State House Budget Hearings Continue
State budget hearings continued the week of Feb. 22 before the House Appropriations Committee. Departments and agencies appearing before the committee included Community and Economic Development, Environmental Protection, General Services, Drug and Alcohol, and Transportation, as well and the Pennsylvania Liquor Control Board.
Dennis Davin, secretary of the Department of Community and Economic Development (DCED), received criticism for the administration’s handling of the business closure and waiver processes. While acknowledging the process was not without flaws, Davin contended that, overall, it was a success. “The waiver process was not a debacle,” Davin told members of the committee. The department, according to Davin, reviewed nearly 42,000 waiver applications and approved 22,000 in a two-week period. Davin also stood firm under questioning about DCED’s communications with stakeholders.
Regarding questions concerning distressed municipalities, Davin confirmed that 43 municipalities are projected to be under Act 47 by the end of the current fiscal year, 62 by the end of the 2021-2022 fiscal year due to COVID-19 lockdowns and loss of economic activity. There are currently 16 municipalities in Act 47 status.
Yassmin Gramian, secretary of the Department of Transportation, answered questions related to the department’s proposal to toll nine bridges under Pennsylvania’s public-private partnership (P3) law. The cost of replacing the nine bridges is estimated to be $2.2 billion, but PennDOT could not provide an estimate of the total cost to drivers through tolls over a 30-year period.
Major transit authorities have received $1.4 billion in federal COVID-19 relief funds over the past year, but revenue generated from fares have fallen dramatically. Gramian testified that the federal funds are sufficient to help transit authorities through the current fiscal year and the next fiscal year. However, the secretary expressed concern about the future financial viability of transit authorities beginning in the 2022-2023 fiscal year.
House Appropriations budget hearings for the week of March 1 include the departments of Education, Labor and Industry, and Human Services. Senate hearings begin the week of March 8.
For more in-depth coverage of the workings of Harrisburg, join Peter Calcara, PICPA’s vice president of government relations, for his quarterly Legislative Update Webinar on March 11 where he will discuss the new legislative session, Gov. Tom Wolf’s 2021-2022 state budget proposal, and PICPA’s legislative agenda.
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PICPA Testifies to Lawmakers on Tax Proposals
Jason Skrinak, CPA, a member of the PICPA State Taxation Committee as well as its Fiscal Responsibility Task Force, appeared before the Pennsylvania House Majority Policy Committee (Skrinak’s testimony begins at 41:08). The focus of the hearing was Gov. Tom Wolf’s tax proposal and what it means for working families.
Skrinak, founder of Pivot Strategic Consulting LLC in Harrisburg, told committee members that the “proposed budget is very important to my clients as they determine how to continue business operations during the uncertainty of COVID-19. As a state and local tax professional, I have had numerous conversations with clients regarding how to continue operations in Pennsylvania as well as whether to expand and/or relocate business operations to other states.”
The special tax forgiveness program, noted Skrinak, should remove beneficiaries for whom the program was not intended. For example, Skrinak told lawmakers that individuals receiving large retirement benefits that are not taxable in Pennsylvania while also still receiving earned income that would be eligible for tax forgiveness are unintended beneficiaries.
Pennsylvania should investigate current special tax forgiveness programs and address the fact that the parameters used to calculate special tax forgiveness have not been addressed for years. Consideration should be given to benchmarking the special tax forgiveness parameters to get the program aligned with the Federal Poverty Level index.
Regarding the governor’s call for mandatory combined reporting, about which the PICPA is neutral, Skrinak said, “The concern over tax plans that use intercompany transactions has already been partially addressed by legislation that provides for adding back intercompany transactions that were previously used to reduce a company’s corporate net income tax liability.”
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PICPA Committee Reviewing Tax Proposals
The PICPA State Taxation Committee is reviewing several newly introduced, or soon to be introduced, tax proposals.
Rep. George Dunbar (R-Westmoreland) introduced House Bill 198 that would allow a net operating loss (NOL) deduction up to 100% of income to companies adversely impacted by COVID-19 and the subsequent shutdown. The additional 60% deduction can only be from losses that occurred in 2020 and does not apply to losses carried forward from prior tax years. Dunbar notes that this one-time benefit could be the difference between companies continuing to operate or having to shut down. House Bill 198 is pending in the House Finance Committee.
Rep. Natalie Mihalek (R-Allegheny) is proposing an alternative plan to Gov. Wolf’s special poverty (SP) expansion proposal. Mihalek’s legislation would adjust the SP thresholds for inflation, something that has not been done in nearly two decades. In addition, Rep. Mihalek’s proposal will reduce the corporate net income tax rate by 1% each year over the next four years, reaching 5.99% for taxable years beginning Jan. 1, 2025.
Another package of bills under review by the PICPA is one sponsored by Reps. Eric Nelson (R-Westmoreland), Rep. Jim Cox (R-Berks), and Rep. Seth Grove (R-York) that addresses small businesses. The pieces of legislation focus on reforming tax treatment in three areas: like-kind exchanges, net operating loss carry forwards, and Section 179 expense deductions.
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Guidance on 1099G Forms for Unemployment Compensation
According to a PA Tax Talk article from the state Department of Revenue, taxpayers who receive unemployment compensation are encouraged to watch their mailboxes during tax season for the 1099G tax form required to file federal tax returns. Although unemployment compensation is not taxable for Pennsylvania personal income tax purposes, this form will be an important part of preparing tax returns.
In addition, the Pennsylvania Department of Labor and Industry is reminding taxpayers that the following 1099G forms are being mailed to claimants of the below programs:
- Regular Unemployment Compensation (UC-1099G)
- Pandemic Unemployment Assistance (PUA-1099G)
- Reemployment Trade Adjustment Assistance (FP-1099G)
The 1099G forms for Regular Unemployment Compensation (UC) are now available to download online.
The Pandemic Unemployment Assistance (PUA) 1099G form will be made available to download online. Once the 2020 1099G forms are uploaded, PUA claimants can access their PUA-1099G via their PUA dashboard.
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Senators Champion Adult-Use Marijuana Legalization Bill
State Sens. Sharif Street (D-Philadelphia) and Dan Laughlin (R-Erie) plan to introduce legislation to legalize adult-use marijuana in Pennsylvania.
Currently, the legal cannabis industry employs about 250,000 Americans and supports more than 300,000 indirect jobs and full-time workers. The cannabis industry has experienced a 100% growth rate over the past four years and projects, with proper reform, to a million more jobs that can be created by 2025.
In November 2020, cannabis experienced a wave of legislative wins, making recreational marijuana legal now in 15 states and approved for medical use virtually nationwide. With New Jersey passing marijuana legalization and New York expected to legalize marijuana in its upcoming budget session, Pennsylvania is at risk of losing thousands of jobs and hundreds of millions of dollars in tax revenue to neighboring states, say the lawmakers.
According to testimony provided by the Independent Fiscal Office, adult-use marijuana legalization could generate between $400 million to $1 billion of new tax revenue for the state.
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Gov. Wolf Unveils Workforce and Economic Development Plan
Gov. Wolf unveiled his “Back to Work PA” plan to bolster economic recovery from the COVID-19 global pandemic and position Pennsylvania for economic growth.
Back to Work PA builds on recommendations from the annual report of the Keystone Economic Development and Workforce Command Center, published in January 2020. Back to Work PA would be funded by a commonsense extraction tax on the natural gas industry, which would provide $3 billion to enhance existing initiatives and create new, innovative programs to address barriers that are holding back Pennsylvania’s workforce.
Wolf’s plan supports workers significantly affected by the pandemic, addresses inequities, provides resources to support talent development for high-demand occupations, and focuses on high-quality well-paying jobs that lead to careers with family-sustaining wages.
Back to Work PA also would prioritize making high-speed internet access available to all Pennsylvanians by building out this infrastructure in unserved areas of the commonwealth.
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Senate Approves Farmland Preservation Effort
Pennsylvania’s farmland preservation efforts could take a critical step forward under legislation approved by the Senate.
Senate Bill 64, sponsored by Sen. Scott Martin (R-Lancaster), would dedicate a portion of existing farmland preservation funding to private land trusts – groups that take stewardship over a property with permission of the landowner. The legislation would not require additional funds from taxpayers and would also generate new private funding for the program by requiring land trusts to provide matching funds for farmland preserved.
Pennsylvania currently leads the nation in the number of farms and acres permanently preserved for agricultural production. To date, 552,702 acres have been preserved on 5,329 farms across the state.
The bill now moves to the House of Representatives for consideration.
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