Gov. Wolf Signs $39.8 Billion State Budget
On June 30, Gov. Tom Wolf signed the state budget for the 2021-2022 fiscal year (FY) that began July 1. The $39.8 billion spending plan provides more funding for public education, allocates additional resources for vulnerable Pennsylvanians and communities, invests more in job training and workforce development programs, and funds ongoing pandemic mitigation efforts. The final plan includes none of the tax changes Wolf proposed in February.
State lawmakers passed the budget 43-7 in the Senate and 140-61 in the House.
With regard to public education, the budget includes a $200 million increase in the Fair Funding Formula, $100 million to support underfunded school districts through the new Level Up initiative, $50 million in special education funding, $30 million for early education, $20 million for Ready to Learn, $11 million for preschool Early Intervention, and $5 million for community colleges. Basic education funding is now $7.06 billion, the single largest line-item in the state budget.
Recognizing the ongoing costs related to COVID-19 mitigation, the budget allocates $282 million in federal relief funds to help nursing, assisted living, and personal care homes with costs related to personal protective equipment (PPE), staff testing, and other pandemic-related expenses. The spending plan includes money for services to assist 832 people living with intellectual disabilities. The budget also dedicates $9.3 million in Tobacco Settlement Fund dollars annually for pediatric cancer research.
To support road and bridge projects, and to make up for pandemic-related revenue losses in the Motor License Fund, the 2021-2022 budget allocates $279 million in federal relief funds for transportation infrastructure.
The budget provides for the Pennsylvania State Police to train two new cadet classes, which will add up to an additional 180 troopers. Additionally, $30 million has been allocated for violence intervention and prevention.
Recognizing the need to return to stability and wellness, the budget sets aside $372 million of federal relief funds to be used for Pennsylvania’s ongoing pandemic response.
Join Peter Calcara, PICPA vice president of government relations, for PICPA’s Legislative Update webinar to get an in-depth look at the 2021-2022 state budget and related legislation. It is scheduled for July 15 at 9:00 a.m.
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Tax Code, Other Budget Pieces Signed into Law
The General Appropriations bill discussed above is only one of a package of bills actually needed to form the overall state budget. The other bills amend the Tax Reform Code, Fiscal Code, Public School Code, and Administrative Code, and address nonpreferred appropriations. The governor signed the complete package of bills as well as the General Appropriations bill.
House Bill 952, which amends the Tax Reform Code, is heavily focused on revising and updating tax credit programs. A main feature in the bill replaces an existing tax refund program with a sales tax exemption on data center equipment. This adjustment brings Pennsylvania in line with Ohio, West Virginia, New York, Virginia, and nearly 20 other states that have a standard sales tax exemption program for these items.
The bill also clarifies and establishes tax credit and tax benefit administrative procedures. Under the bill, the Department of Revenue or an administrative agency is required to make a finding that an applicant or a recipient of a tax credit or tax benefit has filed all required state tax reports and returns, and paid any balance of state tax due.
Another provision in the Tax Reform Code requires individual taxpayers with a tax payment of more than $15,000 to remit electronically. This provision does not apply to employer withholding payments.
House Bill 1348 amends the Fiscal Code and includes substantive language implementing the General Appropriation Act of 2021.
The governor also signed a number of other budget-related bills, including House Bills 1508, 1509, 1510, 1511, 1512, 1513, 1514, 1515, and 1516, and Senate Bills 265, 266, 267, 268, 269, and 381.
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Law Signed that Expands Access to Medical Marijuana
Gov. Wolf signed legislation that updates Pennsylvania’s Medical Marijuana Act to ensure better access for patients.
House Bill 1024 acts on recommendations made by the Department of Health to revise the 2016 law. Specifically, it protects patient safety and product quality within Pennsylvania's medical marijuana program while empowering the Medical Marijuana Advisory Board to continue to consider new medical conditions for eligibility. It also retains certain flexibilities enacted under the state’s COVID-19 disaster declaration that patients and dispensaries found convenient.
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Wolf Vetoes Republican Election Measure, Two Other Bills
As promised, Gov. Wolf vetoed House Bill 1300, legislation that would amend the Pennsylvania Election Code.
In his veto message, Wolf wrote, “While the bill includes some potential areas of improvement – such as giving counties more time to precanvass, increasing poll worker pay, and expanding the use of electronic poll books – the legislation is incurably riddled with unacceptable barriers to voting.”
House and Senate Republican leaders condemned the governor’s action.
“House Bill 1300 … would have significantly increased voter access, made necessary changes to the administration of elections, and modernized our electoral systems to the benefit of all eligible voters,” said House Speaker Bryan Cutler (R-Lancaster).
Lawmakers will look to resurrect similar legislation when the General Assembly returns to session in the fall.
Wolf vetoed two other bills, Senate Bill 618 and Senate Bill 516. Read his veto messages for Senate Bill 618 and Senate Bill 516, respectively.
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Optional Entity-Level SALT Cap Workaround
Rep. Martina White (R-Philadelphia) introduced legislation that would provide an option for Pennsylvania partnerships or S corporations to be taxed on income generated at the entity-level rather than the existing pass-through methodology. A growing number of states, including New Jersey and Maryland, enacted similar state and local tax workarounds.
The 2017 Tax Jobs and Jobs Act imposed a limitation on the maximum deduction that a taxpayer may claim for certain state and local taxes, set at $10,000 beginning in tax year 2018 through 2025. Included in this calculation are property taxes as well as state income tax or state sales tax, but not both.
House Bill 1709 would allow a partnership or S corporation (pass-through entity) to elect to pay an entity-level tax on income attributable to Pennsylvania personal income tax (PA PIT) filers. The pass-through entity would pay tax on a resident owner’s share of the pass-through entity’s income and a nonresident owner’s share of income from Pennsylvania sources. The owner also would be subject to PA PIT on the distributive share of pass-through entity income.
White’s legislation has been referred to the House Finance Committee. The PICPA State Taxation Steering Committee offered extensive comments on the draft legislation.
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State Accountancy Board Updates Exam
The Pennsylvania State Board of Accountancy recently provided the PICPA with an update for candidates taking the CPA Exam in light of the end of Gov. Wolf’s emergency declaration. The CPA Exam credit extension has ended as of June 15, 2021. Those who had been given extensions will have the credits for the impacted sections extended 180-days from June 15, 2021, and the sections being granted the extension will now expire on Dec. 12, 2021. The National Association of State Boards of Accountancy has been notified of this and was asked to update the candidates’ dashboards to reflect the “official” expiration date now that we have the official end date.
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Philadelphia Updates BIRT, NPT COVID Policy Guidance
The Philadelphia Department of Revenue updated its previously issued temporary tax collection guidance relating to nexus and apportionment during the COVID-19 pandemic. The taxes covered include the business income and receipts tax (BIRT) and net profits tax (NPT).
The crisis-driven guidance is considered effective up to the following dates:
- Nexus – June 30, 2021
- Apportionment – June 10, 2021 (when the governor’s emergency declaration ended)
The temporary COVID-19 tax guidance is no longer applicable in Philadelphia and existing tax law and regulations will govern.
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