Wolf Signs into Law PICPA-Championed Local Tax Measure
Gov. Tom Wolf signed into law House Bill 866 on May 4, 2018. Now Act 18 of 2018, the law marks the culmination of a four-year effort lead by Rep. George Dunbar (R-Westmoreland) and the PICPA to address inconsistencies and the potential for double taxation on the local income of Pennsylvania residents.
“The signing of Act 18 is a huge victory for Pennsylvania residents and PICPA members,” says Michael D. Colgan, CAE, PICPA’s CEO and executive director. “Equity and fairness are two of PICPA’s Guiding Principles of Good Tax Policy, and this law clarifies the crediting language for local tax collectors, which should foster uniformity and efficiency across the state.”
In November 2016, the governor unexpectedly vetoed nearly identical legislation (House Bill 245), also sponsored by Dunbar, due to some misinformation about the impact of the bill. Wolf had stated his opposition was because the legislation “would cause even a limited number of school districts to lose revenue …” and requested “a modified version of this bill that does not negatively impact the finances of school districts.”
“What a difference 18 months makes,” said Dunbar. “This time, with House Bill 866, we made sure the governor was given truthful and accurate information to guarantee he was fully on board with protecting the constitutional right of all Pennsylvania taxpayers to be taxed uniformly. I’d like to thank the governor for his reconsideration and ultimate support of this legislation.”
Act 18 amends several items within Act 32 of 2008, which brought sweeping changes to how Pennsylvania collects local earned income taxes. While Act 32 made the collection process simpler, an unintended consequence allowed some collectors to limit local credit provisions, thus resulting in some Pennsylvania residents being taxed twice on the same income. The new law prevents this practice and makes collection more uniform across the state.
Act 18, which takes effect July 3, 2018, also provides for clear and concise safe harbor language for estimated taxes, prohibits penalties against those with no income who do not file a local tax return, establishes oversight of local tax collection committees, provides clarification of temporary job assignments (what tax rate should be withheld for an employee on a temporary assignment), enhances W-2 reporting requirements, sets the receipt and disbursement of tax audits on a calendar year basis only, and will standardize local tax forms by 2020.
House Bill 866 passed both the House and Senate by wide bipartisan margins of 189-0 and 44-6, respectively, earlier this year.
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Legislative Update Webinar Registration Now Open
On May 24, join Peter Calcara, PICPA vice president of government relations, for a PICPA Legislative Update Webinar where he will provide an insider's perspective on what state lawmakers are working on in Harrisburg.
In this 50-minute webinar you will get an update on 2018-2019 state budget discussions, hear the latest on the General Assembly’s efforts to reverse the Department of Revenue’s bulletin disallowing depreciation, learn more about PICPA’s legislative successes, and hear about other initiatives on PICPA’s legislative agenda.
Registration is now open.
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Philadelphia to Disallow Bonus Depreciation
On May 2, the City of Philadelphia announced that it would follow Pennsylvania regulations on the issue of 100 percent bonus depreciation.
The federal Tax Cuts and Jobs Act of 2017 expanded bonus depreciation to 100 percent for assets placed in service between Sept. 28, 2017, and Dec. 31, 2022. On Dec. 22, 2017, the Pennsylvania Department of Revenue (DOR) issued Corporation Tax Bulletin 2017-02 regarding the disallowance and recovery of 100 percent depreciation under Internal Revenue Code (IRC) Section 168(k).
Philadelphia will adhere to the policy of DOR’s Corporation Tax Bulletin 2017-02 for the purposes of calculating the city’s business income and receipts tax and net profits tax. As a result, Philadelphia requires the amount of a 100 percent deduction under IRC 168(k) to be added back to taxable income, and provides no additional mechanism for cost recovery with respect to the qualified property.
The PICPA is urging state lawmakers to pass either House Bill 2017 or Senate Bill 1056 immediately—outside of a budget agreement—to reverse the department’s bulletin and permit depreciation deductions for Pennsylvania businesses.
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House Panel Advances Keystone Scholars Grant Program
Rep. Duane Milne’s (R-Chester) legislation to establish the Keystone Scholars Program, which will create a PA 529 post-secondary education account for every newborn Pennsylvanian, was approved recently by the House Finance Committee.
House Bill 2248 would authorize the State Treasurer to deposit $100 into a PA 529 account in the name of each child born on or after Jan. 1, 2019. This principal will grow with interest and provide an incentive for parents to contribute to 529 accounts. The program will be funded through Treasury investment earnings and donations and endowments from the philanthropic community. This legislation will not require any contributions from the General Fund.
The bill now goes to the full House for consideration.
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Community Revitalization Fund Tax Credits Deadline Approaching
The Pennsylvania Housing Finance Agency (PHFA) announced that it is accepting bids for the purchase of $2 million in tax credits associated with the Community Revitalization Fund Tax Credit. The funds collected from successful bidders will be used for the construction or rehabilitation of mixed-use developments in Pennsylvania communities. The deadline for bids is 2:00 p.m. on June 1.
These tax credits will be used by the winning bidders – which can be companies, organizations, or individuals – to reduce their state income tax liability. The intent of the bidding process is to raise as much funding as possible from the $2 million in tax credits to provide for a significant investment in community revitalization projects. The projects to receive this funding will be selected during a competitive Request for Proposals process later this year.
This tax credit program was created as part of Pennsylvania’s 2016-2017 fiscal year budget (implemented July 1, 2017), and PHFA was directed to administer the credit. PHFA was authorized to sell these tax credits through directed or negotiated sale to any qualified taxpayer. It is expected that the tax credit awards will be made within 90 days after bidding closes. The credit awards will be made in 2018, but they are not effective for use against a 2018 tax liability until 2019.
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Lawmakers Wants to Level Wage Tax Playing Field
State Rep. Todd Stephens (R-Montgomery) introduced legislation to amend the Sterling Act to eliminate the special taxing authority that the City of Philadelphia receives at the expense of every other nearby municipality and school district.
The Sterling Act, Pennsylvania’s first local income tax enabling legislation, grants the city of Philadelphia broad taxing authority. Currently, the city imposes a wage tax on nonresidents who work in Philadelphia. However, unlike the local taxes in surrounding jurisdictions, none of the nonresident’s city wage tax is returned to the nonresident’s home municipality or school district.
House Bill 2414 has been referred to the House Finance Committee for study.
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Bill Sets Workers’ Comp Drug Prescription Guidelines
In response to Gov. Wolf’s veto of Senate Bill 936, state Sens. Don White (R-Indiana) and Kim Ward (R-Washington) are preparing to introduce legislation that will limit the over-prescription of pain medications by requiring prescription guidelines and effective use reviews under Pennsylvania’s Workers’ Compensation system.
Specifically, the legislation will require the Department of Labor and Industry, in consultation with the Department of Health, Department of Drug and Alcohol Programs, and the appropriate licensing boards, to develop evidence-based guidelines for the prescription of pain medications for the treatment of work-related injuries under the Workers’ Compensation system.
To further eliminate overpayment for unproven topical compounds, the bill caps the price of compounded drugs at 110 percent of the average wholesale price of each ingredient in the compounded drug.
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