Pennsylvania Budget Update

The June 30th deadline for Pennsylvania passing its budget has come and gone and we are still uncertain of what we can expect. In order to get the budget passed, the Commonwealth is looking at increasing revenues through taxes and decreasing expenditures by cutting funding to various programs. It appears that Pennsylvania lawmakers are looking at numerous proposals and possible deals to get the budget resolved.

The following is a list of certain items to generate additional revenues that are currently being discussed as possibilities towards getting a budget passed:

• Increasing Pennsylvania's Personal Income Tax by half a percent from 3.07% to 3.57% on a temporary basis;

• Increased taxes on tobacco products;
• Tax on companies drilling for oil and natural gas within Pennsylvania;
• Revising Pennsylvania's corporate filing requirements from a separate filing state to a combined reporting state;
• Delaying the phase-out of Pennsylvania's Capital Stock/Foreign Franchise Tax;
• An implementation of a tax amnesty program;
• Elimination of the sales tax vendor discounts currently offered;
• Increasing Pennsylvania's sales and use tax rate;
• Applying Pennsylvania's Sales and Use Tax to include professional services as a taxable transaction.
• It appears that a push is being made towards program cuts to avoid increases in Pennsylvania taxes. Governor Rendell warned against this by stating the following: "The message that I think is fair for the people of Pennsylvania to understand is if we don't raise taxes – or raise revenues – somehow in Harrisburg, they are not going to escape paying. They'll just pay local and county taxes in the form of property taxes."

By the time the actual budget is finalized and passed, the above referenced items may or may not be included in the budget. However, we are fairly confident that you can expect a whirlwind of activities and numerous proposals being thrown around Harrisburg.

In addition to the possible reductions in funding to various programs, it appears that one program that will be included in the cuts is the modernization of Pennsylvania's Department of Revenue's computer systems. Although tax professionals and the Department of Revenue do not always see eye to eye on issues, this is one issue that we do agree on. The current computer system being used by Pennsylvania's Department of Revenue was created nearly 50 years ago and it is extremely difficult to maintain due to the lack of individuals proficient in updating this computer system. The modernization of this computer system is long overdue and would result in greater efficiencies for Pennsylvania's Department of Revenue, those professionals working with the Department of Revenue on tax matters and ultimately the actual taxpayers.

It is obvious that Pennsylvania needs to increase its revenue and decrease its expenditures in order to balance the budget in the current economic environment, but it is imperative that individuals and business entities provide their elected Pennsylvania legislators with their thoughts and concerns with regards to what ultimately is included in the budget.