2017 pennsylvania tax update
TRANSCRIPT
2017 Pennsylvania Tax Update
The State Budget and More
Building SuccessfulEmployee Relationships
A Cornerstone to Fraud Prevention
and Risk Management
Building SuccessfulEmployee Relationships
A Cornerstone to Fraud Prevention
and Risk Management
2017 Pennsylvania Tax UpdateThe State Budget and More
Introduction
Michael Eby
• Senior Tax Manager
• CPA
• Director of State and Local Tax Practice
• Member of the PICPA State & Local Tax Committee
Agenda
• ‘17-’18 PA state budget overview
• Highlights of key PA tax legislation and pertinent cases
• PA Department of Revenue year in review
• How does PA’s tax structure compare to other states?
Enacted State Operating Budget
• Although “state budget” is often used to refer to the General Fund, the overall state budget is much larger.
FY 2016-17
TOTAL: $79.0 billion
• $31.5 billion: General Fund
• $27.8 billion: Fed. Funds
• $19.7 billion: Other Funds
Enacted Budget Spending Provisions
• $870M general fund increase in actual spend over FY ‘17
• $430M increase in state education, including:• $100M more for basic education
• $25M more for Pre-K Counts
• $25M special education
• $9M more for State System of Higher Education
• State-related universities are flat
• 6% increase to pension
• 19% increase to opioid and heroin treatment
Governor’s Proposed Budget Highlights• No personal income tax increase
• No sales & use tax rate increase
• Sales & use tax base expansion to custom computer programming, data processing, storage services, and aircraft sales & repairs
• Natural gas severance tax of 6.5%
• $100M cut in state-funded tax credits
• Expansion of the insurance premiums tax to some currently exempt insurance entities
Governor’s Proposed Budget Highlights• Corporate Tax Reform
• Mandatory combined reporting
• Gradual reduction in CNI rate from 9.99% to 6.49% by 2022
• Capping net operating losses (NOL) for all C Corporations to 30% of taxable income
• Bringing back the capital stock tax –just kidding!
General Assembly Proposed Funding Measures• Gambling expansion
• Slot machines
• Online gaming
• Taking a loan against the tobacco settlement fund
• Restructuring the sales tax for alcohol sales
• Taxation of space on energy transmission lines
• Gross receipt tax increases on utilities
• Natural Gas Severance Tax
• 12% sales tax on consumer fireworks
In 2016, what did we say to look out for?• Personal income tax rate increase
• Sales & use tax rate increase
• Wide-sweeping sales & use tax base expansion
• Corporate tax reform
• Natural gas severance tax
What Sources Does PA Receive Its Revenue From?
• Personal income tax – 39.9%
• Sales & Use Tax – 31.1%
• Other taxes – 8.8%
• CNI/Capital Stock – 9.2%
• Gross receipts tax – 3.9%
• Cigarette Tax – 4.0%
• Non-tax revenue – 3.1%
Budgeting for Revenue
Legislative, Cases, and Department of Revenue
Updates
Legislative Activity
• CPA license and CPE requirements (Act 73 of 2008 and Act 15 of 2013), effective January 1, 2018:
• 400 hour attest requirement eliminated for CPA license
• No longer need CPA supervision but just verification
• 16 hour A&A CPE requirement eliminated for non-attest CPA’s
• HB 1537/SB 515 –Expansion on NOL Deduction – from 30% to 44%
• HB 542 –Online sales tax notice bill
• HB 1584—Reduction in CNI rate from 9.99% to 5.99%
Legislative Activity
• HB 866 - Local income tax updates
• HB 331 - Federal conformity for like-kind exchanges
• HB 332 - Carryover of losses
• HB 333 - Conformity with Federal Section 179 limits
PA Case Law Developments
• Corporate net operating loss (NOL) limitation
• Nextel v. Commonwealth, 98 F.R. 2012, November 23, 2015
• RB Alden Corp v. Commonwealth, 73 F.R. 2011, June 15, 2016
• Statute of limitations for refunds
• Mission Funding v. Commonwealth, 313 F.R. 2012, December 10, 2015
• Realty Transfer Tax for leased property
• Saturday Family, LP vs. Commonwealth, 148 A.3d 931 2016
Department of Revenue Updates
• Services related to canned software
• Board of Appeals large appeals procedural change
• Assessment appeals reform
• Sales and use tax desk audits
• Schedule C taxpayer increased scrutiny
• Door to door visits from DOR collection agents
• Practitioner access of client tax account statement through Etides
• Increased electronic communication with taxpayers
Pennsylvania Tax Amnesty
• 60 days in April to June 2017
• Abatement of penalties and 50% of the interest
• Pioneer was facilitating agent
• Many notices sent for old delinquencies
• Estimated to raise $100M
___________________________________________
• PA DOL&I amnesty July 1 through September 30 for Unemployment Compensation
Year in Review
• Summer 2016: DOR reached agreement with Airbnb
• August 2016: Sales tax vendor discount max $300/year
• August 2016: Taxation of digital goods (and services related to canned software)
• Fall 2016: PA/NJ reciprocity-off again, on again
• Spring 2017: RCT-101 due date moved back to May 15th for calendar year taxpayers to correspond with Federal due date change
• June/July 2017: Medical marijuana growers and dispensary permits announced
• July 2017: Timbering exemption takes effect
The State Tax Landscape
Across the Nation…
• Economic sales tax nexus • Alabama –Requires out of state sellers with over $250,000 in AL sales
annually to collect and remit sales tax.• South Dakota – Requires out of state sellers to collect and remit sales tax if SD
sales exceed $100,000 annually or have at least 200 separate transactions.• Tennessee and West Virginia
• Use Tax notice requirements-CO, KY, LA, OK, SC, SD, VT
• Challenges to P.L. 86-272 (ex. Ohio CAT)
• Retroactive Legislation (ex. Michigan)
• Continued push to Single Sales Factor and market-based sourcing
How Does PA Compare?
Current Tax Climate
Current Tax Climate
24 44 17 20 45 32
Pennsylvania Resident’s Tax Burden
Corporate Tax Comparison
Sales & Use Tax Comparison
Questions?
Michael Eby
• Senior Tax Manager
• CPA
• Director of State and Local Tax Practice
• Member of the PICPA State & Local Tax Committee
Building SuccessfulEmployee Relationships
A Cornerstone to Fraud Prevention
and Risk Management
Building SuccessfulEmployee Relationships
A Cornerstone to Fraud Prevention
and Risk Management
Questions?
Michael Eby
• Senior Tax Manager
• CPA
• Director of State and Local Tax Practice
• Member of the PICPA State & Local Tax Committee