Week Ending May 8, 2020

May 08, 2020

PICPA Loan Forgiveness Proposal Wins State House Approval

The PICPA scored a legislative victory this week when Pennsylvania House lawmakers gave unanimous approval to legislation that included language championed by the PICPA Committee on State Taxation that clarifies a provision in the federal CARES Act’s Paycheck Protection Program (PPP).

Introduced by Rep. Brandon Markosek (D-Allegheny), House Bill 2408 provides that recovery rebate payments (stimulus checks) received by an individual under the federal CARES Act shall not be included in the income, earned income, or taxable income for the 2020 tax year for purposes of personal income tax, the Local Tax Enabling Act, and the Taxpayer Relief Act. The Pennsylvania Department of Revenue has noted that these payments are not subject to Pennsylvania personal income tax. The payment is considered a rebate, which is nontaxable in Pennsylvania. The payments are being distributed as part of the federal economic stimulus legislation that was signed into law in March in response to the COVID-19 pandemic.

A PICPA amendment, sponsored by Rep. George Dunbar (R-Westmoreland) and adopted unanimously the previous week by lawmakers, provides that forgiveness of indebtedness granted under the federal CARES Act for a loan guaranteed under the PPP issued to assist with maintaining payroll costs during the period beginning after Feb. 29, 2020, and ending before July 1, 2020, shall not be included in income, taxable income, or earned income for purposes of personal income tax, corporate net income tax, the Local Tax Enabling Act, and the Taxpayer Relief Act. The amount of forgiveness must not exceed the amount approved by the authorized lender that issued the loan. Dunbar’s amendment makes Pennsylvania’s personal income tax and corporation tax laws consistent in this area.

Dunbar has introduced House Bill 2497, a stand-alone bill, to address PPP loan forgiveness.

House Bill 2408 also increases the limit on funds allowed to be expended by a nonprofit corporation or charitable trust from an endowment from 7% to 10% for a calendar year. This section applies to each calendar year during which the proclamation of disaster emergency or any renewal of a state of disaster emergency, is in effect and the succeeding calendar year.

Last week, the IRS issued Notice 2020-32, which says taxpayers receiving loans through the PPP are not permitted to deduct normally deductible expenses to the extent the expenses were reimbursed by a PPP loan that was then forgiven. The AICPA is seeking legislation that, if enacted, would overturn that position and allow taxpayers to deduct covered expenses paid or incurred by an eligible recipient of a PPP loan that is forgiven under the CARES Act.

House Bill 2408 is now in the Senate Finance Committee.


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Executive Order Provides Civil Immunity for Health Care Providers

Gov. Tom Wolf signed an executive order to afford health care practitioners protection against liability for good faith actions taken in response to the call to supplement the health care provider workforce during the COVID-19 pandemic.

“As the COVID-19 pandemic has required the Wolf administration to take broad action to respond to and prepare for Pennsylvanians’ critical health care needs, so too has it required our health care providers to broaden their professional responsibilities and experiences like never before,” Wolf explained with his announcement.

The executive order provides the following:

  • Grants immunity to any individual who holds a license, certificate, registration, or certification to practice a health care profession or occupation in Pennsylvania and who is engaged in providing COVID-19 medical and health treatment or services during the COVID- 19 disaster emergency response. Immunity does not extend to acts or omissions that constitute a crime, gross negligence, fraud, malice, or other willful misconduct.
  • Extends immunity to medical professionals in Pennsylvania who provide services in any health care facility as defined by the Health Care Facilities Act, as well as any nursing facility, personal care home, assisted living facility, alternate care site, community-based testing site, or noncongregate care facility used for the purpose of conducting emergency service activities or the provision of disaster service activities related to the state’s COVID- 19 disaster emergency response.
  • Affirms immunity for any person, organization, or authority allowing real estate or other premises used for emergency services without compensation in the case of death, injury, or loss, or damages to the property of any person who is on the premises for the purpose of those emergency services.
  • Suspends or removes a host of regulatory barriers that would otherwise impede or prevent out-of-state, retired, or other qualified practitioners from providing services where needed in Pennsylvania.

The order was written in response to stakeholders requesting civil immunity for health care practitioners practicing with good judgment under challenging circumstances during the COVID-19 pandemic. It is effective immediately, and it will remain in effect for the duration of the disaster emergency.


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Bill Would Extend EITC/OSTC Application Deadlines

State Rep. Steve Barrar (R-Delaware) introduced legislation extending the Educational Improvement Tax Credit (EITC) and the Opportunity Scholarship Tax Credit (OSTC) application deadlines for business who are reapplying, in the middle of their two-year commitment and initial applicants by three months.

Currently the application deadline is May 15 for business applicants reapplying to renew a two-year commitment and for businesses in the middle of their two-year commitment. It is July 1 for all other businesses with initial applicants and applicants wishing to submit additional applications on top of their previously submitted two-year commitment.

House Bill 2498 has been referred to the House Finance Committee.


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State House Approves COVID-19 Testing, Mental Health Parity Bills

This week state House lawmakers considered and approved prioritizing COVID-19 testing and mental health parity legislation.

House Bill 2455, sponsored by Rep. John Lawrence (R-Chester), establishes a comprehensive framework for statewide COVID-19 testing and gives local health departments greater latitude to implement coronavirus testing.

The House also passed two bills related to mental health benefits parity. House Bill 1439, sponsored by Rep. Aaron Kaufer (R-Luzerne), would require a certification of compliance by an insurer with federal and state law ensuring mental health benefits coverage is equal to medical or surgical benefits. House Bill 1696, sponsored by Rep. Tom Murt (R-Montgomery), would require insurers to file an annual report with the Insurance Department detailing mental health parity compliance.

All three bills now go to the Senate for further consideration.


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April State Revenue Collections Tumble

Pennsylvania collected $2.2 billion in General Fund revenue in April, which was $2.2 billion, or 49.7%, less than anticipated. Fiscal year-to-date General Fund collections total $27.5 billion, which is $2.2 billion, or 7.4%, below estimate.

Read the Independent Fiscal Office’s Monthly Revenue Update for April 2020.

The Department of Revenue (DOR) estimates that about $1.7 billion of the $2.2 billion shortfall in April can be attributed to moving due dates for various taxes. It is expected the majority of the $1.7 billion will be made up when those tax payments occur in the next fiscal year. An additional $395.3 million of the April shortfall is due to reduced economic activity during the pandemic.

Sales tax receipts totaled $636.7 million for April, $361.4 million below estimate. The DOR estimates approximately $215.4 million of this shortfall in sales and use tax is due to business closures and decreased consumer spending. Year-to-date sales tax collections total $9.1 billion, which is $293.2 million, or 3.1%, less than anticipated.

Personal income tax (PIT) revenue in April was $1.1 billion, which was $1.5 billion below estimate. This brings year-to-date PIT collections to $10.9 billion, which is $1.5 billion, or 12.4%, below estimate.

April corporation tax revenue of $176.3 million was $149.5 million below estimate. Year-to-date corporation tax collections total $4.3 billion, which is $396.3 million, or 8.4%, below estimate.

Inheritance tax revenue for the month was $65.4 million, $36.1 million below estimate, bringing the year-to-date total to $932.8 million, which is $29.7 million, or 3.3%, above estimate.

Realty transfer tax revenue was $26.6 million for April, $23 million below estimate. This brings the fiscal-year total to $431.7 million, which is $13.4 million, or 3%, less than anticipated.

Other General Fund tax revenue – including cigarette, malt beverage, liquor and gaming taxes – were negative $11.4 million for the month, or $43.2 million below estimate. This brings the year-to-date total to $1.2 billion, which is $35.2 million, or 2.8%, below estimate.

Nontax revenue totaled $175.9 million for the month, $22 million below estimate. The year-to-date total is $577.6 million, which is $42.6 million, or 8%, above estimate.

In addition to the General Fund collections, the Motor License Fund received $173.1 million for the month, $99.6 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 – totaled $2.2 billion, which is $120.9 million, or 5.2%, below estimate.


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Guidance for Select Counties Moving to First Phase of Reopening

With portions of Pennsylvania opening on May 8, the Wolf administration issued guidance that details procedures businesses must follow to conduct in-person operations in counties assigned for movement into the yellow phase. All businesses, including nonprofits, permitted to conduct in-person operations are subject to this guidance.

Under the yellow phase of reopening, life-sustaining businesses that could not conduct either all or part of their operations via telework will continue to conduct their operations in-person, and many non-life-sustaining businesses will be permitted to restart in-person operations through a loosening of some restrictions imposed by the stay-at-home and business closure orders.

In yellow-phase counties, all businesses, except those specifically listed as remaining closed in the governor’s Plan to Reopen Pennsylvania, are permitted to conduct in-person operations, as long as they strictly adhere to the requirements of the guidance.

The guidance includes specific information on cleaning and disinfecting premises, limiting the number of employees in common areas and customers on premises, providing masks and sanitizing supplies for employees, installing shields or other barriers at registers and checkout areas to physically separate cashiers and customers, and creating a plan in case a business is exposed to a probable or confirmed case of COVID-19, among other provisions.

The extended stay-at-home order for counties in the red phase remains the same as the original statewide stay-at-home order announced on April 1, and has been extended to June 4. On May 8, Gov. Wolf added more counties to the list of communities next to be lifted from the stay-at-home order. These 13 counties will move into the yellow phase on May 15.


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IFO Analysis of Revenue Proposals in the 2020-2021 Executive Budget

An Independent Fiscal Office (IFO) report provides an analysis of the tax and revenue proposals included in the 2020-2021 Executive Budget released in February 2020. IFO’s report uses various data sources to derive estimates of the revenue proposals included in the budget.

The report projects that the proposals in Gov. Wolf’s budget will reduce General Fund revenues by $145 million in fiscal year 2020-2021, but will lead to an increase of $1.1 billion by fiscal year 2024-2025.

Wolf proposed a $36 billion budget in February. 


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