More than 40 new members of the Pennsylvania House and Senate were sworn in Jan. 1, 2019. Peter Calcara, vice president of PICPA’s government relations team, details how these new legislators could address major issues affecting CPAs – like combined reporting and tax reform – in the 2019-2020 session.

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By: Jim DeLuccia, PICPA Communications Manager

Podcast Transcript

Republicans maintain control of the Pennsylvania House and Senate after the 2018 midterm elections, but the majority is slimmer. Democrats flipped five seats in the Senate and picked up eleven seats in the House. Listeners are likely wondering what does all this mean for them? Well, Peter Calcara, PICPA's Vice President of Government Relations, joins me on the phone from Harrisburg today to explain what new Pennsylvania legislators could mean for Pennsylvania's CPAs.

First, when does this next legislative session convene here?

[Calcara] Well, for the 2019-2020 legislative session, the swearing in date is January 1st, New Year's Day, where all the 203 House members will be sworn in and 25 of the 50 state senators will be sworn in. Regular session, where we start seeing committee meetings, probably later in January, likely following January 15th, which is when Governor Wolf and his new Lieutenant Governor nominee, Lieutenant Governor John Fetterman, gets sworn in. Session days will begin shortly thereafter.

The budget address is February 5^th. There will be some activity between then, but once the governor lays out his agenda for the year on February 5th, that's really when everything gets into motion.

By the time people listen to this conversation (or read this transcript), the swearing in will have taken place, but maybe some legislative activity will take place by that point. What are a few major issues that affect the CPAs, their clients and businesses in Pennsylvania that you expect the legislature to address relatively quickly?

[Calcara] Well, I'll talk real quickly about the one that is a priority for us, and that's trying to fix the 1099 Miscellaneous withholding provision that was enacted about two years ago, a year and a half ago, with the budget in 2017. That provision was part of Act 43 of 2017. We were successful in getting legislation out of the House Finance Committee last year. House Bill 2413 sponsored by Representative Keith Greiner – and this really just clarifies some of the withholding provisions and clarifies some of the language – and makes it clear for when a taxpayer needs to withhold and remit. We were successful in getting that out of Committee, and that's going to be our number one priority when the General Assembly reconvenes in January. We want to get traction on that piece of legislation quickly out of the gate.

I know that's been an issue for a while now. What could be the status of some issues on PICPA's radar? Other issues here like combined reporting and potential tax reform? Is there any expected movement there?

[Calcara] We'll have to wait and see what the Governor proposes in February with his ’19-‘20 state budget. I think it's pretty safe to say you'll see another severance tax. Obviously, he campaigned on it. It's coming back. And combined reporting. No doubt those will be part of his budget proposal.

As far as expected movement, I think you're starting to see, particularly on combined reporting, more of a dialogue. Members want to try to understand what that is. We've put together an issue brief on it that explains how the current corporate tax reporting system works in Pennsylvania, what combined reporting is. Not taking a position but just kind of explaining it. I think you're going to start seeing, particularly as you said in your intro, the margins have narrowed in both the House and the Senate. I think you're going to see more of that discussion about changing some tax policy.

As far as state tax reform, I think with the Tax Foundation study that came out a few months ago and also the work that the House Finance Sub-committee on Tax Modernization is doing, I think the time for a robust discussion of state tax reform is upon us. I can definitely see the General Assembly starting to take a more thorough look at maybe making some changes to state taxes.

That Tax Foundation report you mentioned; that came out in the fall of 2018 and a lot of detail in there so there's a lot to address.

[Calcara] There is. It's fairly comprehensive. It's modeled after a similar study that the Foundation did in South Carolina, one of the Carolinas. It's not a perfect study. I know members have called into question some of the recommendations. It's not a perfect study, but I think it is really a launching pad, if you will, for the legislators to begin a discussion. PICPA has to have a voice in that process and we will have a voice in that process.

Good to hear. We talked about some items that have been on the PICPA's radar for a while, but what could be coming down the pike that our members and listeners may not be aware of that could affect how they do business in Pennsylvania?

[Calcara] Well, one is the changing political dynamics in both the House and Senate, again going back to your intro the changing majorities or the slimmer majorities that Republicans have. I think the challenge is going to be, have a potentially smaller but more conservative Republican Caucus in the House versus a larger and more progressive caucus on the other side of the aisle with the House Democratic Caucus.

In the Senate as well. The same thing. The same dynamic. You have caucuses now that are, from a political and ideological standpoint, further apart. How are they going to be able to mesh? Are they going to become more like D.C. or are they going to be able to sit down and hammer out some compromise on some of these issues, like a severance tax and some other things?

The other challenge I think that we need to keep an eye on is the growing fiscal challenges that the Commonwealth faces. The Independent Fiscal Office (IFO) last month put out their annual five-year budget forecast, and IFO is projecting a 1.7 billion dollar deficit for the ’19-‘20 budget year. How are you going to close that? Expenses, I'll just read something real quickly from the report. It says expenditures are expected to increase by $2.7 billion in fiscal year ’19-‘20, which is roughly $1.7 billion more than projected increase in net revenue.

Obviously, you have an issue there. How are you going to close that gap? It's something, again going back to the discussion on tax reform, with the fiscal challenges, the financial challenges on top of everything else, this is a good time, potentially a perfect storm for state tax reform.

With all that said, are there any action items our members should take?

[Calcara] There's a lot of opportunities for members to be involved. We have over 40 new members of the state House and Senate. That's a huge, huge number. I think the important role that members play is to basically introduce, and our role here in Harrisburg is to introduce these new members to the PICPA: who we are, what we do, and educate them too. We need to have a voice in that process, and I think every member needs to take an opportunity to reach out, even if the member is not new to the General Assembly. Still to take an opportunity to reach out, and we have the resources.

We talked about combined reporting and some other issues that members should take an opportunity to reach out to their lawmakers in the district and educate them, and begin a dialogue about these issues. There's a saying in politics, I think government relations and advocacy, that you need to make a friend before you need a friend. I think it's something to that effect. That's what we really need to do. We need to lay the groundwork now so that when these issues come up that we're not new to them, that we have a relationship with them and not just coming to them when we need something.

I think that's the greatest opportunity I know that we here in the Harrisburg office are going to start reaching out to those new members and introducing not only ourselves but the Institute to them. It helps when they also know their connection in their districts, because that's really where they want to have that connection back in the districts.

Well, thanks again for sharing that insight with us, Peter. It should be an interesting year coming up here.

[Calcara] It will be. Members should always feel free to contact the Government Relations Office in Harrisburg if they have any questions or if they feel they want to begin to have a dialogue with their legislator but aren't quite sure how to do that. Don't hesitate to give us a call, and we can walk you through that process. It's very easy.

What number should they call?

[Calcara] (717)232-1821 or they can always email me at pcalcara@picpa.org.