Dunbar Readies Bill Exempting Paycheck Protection Loans from State Tax
State Rep. George Dunbar (R-Westmoreland) is preparing to reintroduce legislation that will exempt the forgiveness of indebtedness granted under the Paycheck Protection Program (PPP) from state personal income tax. The PICPA has worked with Dunbar on crafting the legislation and supports the measure.
Established under the Coronavirus Aid, Relief, and Economic Security Act, the PPP has been a lifeline for businesses by providing financial tools to help maintain operations during the pandemic. If proceeds of a loan issued under the program were used by a business to cover payroll costs, payments of interest on mortgage and rent obligations, and utility payments, the business may have the amount forgiven from federal taxation.
Given Pennsylvania’s rolling conformity with federal tax law, state taxpayers subject to our state corporate net income tax will similarly have the amount excluded from their state tax liabilities. Unfortunately, the same does not hold true for small businesses without a separate act from the General Assembly. Dunbar’s legislation provides the necessary exemption, further builds upon the benefits provided by the PPP, and ensures that consistency and a level playing field is provided for small businesses.
By exempting the forgiven amounts from state tax, Dunbar says, small-business owners will be able preserve the total amount of funds forgiven for use in not only keeping their businesses open, but also retaining their employees and supporting our local communities.
Last session, Dunbar’s House Bill 2497 was approved by the state House but the bill died in the Senate.
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IFO Provides Five-Year Economic Outlook
The Independent Fiscal Office (IFO) released its five-year economic and budget outlook. The presentation also provided a revenue update for the current fiscal year and assess the implications of recent economic trends for future budget surpluses or deficits.
IFO notes that fiscal year (FY) 2021-2022 revenues will contract by 4.6% because the prior fiscal year includes one-time transfers from special funds ($531 million) and delayed tax payments shifted into the year ($1.9 billion). The analysis also projects flat income growth for the current calendar year as various federal relief programs end and consumer spending slows. From FY 2021-2022 to FY 2025-2026, the forecast projects General Fund revenues to increase at an average rate of 3.6% per year.
For FY 2021-2022, expenditures will increase by 14.6% due to the use of substantial federal monies, payment delays, and other one-time measures in the prior fiscal year. From FY 2021-2022 to FY 2025-2026, General Fund expenditures will expand at an average rate of 3.1% annually. When combined with available revenues, the projected operating deficit will peak in FY 2022-2023 at $2.6 billion, and then decline to $2.0 billion by FY 2025-2026. The deficit peaks in FY 2022-2023 due to a new, permanent transfer from sales and use tax revenues ($469 million) that begins that year.
This report examines the demographic, economic, revenue, and expenditure trends that will affect Pennsylvania’s fiscal condition through FY 2025-2026. Based on the economic and demographic assumptions used by this report, the analysis projects a substantial surplus for FY 2020-2021, but operating deficits for all future years.
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Pennsylvania State Row Officers Sworn In
Three Pennsylvania row officers were sworn in this week. Democratic Attorney General Josh Shapiro, elected to a second term in November, was joined by Republican newcomers Timothy L. DeFoor and Stacy Garrity, who won first terms as auditor general and state treasurer, respectively.
Shapiro, who won a second term as Pennsylvania’s top law enforcement officer, promised to continue working toward justice for all residents. “The work goes on,” he said. “As we have seen over the past year, there is a long way to go.”
DeFoor is the first African American to hold a statewide elective row office and is the first Republican to serve as state auditor general in 24 years. He succeeds Eugene DePasquale, who was term limited.
“Accountability, integrity, and transparency are what Pennsylvania taxpayers expect and deserve from their government in Harrisburg, and that’s exactly what I’ll deliver,” DeFoor said. “I will work hard to ensure our citizens that their hard-earned tax dollars are being used and spent appropriately.”
The PICPA served as a member of DeFoor’s transition team.
Garrity, from Bradford County, defeated incumbent Joseph Torsella, a Democrat. She is a retired colonel with 30 years of service with the Army Reserves.
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Pa. DOR Issues New Sales and Use Tax on Nonmedical Face Coverings
The Pennsylvania Department of Revenue issued a revised Sales and Use Tax Bulletin to inform persons responsible for charging, collecting, and remitting sales tax about the treatment of nonmedical masks and face coverings.
Medical supplies, including medical and disposable surgical masks, are exempt from Pennsylvania sales tax. Prior to COVID-19, nonmedical masks and face coverings were subject to sales tax because nonmedical masks and face coverings were generally classified as ornamental or clothing accessories, and the use for which consumers purchased nonmedical masks and face coverings was not for an exempt purpose.
As part of the clarification, the bulletin states “As of Oct. 30, 2020, in response to the ubiquitous use of nonmedical masks and face coverings, the department recognizes that both cloth and disposable nonmedical masks and face coverings are exempt from sales and use tax as everyday wear or clothing.”
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Senate Mourns Passing of Sen. Dave Arnold
State senators are mourning the loss of one of their own. State Sen. Dave Arnold (R-Lebanon) lost his battle with brain cancer on Jan. 17. Arnold, 49, was elected to represent the 48th Senate District in a special election in January 2020, taking over the seat previously held by Sen. Mike Folmer (R-Lebanon).
“We join the residents of the 48th Senatorial District and all Pennsylvanians in mourning the passing of Sen. Dave Arnold,” Senate President Pro Tempore Jake Corman and Senate Majority Leader Kim Ward said following the passing of their colleague. “We lost a good man and committed leader much too soon. From the moment voters sent Dave to Harrisburg one year ago, he worked tirelessly for his constituents and the Commonwealth. This was not a surprise to anyone who knew him. It was a continuation of a record of public service marked by independence and integrity.”
Before electing him to the Senate, Arnold was Lebanon County district attorney, a position he held for 14 years. He leaves behind a wife and daughter.
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Blake Selected to Chair Senate Finance Committee
State Sen. John Blake (D-Lackawanna/Luzerne/Monroe) announced that he will again serve as the Senate Democratic chair for the Senate Finance Committee in the 2021-2022 legislative session.
Blake has served as Finance Committee chair for the Senate Democratic Caucus since 2013. In addition to his committee chairmanship, Blake will also serve on the Senate Appropriations, Education, State Government, and Transportation committees.
“It is an honor and privilege to continue serving as the chair of the Finance Committee for the fifth straight session, where we will continue our work on important pension reform and tax policies to benefit our local communities and businesses,” Blake said.
The state House and Senate return to session on Monday, Jan. 25.
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State Senate Democrats Hold Hearing on Raising the Minimum Wage
The state Senate Democratic Policy Committee held a public hearing on raising the minimum wage for Pennsylvanians. Senators heard testimony from a number of groups, including the Business for a Fair Minimum Wage, the Patriotic Millionaires, and the Pennsylvania Chamber of Business and Industry.
The Pennsylvania General Assembly last raised the minimum wage in July 2007 to $7.25 per hour. The six states bordering Pennsylvania have enacted minimum wage laws exceeding the current Pennsylvania rate. Maryland, New York, New Jersey, Delaware, West Virginia, and Ohio all have higher minimum wages than Pennsylvania, which has been stagnate at the federal minimum for more than a decade.
Currently, 29 states and the District of Columbia have minimum wages above the federal minimum wage of $7.25 per hour.
Senate Bill 12, sponsored by Sen. Tina Tartaglione, (D-Philadelphia), would immediately raise Pennsylvania’s minimum wage to $12 an hour for all Pennsylvania workers, with a pathway to $15 an hour by 2027. This bill would also eliminate the tipped minimum wage for Pennsylvania, ensuring all workers are making a living wage that is not dependent on patron generosity.
The full recording of this hearing can be found at senatormuth.com/policy.
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