PICPA-Backed Pass-Through Entity Tax Bill Up for Committee Vote
The Pennsylvania House Finance Committee has scheduled a vote for June 7 on House Bill 1709 that allows an elective pass-through entity tax (PTE tax). Sponsored by Rep. Martina White (R-Philadelphia), the legislation has been championed by the PICPA. The bill offers an elective PTE tax that would provide a federal tax benefit and clarifies the statutory language under which the Department of Revenue (DOR) currently penalizes Pennsylvania resident partners who elect to pay PTE taxes in other states.
The federal Tax Cuts and Jobs Act of 2017 (TCJA) changed much in the Internal Revenue Code, but the $10,000 state and local tax deduction limitation (SALT cap) is particularly notable. The SALT cap prevents many individuals from being able to fully deduct state and local income tax and property tax on their federal individual income tax returns. This limitation is exacerbated for those with multistate ownership interests in partnerships, S corporations, and certain limited liability companies – collectively referred to as pass-through entities.
As the House and Senate return to session, check out the committee activity for the week.
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Strong State Revenue Collections Continue in May
In May, Pennsylvania collected $3.2 billion in General Fund revenue, which was $402.4 million, or 14.2%, over estimate. Fiscal year-to-date General Fund collections total $43.9 billion, which is $4.9 billion, or 12.5%, above estimate.
According to the Independent Fiscal Office (IFO) Monthly Revenue Update, actual collections were $459.1 million above its projections. May 2022 General Fund revenues of $3.23 billion reflect a decrease of $716.2 million compared with the same month in the prior year.
Sales tax receipts totaled $1.2 billion for May, $129.1 million above estimate. Year-to-date sales tax collections total $12.7 billion, which is $1.0 billion, or 8.7%, more than anticipated.
Personal income tax (PIT) revenue in May was $1.1 billion, $126.9 million above estimate. This brings year-to-date PIT collections to $16.5 billion, which is $2.2 billion, or 15.2%, above estimate.
May corporate tax revenue of $510.9 million was $129.5 million above estimate. Year-to-date corporation tax collections total $6.3 billion, which is $1.2 billion, or 24.4%, above estimate.
Inheritance tax revenue for the month was $132.3 million, $15.6 million above estimate, bringing the year-to-date total to $1.4 billion, which is $159.8 million, or 12.6%, above estimate.
Realty transfer tax revenue was $69.3 million for May, $13.9 million above estimate. The fiscal-year total is $771.1 million, which is $153.9 million, or 24.9%, more than anticipated.
Other General Fund tax revenue – including cigarette, malt beverage, liquor, and gaming taxes, – totaled $176.3 million for the month, $3.1 million below estimate. The year-to-date total is $1.6 billion, which is $16.5 million, or 1.1%, above estimate.
Nontax revenue totaled $29.7 million for the month, $9.4 million below estimate. This brings the year-to-date total to $4.6 billion, which is $112.9 million, or 2.5%, above estimate.
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IFO Revenue Projections Provide Warning to Budget Negotiators
Despite recent strong state revenue collections, the IFO released its initial revenue estimate for the fiscal year (FY) 2022-2023 that paints a different picture. IFO will release its final estimate in June; the new fiscal year begins July 1.
For FY 2022-2023, IFO has an initial revenue estimate of $42.26 billion, a reduction of $5.47 billion from the anticipated current fiscal year total. Federal funds totaling $3.84 billion and transferred to the General Fund during FY 2021-2022 do not recur in FY 2022-2023. Excluding that one-time transfer and a new transfer to the Public Transportation Trust Fund (PTTF), the initial estimate declines by $1.12 billion (2.5%) compared with FY 2021-2022.
The report paints a cautionary tale as lawmakers finalize the 2022-2023 state budget.
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Gov. Wolf Pushes for $2,000 Direct Payments to Pennsylvanians
Gov. Tom Wolf recently called on the General Assembly to pass legislation for the American Rescue Plan Act (ARPA) funded $500 million PA Opportunity Program to send $2,000 checks to Pennsylvanians.
“The cost of everything, from gas to groceries, is a little higher right now than it was just a few weeks ago, and for Pennsylvanians living paycheck to paycheck even a small increase in expenses can mean painful decisions like paying for food or rent,” Wolf said.
In his proposed PA Opportunity Program, $500 million in ARPA dollars would provide direct payments of up to $2,000 to Pennsylvania households with an income of $80,000 or less. The program aims to help families still recovering economically from the COVID-19 pandemic and support them with managing the increasing cost of living.
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Personal Financial Literacy Legislation Introduced
Sen. Chris Gebhard (R-Lebanon) introduced legislation that would require completion of a full-credit economics and personal finance course as a graduation requirement in Pennsylvania.
Senate Bill 1243 aims to provide Pennsylvania’s children with an education in pragmatic monetary issues, such as credit and credit scores, savings and investments, and college, automobile, and home loans.
The content of the courses will be in line with standards established by the second edition of the Voluntary National Content Standards in Economics and the 2013 National Standards for Financial Literacy, as developed by the Council for Economic Education.
Senate Bill 1243 has been referred to the Senate Education Committee.
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Bipartisan After-School Funding Program Unveiled
A bipartisan group of state lawmakers introduced legislation that invests in quality before- and after-school and summer programs that create transformative learning experiences for children across Pennsylvania.
House Bill 2429, sponsored by Rep. Michael Schlossberg (D-Lehigh) and Rep. Lynda Schlegel Culver (R-Northumberland), will create the Building Opportunity through Out-of-School Time (BOOST) Program within the Pennsylvania Department of Education. This program will create a dedicated, sustainable funding stream from the General Fund to support quality out-of-school programs.
According to the lawmakers, “Research shows that Pennsylvania saves $6.69 for every $1 invested in [out-of-school] programs. This nearly 7 to 1 return on investment emanates from the benefits of reduced substance use, violent crime, teen pregnancies, and high school dropout rates. Additionally, these programs prepare young people for the world ahead by fine tuning their social skills, improving their school attendance, and developing career paths.”
House Bill 2429 is pending in the House Education Committee.
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AICPA Weighs in on IRS’s Fiscal Year 2023 Appropriations
In advance of the federal fiscal year 2023 appropriations cycle, the AICPA tax committee sent a letter to leadership of the U.S. Senate and House appropriations committees requesting that they fund the IRS at necessary levels that allow it to complete all of its duties required by Congress.
In the letter, Jan Lewis, chair of the tax committee, stated, “We are concerned that service challenges will persist long after the pandemic has ended unless sufficient, targeted funding for technology improvements, human talent and training, and taxpayer services are appropriated.” The letter also made it clear that funding alone will not solve the IRS’s problems. Structural reforms and organizational alignment from Congress, the president, the secretary, and the commissioner also are necessary to deliver the promised goals.
The letter was sent just after news broke that the IRS sent over $800 million in potentially improper recovery rebate payments, according to a new report from the Treasury inspector general for tax administration. The report noted that $79.8 million in Recovery Rebate Credits should have been paid to eligible individuals, but $818.5 million was paid to ineligible individuals.
Nevertheless, the IRS declined to review nearly $598 million of the improper payments or take the actions needed to recover them.
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