trust. The legislation would raise $2.8 billion in new tax revenue.

 

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Worker Misclassification Task Force Releases Report

The Pennsylvania Department of Labor & Industry (L&I) Joint Task Force on Misclassification of Employees submitted its annual report to the General Assembly. The report includes 15 recommendations to improve the system.

The Joint Task Force was created by Act 85 of 2020 to study the worker misclassification issue and its impact on Pennsylvania. The task force is required to submit a final report of its findings by December 2022.

 

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February State Revenue Collections Strong

Pennsylvania collected $2.4 billion in General Fund revenue in February, which was $155.7 million, or 6.8%, more than anticipated, reported the Department of Revenue. Fiscal year-to-date General Fund collections total $28.6 billion, which is $2.0 billion, or 7.5%, above estimate.

The Independent Fiscal Office (IFO) Monthly Revenue Update for February shows that actual collections were $256.7 million above IFO projections. February 2022 General Fund revenues of $2.43 billion reflect a decrease of $249.5 million (-9.3%) compared with the same month in the prior year.

Sales tax receipts totaled $935.6 million for February, $55.8 million above estimate. Year-to-date sales tax collections total $9.1 billion, which is $559.6 million, or 6.5%, more than anticipated.

Personal income tax (PIT) revenue in February was $1.0 billion, $40.8 million above estimate. This brings year-to-date PIT collections to $9.7 billion, which is $528.9 million, or 5.8%, above estimate.  

February corporation tax revenue of $136.1 million was $24.6 million above estimate. Year-to-date corporation tax collections total $2.8 billion, which is $622.7 million, or 28.6%, above estimate.

Nontax revenue totaled $18.9 million for the month, $7.4 million above estimate. This brings the year-to-date total to $4.2 billion, which is $84.3 million, or 2.1%, above estimate.

 

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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