PICPA Submits Comments on Local Earned Income Tax Regulation
The PICPA State Taxation Committee submitted comments in response to a regulation filed by the Department of Community and Economic Development implementing Chapter 5 of the Local Tax Enabling Act, which was added by Act 32 of 2008. The proposed rulemaking was published in the July 30, 2016, Pennsylvania Bulletin.
The regulation addresses the following areas:
- The filing of adjusted declarations of estimated net profits
- The criteria under which the tax officer may waive the quarterly return and payment of income tax
- The procedures for mandatory and voluntary mediation
- The establishment of new county tax collection committees in situations in which political subdivisions have withdrawn from an established tax collection committee
- The establishment of tax officer qualifications and requirements, including continuing education
- The creation of standardized forms, reports, notices, returns and schedules, in consultation with the Department of Revenue.
The regulation will take effect immediately upon final-form publication in the Pennsylvania Bulletin.
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Business Groups, PICPA Urge Delay in Minimum Wage Proposal
At the urging of a coalition of business organizations, including the PICPA, the Pennsylvania Department of Labor and Industry has extended the public comment period from July 23, 2018, to Aug. 22, 2018, on its proposed changes to the state’s overtime eligibility rules for employees. The proposal was initially published in the June 28, 2018, Pennsylvania Bulletin.
The proposed rulemaking would change overtime eligibility rules imposed on Pennsylvania employers by requiring a wage threshold for “exempt status” that is more than double the current rate set by the federal government. The proposed changes also include revisions to the so-called “duties tests” used to determine eligibility. Finally, the rule establishes an automatic update to the salary threshold every three years beginning in 2023.
Pennsylvania’s current regulations have not been updated since their original promulgation in 1977.
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New Corporation Tax Bulletin on Depreciation
In response to Act 72 of 2018, the Pennsylvania Department of Revenue on July 6 issued Corporation Tax Bulletin 2018-03. This bulletin supersedes Corporation Tax Bulletin 2017-02.
The bulletin provides guidance regarding the treatment of federal bonus depreciation for corporate taxpayers. It addresses deductions for property placed in service before Sept. 28, 2017, deductions for property placed in service on or after Sept. 28, 2017, and the treatment of taxpayers who have filed tax returns.
Pennsylvania continues the disallowance of bonus depreciation.
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DOR’s e-TIDES Upgrade to Save Department $1.7 Million
The new electronic correspondence feature in e-TIDES, the Department of Revenue’s (DOR) online business tax system, allows business owners and tax professionals to receive all correspondence from the department that would normally be sent via the U.S. Postal Service. Examples include licenses and assessments.
The DOR will save $1.7 million over five years while improving services to Pennsylvania’s businesses. The system allows businesses and tax professionals to get all correspondence from the department electronically, saving time and reducing the need for paper.
“We moved to create this new electronic correspondence feature after hearing feedback from taxpayers and tax professionals, many of whom use this system on a regular basis,” said Revenue Secretary Dan Hassell.
Michael Eby, CPA, senior manager and director of state and local tax services with McKonly & Asbury LLP, and a member of PICPA’s State Taxation Committee, also sees the benefits for tax professionals.
“The department’s most recent e-TIDES enhancement in allowing practitioners to receive department correspondence to our clients directly from the department is another step forward in transparency and efficiency. This is a win-win for taxpayers and practitioners alike,” Eby said.
The savings of this initiative come from reducing costs for paper, inserts, envelopes, and postage. In the past, the department annually mailed about 1.6 million pieces of correspondence to the users of e-TIDES.
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IFO Releases Annual Impact Fee Report
An Independent Fiscal Office (IFO) report examines 2017 impact fee collections and natural gas production in Pennsylvania. It also provides an outlook for 2018. Pennsylvania imposes an annual impact fee on natural gas wells that were drilled or operating in the previous calendar year.
The report analyzes calendar year 2017 impact fee collections (remitted in April 2018), details the number of wells and fee schedule by operating year, and discusses two potential scenarios for 2018 collections. It also translates the impact fee into an annual average effective tax rate (ETR) based on recent natural gas price and production data. The ETR quantifies the implicit tax burden imposed by the impact fee in a given year.
Proceeds from the impact fee are distributed to local governments and state agencies to provide for infrastructure, emergency services, environmental initiatives, and various other programs. Local governments receive funds based on the number of wells located within their boundaries or their proximity to jurisdictions where natural gas extraction took place.
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State Makes First Deposit into Rainy Day Fund in Nearly a Decade
Pennsylvania’s rainy day fund reserve is a sign of both fiscal responsibility and the maintenance of fiscal health. For most of the past decade, the fund has been ignored by governors and state lawmakers in the yearly budget process. Until this week. Gov. Tom Wolf was joined by state Treasurer Joe Torsella to announce a $22 million deposit into the fund.
“This deposit into the rainy day fund helps stabilize our budget for the first time in nearly a decade, and exceeds some prebudget estimates that the fund would receive $14 million,” Wolf said. “While some states are borrowing from their funds or making no contributions, Pennsylvania is making a $22 million deposit.”
“Building a better future for Pennsylvania isn't possible unless we build more stability into our system,” said Torsella.
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AICPA Comments on Business Interest Expense Deduction
The American Institute of CPAs (AICPA) made recommendations to the U.S. Department of the Treasury and IRS about the initial guidance governing the deduction of business interest expense by certain large businesses, as amended by the Tax Cuts and Jobs Act (TCJA).
In Notice 2018-28, Initial Guidance Under Section 163(j) as Applicable to Taxable Years Beginning After Dec. 31, 2017, Treasury and IRS described the rules they expect to issue and requested comments about the additional guidance that taxpayers will need to compute the business interest expense limitation under Internal Revenue Code (IRC) Section 163(j).
The AICPA made more than 20 recommendations in the following areas related to Section 163(j):
Treatment of Disallowed Disqualified Interest from Last Taxable Year Beginning Before Jan. 1, 2018:
- Rules for the allocation of business interest from a group treated as affiliated under the super-affiliation rules applicable to old section 163(j) to taxpayers under new section 163(j)
C Corporation Business Interest Expense and Income:
- Treatment of interest expense and income as business interest
- Treatment of a partnership’s investment interest expense with respect to its corporate partners
Application of Section 163(j) to Consolidated Groups:
- Allocation of the limitation among group members
- Treatment of disallowed interest deduction carryforwards when a member leaves the group
- Treatment of disallowed interest deduction carryforwards of a member that joins the group, including whether the carryforwards are subject to a separate return limitation year
- Application of Treas. Reg. Section 1.1502-32 to disallowed interest deductions
- Application of Section 163(j) to a consolidated group with one or more members that conduct a trade or business described in Section 163(j)(7)(A)(ii), (iii), or (iv), as amended by the TCJA, or whose members hold an interest in a non-corporate entity such as a partnership that conducts such a trade or business
Impact of Section 163(j) on Earnings and Profits
Other – The Application of the Section 163(j) Limitation on Partnerships:
- Treatment of excess business interest carryforwards by partners
- Impact of Section 743(b) adjustments
- Real property trade or business election
- Application of Section 704(c) methods
- Allocation of items between exempt and nonexempt businesses
The AICPA said it intends to submit a second comment letter on the interaction of IRC Section 163(j) with international tax provisions.
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Sweeping Data Privacy Legislation Enacted in California
California Gov. Jerry Brown (D) recently signed the California Consumer Privacy Act, a sweeping piece of privacy legislation that allows California residents to request that businesses not share or sell their personal information. The bill requires, upon request, businesses (including CPA firms) to delete consumer data and disclose the types of data collected.
The legislation limits the legal damages for businesses that violate the law. Businesses will be given 30 days to address and fix a violation before being fined, but fines would be capped at $7,500 per intentional violation.
Proponents of the bill leveraged the potential success of a more expansive ballot measure, the California Consumer Personal Information Disclosure and Sale Initiative, which had received more than the needed number of signatures to qualify for placement in November's election.
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