PICPA’s 2024 Legislative Priorities in Harrisburg

The second year of the Pennsylvania General Assembly’s 2023-2024 legislative session is underway, and Gov. Josh Shapiro unveiled his fiscal year 2024-2025 state budget before a joint session of the legislature on Feb. 6. As this year moves forward, two points will dominate lawmakers’ agendas: the budget for the upcoming fiscal year starting July 1 and the fall elections. In addition to the national-level elections, Pennsylvanians will choose three row officers (attorney general, auditor general, and treasurer), 203 state House seats, and 25 of the 50 seats in the state Senate.

One of our primary achievements in 2023 was the passage of Act 64, which incorporates federal grantor trust provisions into Pennsylvania law. Act 64 not only eases the tax burden on individuals, but also contributes to a more efficient and fair tax system for the state. The PICPA aims to build on this success and further streamline the filing process for state residents.

The PICPA is committed to working with state lawmakers to advance our legislative priorities throughout the remainder of the session. This article highlights the PICPA’s legislative agenda for 2024.

The federal Tax Cuts and Jobs Act (TCJA) of 2017 imposes a $10,000 limitation on the deduction individual taxpayers may claim for state and local taxes paid for tax years 2018-2025 (the SALT cap). This limitation presents challenges for taxpayers, particularly owners and shareholders of businesses structured as partnerships or S corporations. Income generated from the activities of these pass-through entities is currently taxed at the owner level at Pennsylvania’s 3.07% personal income tax rate. The PICPA is urging state lawmakers to adopt Senate Bill 659, sponsored by Sen. Ryan Aument (R-Lancaster), or House Bill 1584, sponsored by Reps. Nick Pisciottano (D-Allegheny) and Keith Greiner (R-Lancaster), to provide a revenue-neutral elective pass-through-entity tax (PTET) that allows tax to be paid at the entity level and facilitates the federal deductibility of state income taxes. In doing so, Pennsylvania will better align with other states. To date, 36 of the 41 states imposing a personal income tax have passed similar legislation.

Pennsylvania resident partners who are subject to a PTET in other jurisdictions may incur double taxation based on the denial of a Pennsylvania resident credit. The Pennsylvania Department of Revenue (DOR) has articulated its position that a Pennsylvania resident partner is not entitled to a credit against personal income tax for PTET paid to other states. This contrasts with the DOR’s position that a Pennsylvania resident S corporation shareholder is eligible for a similar personal income tax credit. The PICPA supports Senate Bill 660 (Aument) and House Bill 1584 (Pisciottano, Greiner) that would allow the same credits for resident partners and S corporation shareholders, alleviating this potential for double taxation.

State Sen. Scott Hutchinson (R-Venango) and Rep. Tim Briggs (D-Montgomery) introduced PICPA-backed legislation that would streamline the process of resolving disputes with the DOR. Senate Bill 1051 and House Bill 1994 would permit the Board of Finance and Revenue (BF&R), which hears and resolves appeals of final decisions from the DOR that involve most types of tax disputes, to consider late-filed tax appeals from the DOR and create a settlement process as an alternative to the formal and lengthy court appeals process. The legislation would empower BF&R to direct and oversee a formal settlement process for any tax appeal that would benefit from this procedure. This taxpayer-friendly solution also benefits Pennsylvania by resolving tax issues sooner, collecting tax liabilities quicker, and directing resources toward more complex cases.

The PICPA is also spearheading an effort with state Reps. Abigail Salisbury (D-Allegheny) and Greiner to raise the monetary threshold that subjects charitable organizations to more extensive financial oversight, including mandatory audits. Under House Bill 1824, charitable organizations would only be required to have an audit when receiving annual contributions of $1 million or more (currently it is $750,000). Those receiving contributions of less than $1 million would have different levels of review or compilation required on their financial statements. This legislation will benefit many not-for-profit organizations. House Bill 1824 is pending in the House State Government Committee.

In the interest of simplifying local taxation, the PICPA is urging the Pennsylvania General Assembly to enhance the electronic filing of local earned income tax returns. This will help modernize local tax filing by leveraging existing systems and processes to hold down costs and other impacts. Modernized e-File (MeF) is a federal program run by the IRS that allows taxpayers and professionals to electronically submit a tax return directly to the IRS and state tax authorities. Forms are converted to a digital layout that tax preparation programs transmit to the federal authority, which in turn transmits the state information directly to state tax authorities. The reforms would incorporate this same process for local earned income taxes.

As PICPA pursues these initiatives, it will concurrently need to strategize a defense against potentially burdensome proposals, such as any efforts to tax professional services. The 2023-2024 legislative session of the Pennsylvania General Assembly ends on Nov. 30, 2024.