Multistate Tax Collaboration Holds First Meeting
Members of the PICPA State Taxation Steering Committee and their colleagues at the New Jersey Society of CPAs (NJCPA) and the New York State Society of CPAs (NYSSCPA) held their first meeting as part of an ongoing effort to tighten connections and work collaboratively to uncover and resolve potential cross-state tax issues. The collaboration was initiated last year between the PICPA and NJCPA, and has since grown to include practitioners from the New York State Society.
Twenty-six representatives from PICPA, NJCPA, and NYSSCPA participated in the virtual meeting. Topics included nexus of a corporation for income tax purposes, New Jersey PL 86-272 guidance, a New Jersey update on potential changes to S corporation election process, elective pass-through-entity taxes, New Jersey Business Alternative Income Tax guidance, an update on the Pennsylvania MyPath system, and discussion on e-file-related issues.
The group is tentatively scheduled to meet again in July. If you are interested in participating in future discussions, please reach out to Alex Fabian at firstname.lastname@example.org.
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Tax Reform Bills Gain State House Approval
Prior to recessing for the May primary elections, state House lawmakers approved a package of tax reform bills. The PICPA State Taxation Steering Committee and the PICPA government relations team have been sharing thoughts and concerns with state lawmakers and stakeholders on these various proposals as they moved through the process. The PICPA will continue to work with lawmakers as they craft important tax proposals as part of this year’s budget discussions.
The most recent package includes three bills: House Bill 1960, House Bill 685, and House Bill 2277.
House Bill 1960, sponsored by Rep. Josh Kail (R-Beaver/Washington), would lower the corporate net income tax by one percentage point to 8.99% starting Jan. 1, 2023, with additional triggers to further lower the tax rate in future years. The legislation would also provide additional tax simplification by increasing the cap for net operating loss carry forwards. The bill passed the House by a vote of 195 to 8.
House Bill 385, sponsored by Rep. George Dunbar (R-Westmoreland), makes changes to the state personal income tax, allowing for the tax deferral of like-kind exchanges as permitted under Section 1031 of the Internal Revenue Code. Additionally, House Bill 385 repeals certain provisions in the Fiscal Code. Act 1 of 2021 amended the Fiscal Code by stating the following were to be excluded from personal income tax: forgiveness of Paycheck Protection Program loans and Economic Impact Payments (stimulus checks) received by individuals. House Bill 385 recodifies these provisions in the Tax Reform Code.
House Bill 2277, sponsored by Rep. Jesse Topper (R-Bedford), would end Pennsylvania’s accelerated sales tax (AST) prepayments, which are based on estimated sales tax collections. Under Topper’s legislation, business owners instead would only remit to the state the sales tax collected. This bill, which PICPA supported, passed the House unanimously 203-0.
The three bills are pending in the Senate Finance Committee for consideration.
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House Hearing Explores School District Audits
The House Democratic Policy Committee this week explored the impact of the state Auditor General Tim DeFoor’s decision to close the School Audit Bureau. State lawmakers heard testimony from those who emphasized the complex accounting and reimbursement structures for costs throughout the education system.
During the May 4 hearing, Dr. Sherri Smith, deputy secretary of the Department of Education, said the School Audit Bureau was shuttered without any consultation with her department and that they do not have the knowledge or capacity to handle the audits themselves. Dr. Michelle Sellitto, former state director for the School Audit Bureau, shared the example of transportation cost reimbursements and an instance where school districts gave contractors 20 excess miles per day for three years, leading to massive overpayments every year.
Municipal- and county-level controllers described that, without these audits, there will be a lack of oversight and transparency over taxpayer dollars. Pittsburgh City Controller Michael Lamb explained that audits he and other controller offices throughout Pennsylvania perform lead to changes in laws and strengthen fiscal responsibility throughout the commonwealth.
Donner Cooper from Children First outlined that her organization used data and examples from Ohio charter schools to explain how the elimination of the School Audit Bureau would impede the ability to regulate non-brick-and-mortar schools, leading to unchecked executive compensation in cyber charter schools, as well as unchecked waste, fraud, or abuse.
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Philadelphia Reassessments Complete, Tax Plans Proposed
Philadelphia’s Office of Property Assessment announced that it has completed reassessments of all properties in Philadelphia, the first such reevaluation of market values since before the COVID-19 pandemic. At the same time, city officials unveiled plans to expand key relief programs to mitigate the impact of rising values on homeowners and proposed reductions in wage taxes to speed the city’s economic recovery and ensure its competitiveness. Taken as a whole, these measures will ensure that the estimated $460 million increase in revenues resulting from new assessments are put directly back into the hands of taxpayers.
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Schedules K-2/K-3 E-file Capability Postponed for S Corps
The IRS has delayed by more than a month the rollout of an electronic filing protocol for Schedules K-2, Shareholders' Pro Rata Share Items – International, and K-3, Shareholder's Share of Income, Deductions, Credits, etc. – International, filed by S corporations.
The IRS revised the date included in the frequently asked questions (FAQs) on its website. When first posted on Feb. 26, 2022, FAQ 7 said the versions of the schedules that are filed with Form 1120-S, U.S. Income Tax Return for an S Corporation, would be able to be e-filed on its Modernized e-File (MeF) platform by mid-June 2022. The updated FAQ says that capability will go live July 24. Taxpayers can file the schedules via PDF attachments for the entire 2022 filing season, the IRS stated.
In February, the AICPA and state CPA societies, including the PICPA, sent a letter to IRS Commissioner Charles Rettig and Assistant Secretary of Treasury Lily Batchelder calling on the Treasury Department and the IRS to delay implementation of the Schedules K-2 and K-3 to 2023 (the 2022 tax year filing season) and to suspend any assessment of penalties against partnerships or S corporations for failing to file or failing to timely provide Schedules K-2 and K-3 for the 2021 tax year.
In response, the IRS issued IR-2022-38, which provided transition relief related to Schedule K-2 and K-3 filers for tax year 2021.
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April State Revenues Highest Ever Collected
Pennsylvania collected $6.5 billion in General Fund revenue in April, which was $1.8 billion, or 38.7%, over estimate and the most tax revenue ever collected in a single month. Fiscal year-to-date General Fund collections total $40.7 billion, which is $4.5 billion, or 12.4%, above estimate.
According to the Independent Fiscal Office (IFO) Monthly Revenue Update, actual collections for the month were $2.0 billion above IFO projections. April 2022 General Fund revenues of $6.52 billion reflect an increase of $2.56 billion (64.5%) compared to the same month in the prior year.
Sales tax receipts totaled $1.2 billion for April, $120.7 million above estimate. Year-to-date sales tax collections total $11.5 billion, which is $888.5 million, or 8.4%, more than anticipated.
Personal income tax (PIT) revenue in April was $4.1 billion, $1.4 billion above estimate. This brings year-to-date PIT collections to $15.4 billion, which is $2.1 billion, or 15.4%, above estimate. ;
April corporate tax revenue of $676.1 million was $306.4 million above estimate. Year-to-date corporate tax collections total $5.8 billion, which is $1.1 billion, or 23.7%, above estimate.
Inheritance tax revenue for the month was $133.0 million, $22.0 million above estimate. The year-to-date total is at $1.3 billion, which is $144.2 million, or 12.5%, above estimate.
Realty transfer tax revenue was $77.6 million for April, $25.9 million above estimate. For the fiscal-year, the total is $701.8 million, which is $140.0 million, or 24.9%, more than anticipated.
Other General Fund tax revenue – including cigarette, malt beverage, liquor, and gaming taxes – totaled $39.8 million for the month, $13.8 million below estimate. This brings the year-to-date total to $1.4 billion, which is $19.7 million, or 1.4%, above estimate.
Nontax revenue totaled $230.6 million for the month, or $4.0 million below estimate. This brings the year-to-date total to $4.6 billion, which is $122.3 million, or 2.7%, above estimate.
In addition to the General Fund collections, the Motor License Fund brought in $247.2 million for the month, $36.1 million below estimate. Fiscal year-to-date collections for the fund – which include the commonly known gas and diesel taxes, as well as other license, fine and fee revenues – total $2.3 billion, which is $19.5 million, or 0.8%, above estimate.
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Pa. House Welcomes New Lawmakers
The Pennsylvania House welcomed three new members. Recently held special elections added Rep. Aerion Andrew Abney (D-Allegheny), Rep. Martell Covington (D-Allegheny), and Rep. Robert Schnee (R-Luzerne) to their respective caucuses.
Abney was Pennsylvania director of special projects for All Voting Is Local, and previously served as program officer with the POISE Foundation where he approved grants to local nonprofit organizations.
Covington has served in leadership for the Oakland Business Improvement District’s Strategic Plan, as technical adviser for the Oakland plan, and as a legislative aide to state Senate Democratic Leader Jay Costa. He also held several positions in the Community Empowerment Association.
Schnee, a Luzerne County Councilman, retired from the Hazleton City Water Authority in 2021. Schnee also served on the Hazleton School Board and was president of the Local 8567 Union and Hazleton Water Authority Union.
The state House is now back to its full complement of 203 members – 113 Republicans to 90 Democrats.
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Small Business Administration EIDL Portal to Close
The U.S. Small Business Administration announced that for those who have received a COVID-19 Economic Injury Disaster Loan (EIDL), the online portal will be closed on May 16 – 10 days after the agency will stop taking requests for loan increases or reconsideration.
SBA reminded recipients that May 6 is the last day they are able to file for a loan increase or a reconsideration of a previously rejected loan request. The agency stopped taking applications for new loans on Jan. 1, 2022. The loans were to be used for working capital and other normal operating expenses for those suffering economic hardships during the pandemic.
SBA announced earlier this year that it extended the deferral period for payments due on the principal and interest on EIDL loans to 30 months from when funds were first received.
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