Week Ending March 12, 2021

Mar 12, 2021

PICPA Offers Solutions to Ongoing Fiscal Crisis

Members of the PICPA Fiscal Responsibility Task Force unveiled its latest report to members of the Tax Modernization and Reform Subcommittee of the Pennsylvania House Finance Committee.

The global COVID-19 pandemic wreaked havoc on Pennsylvania’s fiscal situation. A complex taxing structure paired with an ongoing fiscal crisis puts policymakers in a difficult position. As the General Assembly grapples with public policy questions surrounding tax strategies, the Fiscal Responsibility Task Force report addresses various state taxes and provides 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 budgetary challenges: Human Services and Public Education.

“CPAs are thought leaders and strategic advisers for large segments of the economy,” said Michael Colgan, CAE, CEO and executive director of the PICPA. “Having the profession’s voice at the table where state policy decisions are made is absolutely critical to the process. CPAs make the end product better.”

Suzanne Leighton, CPA, who chairs the Fiscal Responsibility Task Force, noted, “CPAs are uniquely qualified to assist the Wolf administration and the General Assembly with meeting the fiscal challenges ahead because of COVID and the shutdowns. We routinely face the challenge of developing strategic plans of action to return businesses or clients to sound financial footing. The task force is an excellent platform to discuss a range of opportunities and offer suggestions to improve Pennsylvania’s long-term financial health.”

Copies of the report have been provided to Gov. Tom Wolf and all members of the General Assembly. To read the report and proposed solutions, visit www.picpa.org/fiscal. You can also watch a recording of the Tax Modernization and Reform Subcommittee meeting

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 as they formulate public policy on the issues affecting the citizens of the Commonwealth of Pennsylvania – much in the same manner CPAs advise their clients on a daily basis. This release is the task force’s fifth report. 

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Greiner, PICPA Seek to Change Corporate Tax Due Date

State Rep. Keith Greiner (R-Lancaster), a CPA and PICPA member, introduced legislation that would change the due date of Pennsylvania corporate tax returns from 30 days after the due date of the federal return to the 15th day of the month following the due date of the federal return.

“This legislative change is technical in nature and will create more predictability and eliminate confusion for corporate taxpayers,” Greiner said.

PICPA supports the change and is working with Greiner on advancing the legislation. House Bill 766 has been referred to the House Finance Committee for consideration.


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DOR Guidance on Home Office Expenses

The Pennsylvania Department of Revenue has received questions from taxpayers who are wondering about the deduction of home office expenses on their 2020 tax returns. The guidance provided pertains mostly to Pennsylvania taxes, not federal taxes.

Pennsylvania personal income tax law permits a taxpayer to claim certain unreimbursed employee business expenses, including a deduction for home office expenses. The deduction is allowable for taxpayers who are temporarily working from home during the COVID-19 pandemic if they meet certain qualifications. However, even if one meets the qualifications, there are other considerations that have to be accounted for when claiming the deduction.

Also, the department issued Sales & Use Tax Bulletin 2017-01 (Review of Large and Complex Refund Requests) to improve overall tax compliance and the efficiency of reviewing large refund requests that may be addressed through the field audit process.


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Senate Appropriations Committee Begins Budget Hearings

The Senate Appropriations Committee opened its series of hearings on March 8 on Gov. Wolf’s fiscal year 2021-2022 budget. Kicking off the hearings were the Independent Fiscal Office (IFO) and the Department of Revenue. The House Appropriations Committee has already completed its review of the budget.

Matthew Knittel, director of the IFO, provided an economic and budget overview of the state’s current fiscal condition. The COVID-19 pandemic had a devastating impact on the state’s economy, workers, and families, Knittel told the committee. Overall, the state lost about 470,000 jobs in a variety of fields, ranging from service and hospitality industries to positions in higher education. Younger workers (ages 14 to 24) have been displaced at higher rates than all others. Knittel said the IFO projects that it will likely take six years for the state to recoup those 470,000 jobs.

The IFO told senators that it is currently studying the impact of the governor’s proposal for the 850,000 employers who pay personal income tax (as opposed to corporate income tax). Knittel expects to have the report completed by early April. In general, though, Knittel acknowledged that tax rates impact decisions made by business when they consider relocation and that “higher taxes are not conductive to economic growth.”

Senators questioned Department of Human Services (DHS) Secretary Teresa Miller about the numerous ways the pandemic and changing demographics will affect the delivery of services and costs to taxpayers. Also, lawmakers urged Miller to use funding from the new federal stimulus for one-time costs, not for programs that will increase costs to taxpayers when federal funding disappears. The governor’s budget would increase DHS spending by nearly $760 million next year, and Miller said supplemental spending for her department increased by more than $900 million in the current year’s budget. Lawmakers raised concerns about these cost increases and the effect on other parts of the budget.

Senators also heard from the departments of Conservation and Natural Resources and Transportation.

Hearings continue the week of March 15

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COVID-19 Small-Business Tax Relief Package

Sens. Camera Bartolotta (R-Washington) and Judy Ward (R-Blair) introduced legislation that targets Pennsylvania’s Tax Code so that small businesses affected by COVID-19 can get tax relief.

The first provision in Senate Bill 368 would allow small businesses to take a net loss against other sources of income. For example, if the owner sells some personal property to make payroll, the owner would be able to deduct the business loss against the tax bill from selling the personal property.

The second change is a matter of parity, say the senators. Currently, corporations in Pennsylvania may take net operating losses against future years for up to 20 years. However, small businesses paying their taxes through personal income cannot carry losses forward. This unfairness has been exacerbated during the COVID-19 crisis. While countless small businesses were shuttered, many large corporate entities were able to stay open as life-sustaining businesses. These large corporations will be able to deduct any losses from the year, while the small, family-owned businesses that closed their doors cannot.

Senate Bill 368 proposes to temporarily allow small businesses to carry back losses to previous tax years. The provision is modeled after the April 2020 federal CARES Act, which temporarily reintroduced net operating loss carrybacks that had been suspended with the Tax Cuts and Jobs Act, Bartolotta and Ward say.

Senate Bill 368 has been referred to the Senate Finance Committee. 


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Fair Share Tax Proposed

Sens. Art Haywood (D-Montgomery), Vincent Hughes (D-Philadelphia), and Katie Muth (D-Montgomery) will reintroduce their Fair Share Tax Plan (Senate Bill 758) that cuts taxes for most Pennsylvanians while simultaneously increasing total revenue by $2 billion.

The tax plan will cut personal income tax on a person’s active income from wages and interest to 2.8%. However, it will impose a tax rate of 6.5% on passive income from net profits; dividends; net gains derived from rents, royalties, patents and copyrights, and gambling and lottery winnings; and net gains derived through estates and trust.

The senators say their proposal complies with the Pennsylvania Constitution’s uniformity clause because it still imposes the same flat tax rate within each of the eight existing classes of personal income. The Pennsylvania Supreme Court has decided that the uniformity clause requires all taxes to be uniform “upon the same class of subjects” so long as a reasonable, nonarbitrary distinction exists relative to the classification.


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Laughlin to Propose Minimum Wage Increase

Sen. Dan Laughlin (R-Erie) is preparing to introduce legislation to increase Pennsylvania’s minimum wage from $7.25 an hour to $10 per hour.

“I have heard from my constituents and have listened to both sides of the political aisle. It is definitely time that we address the issue, and I believe my bill is the most responsible way to approach it,” said Laughlin.

The bill would also increase the tipped wage to 50% of the minimum wage, raising it from $2.83 to $5 per hour.


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AICPA Outstanding CPA in Government Awards

Do you know an outstanding CPA in government? Please consider nominating a worthy colleague for the AICPA Outstanding CPA in Government Awards. The nomination period is March 1 through April 30, 2021.

The Outstanding CPA in Government Impact Award recognizes the significant contributions of a CPA to the efficiency, effectiveness, or innovative service delivery of their respective local, state, or federal employer organization. Current or recent accomplishments are the focus of this award.

The Outstanding CPA in Government Career Contribution Award recognizes significant contributions to the CPA profession via government service at the local, state, or federal level over a candidate’s entire career.

Again, the nomination period is March 1 through April 30. The awards are scheduled to be presented at the AICPA’s National Governmental Accounting and Auditing Conference (GAAC) in Washington, D.C., on Aug. 16, 2021.


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