Week Ending March 5, 2021

Mar 05, 2021


PICPA to Unveil Fiscal Responsibility Task Force Report

Members of the PICPA Fiscal Responsibility Task Force will unveil its latest report to members of the Tax Modernization and Reform Subcommittee of the Pennsylvania House Finance Committee on March 9. Representing the PICPA at the hearing will be Suzanne Leighton, CPA, who chairs the task force, and Cindy Bergvall, CPA, and Cheri Freeh, CPA, who chair the human services and public education work groups for the report.

The global COVID-19 pandemic wreaked havoc on our state’s fiscal situation. Pennsylvania’s complex taxing structure paired with an ongoing fiscal crisis puts policymakers in a difficult position.

As the Pennsylvania General Assembly grapples with public policy questions surrounding tax strategies, the PICPA Fiscal Responsibility Task Force provides this brief review of some of the proposals, without taking a partisan position on one methodology over another. The report’s subsections address various state taxes and provide a summary of the top issues and concerns associated with each type of tax. In addition, the report examines potential cost savings and streamlining opportunities in two very large portions of the General Fund that often provide big budgetary challenges: the departments of Human Services and Education. The task force wishes to provide as much information as possible for the benefit of legislators and policymakers as they work to address the challenges of these trying times.

Created by PICPA Council in 2010, the Fiscal Responsibility Task Force’s primary goal is to provide state decisionmakers with technical assistance and strategic guidance – much in the same manner CPAs advise their clients on a daily basis – as they formulate legislation and make public policy decisions on the issues affecting the citizens of the Commonwealth of Pennsylvania. This release is the task force’s fifth report. 

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House Appropriations Committee Concludes State Budget Hearings

The budget hearings of the state House Appropriations Committee have concluded. Over three weeks, committee members reviewed the details of Gov. Tom Wolf’s $37 billion state spending plan for the 2021-2022 fiscal year that begins July 1, 2021. Department secretaries and bureau directors came before the committee to discuss their portion of the budget and to answer lawmakers’ questions.

Acting Education Secretary Noe Ortega testified that about half of public school children are receiving full-time, in-person instruction while the rest are receiving either hybrid learning or remote learning. Republican lawmakers pressed Ortega to provide a plan for vaccinating teachers, implementing clear guidelines, and returning children to the classroom full-time.

On March 2, committee members heard from Jennifer Berrier, acting secretary of the Department of Labor and Industry. Lawmakers on both sides of the aisle expressed frustration with the department’s response to delays in disbursing unemployment compensation benefits.

During the hearing, Rep. Natalie Mihalek (R-Allegheny) called the Unemployment Compensation Call Center and received a busy signal to lead off questioning. Berrier noted that the current 92-day timeframe for unemployment adjudications is not acceptable and that the department is working to reduce the timeframe.

Berrier noted that over the past year, Pennsylvania’s unemployment compensation system has made $37 billion in payments on 2.4 million claims. She also testified that 27 employees from L&I’s enforcement office were deputized to investigate 400 employers.

The state Department of Revenue and Independent Fiscal Office kick off the Senate budget hearings the week of March 8.

 

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PICPA Legislative Update Webinar

The PICPA government relations team is hosting a Legislative Update webinar on Thursday, March 11, at 9:00 a.m.

With the 2021 spring legislative session of the Pennsylvania General Assembly officially underway, join Peter Calcara, PICPA vice president, government relations, for this 50-minute session that will provide updates and perspective on the governor’s proposed 2021-2022 state budget, an overview of newly introduced tax and other legislative proposals, and PICPA’s legislative agenda.

Register today!

 

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Elimination of Net Operating Loss Expiration Proposed

Two state lawmakers are teaming up to alter Pennsylvania’s net operating loss (NOL) law. State Reps. Mike Jones (R-York) and Peter Schweyer (D-Lehigh) introduced House Bill 732 to address the issue.

Under Pennsylvania’s corporate net income tax law, a businesses’ NOL can be carried forward into future tax years for up to a maximum of 20 years. The lawmakers say that, in some cases, as businesses are either starting up or looking to grow, they may not be able to use their NOL deductions within that timeframe. The expiration of these deductions, they say, reduces the ability to grow.

Jones and Schweyer argue that the expiration of the credit causes unnecessary nuisance accounting requirements and is inconsistent with federal standards, which have eliminated these expirations. House Bill 732 removes the time limit for a business to carry forward an NOL.

The bill has been referred to the House Finance Committee.

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Gov. Signs Bill Preparing National Guard to Assist with COVID Vaccinations

Gov. Wolf signed House Bill 326, legislation sponsored by Rep. Tim O’Neal (R-Washington), that will have the Pennsylvania National Guard assist with the distribution and administration of COVID-19 vaccinations throughout the state.

“The number of vaccines the Commonwealth receives will be increasing exponentially in the coming weeks, especially with the approval of the Johnson & Johnson vaccine,” O’Neal said. “With this new law, I am confident we are now in a better position to vaccinate the Commonwealth’s residents in a more orderly and accelerated pace.”

Now Act 4 of 2021, the law permits the Pennsylvania National Guard, in conjunction with the Pennsylvania Department of Health, to develop plans for the establishment and operation of regional sites for community distribution and administration of pharmaceuticals, medical equipment and supplies, and vaccines for a virus, including COVID-19.

The bill also requires a report on the administration’s plans to incorporate the National Guard into its overall vaccination strategy while considering vaccine availability and other vital ongoing missions. 

 

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Lawmakers Propose Changes to Philadelphia Sterling Act

State Reps. Frank Farry (R-Bucks) and Rep. Wendi Thomas (R-Bucks) plan to introduce legislation to address Philadelphia’s power of preemption on local income taxes by applying tax collection practices that mirror those exercised by all other taxing jurisdictions across Pennsylvania under the Local Tax Enabling Act.

The Sterling Act of 1932 was Pennsylvania’s first local income tax enabling legislation. It grants the City of Philadelphia broad taxing authority, giving the city the ability to impose a wage tax on salaries, wages, commissions, and other compensation paid to employees commuting to a Philadelphia employer.

Farry and Thomas note that all Philadelphia residents owe the wage tax, regardless of where they work, while nonresidents who commute to work in Philadelphia also must pay the tax. However, unlike the imposition of local taxes in other taxing jurisdictions, none of the nonresident wage tax is returned to the nonresident’s home government.

“Our legislation will correct this unfair and long overdue issue by amending the Sterling Act to require Philadelphia to reimburse the surrounding taxing jurisdictions that impose an earned income tax at a rate equivalent to that which would have been collected from commuting workers of their respective boroughs and townships,” the representatives said in their cosponsorship memo.

Furthermore, they explain that their legislation would address Philadelphia’s power of preemption on local income taxes by applying tax collection practices that mirror those exercised by all other taxing jurisdictions under the Local Tax Enabling Act.

Once introduced, the bill will be referred to a House committee for consideration.

A PICPA local taxation subcommittee is reviewing the proposal.

 

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State Revenue Collections Rebound in February

Pennsylvania collected $2.7 billion in General Fund revenue in February, which was $593.9 million, or 28.4%, more than anticipated. Fiscal year-to-date General Fund collections total $23.9 billion, which is $901.3 million, or 3.9%, above estimate.

According to the Independent Fiscal Office’s (IFO) February monthly revenue update, actual collections were $509.6 million above IFO projections. The report compares fiscal year 2020-2021 revenues to the revised IFO official estimate published in January 2021 and compares collections to the prior year. February 2021 General Fund revenues of $2.68 billion reflect an increase of $516.3 million (23.8%) compared to the same month in the prior year.

Sales tax receipts totaled $906.2 million for February, $106.7 million above estimate. Year-to-date sales tax collections total $8.4 billion, which is $171 million, or 2.1%, more than anticipated.

Personal income tax (PIT) revenue in February was $1.4 billion, $413.4 million above estimate. This brings year-to-date PIT collections to $9.8 billion, which is $177.5 million, or 1.8%, above estimate.

February corporation tax revenue of $114.9 million was $22.4 million above estimate. Year-to-date corporation tax collections total $2.5 billion, which is $394.1 million, or 18.9%, above estimate.

Inheritance tax revenue for the month was $100.8 million, $17.1 million above estimate. This brings the year-to-date total to $807.4 million, which is $46.2 million, or 6.1%, above estimate.

Realty transfer tax revenue was $41.8 million for February, $17.5 million above estimate. The fiscal-year total is $413.1 million, which is $52.2 million, or 14.5%, more than anticipated.

Other General Fund tax revenue, including cigarette, malt beverage, liquor and gaming taxes, totaled $151 million for the month, $21.4 million above estimate. This brings the year-to-date total to $1.3 billion, which is $40.9 million, or 3.4%, above estimate.

Nontax revenue totaled $15 million for the month, $4.6 million below estimate. The year-to-date total is $706.5 million, which is $19.4 million, or 2.8%, above estimate.

In addition to the General Fund collections, the Motor License Fund received $199.8 million for the month, $22.9 million below estimate. Fiscal year-to-date collections for the fund — which include the gas and diesel taxes, as well as other license, fine, and fee revenues — total $1.8 billion, which is $39.1 million, or 2.1%, below estimate.

 

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DeFoor Appoints PICPA Member as Deputy for Audits

Auditor General Timothy DeFoor announced several key staff appointments, including the hiring of Gordon Denlinger, CPA, as deputy auditor general.

Denlinger, a PICPA member, formerly served as a member of the Pennsylvania House for 12 years, representing Lancaster County. More recently, Denlinger served as the Pennsylvania state director for the National Federation of Independent Businesses.

DeFoor promoted Janet Ciccocioppo to the position of deputy auditor general. Ciccocioppo, a 31-year veteran of the Department of the Auditor General, previously served as director of the department’s Bureau of Performance Audits.

In addition, Michael Richart was appointed to serve as deputy auditor general for administration. A 21-year veteran of state service, Richart most recently served as director of the Bureau of Planning and Management in the Office of the Budget, Comptroller Operations.

 

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