The 2010-2011 Pennsylvania State Budget

Less than a week after the due date, Governor Ed Rendell signed his final Pennsylvania state budget at Elmwood Elementary School in Mechanicsburg, Pennsylvania, emphasizing the Commonwealth's continued commitment to education. His budget displayed this fact in that it brought about a $250 million increase in basic education spending. However, overall spending for many programs was significantly decreased due to lower revenue expectations.

 

The 2010-2011 enacted state budget is built on a few assumptions. Pennsylvania anticipates an additional $850 million from the federal government for Pennsylvania's Medicaid program. Currently, the U.S. Congress has not yet allocated these funds. The General Assembly and the Rendell administration agreed to meet this October to pass a severance tax on the extraction of natural gas from the Marcellus Shale which would be effective January 1, 2011. 

 

This year's budget lacked the drama that occurred during the process last year, as it was passed in a relatively timely manner and with very few notable adoptions. Although many drastic tax changes were tossed around during the budget proposal process, no real tax changes appeared in the final version.

 

The budget did create an Enhanced Revenue Account and has an initial funding of $4.3 million. The Department of Revenue will use these funds for administrative costs in increasing tax collection enforcement and reducing tax refund errors. The activity funded by this account could lead to additional scrutiny of returns requesting refunds and the initiation of additional audits.

 

Although there were no broad based tax increases in this year's budget, Pennsylvania taxpayers should not breathe a sigh of relief just yet. Many of the issues that were brought to light in the Governor's proposed budget in February will definitely be considered in the near future and might just end up on next year's budget. These proposals are even more likely to be brought up next year due to the fact that the federal stimulus funding from the American Recovery and Reinvestment Act is scheduled to end, leaving an estimated budget deficit of over two billion dollars in 2011-2012.

 

One of Rendell's proposals that alarmed the business community was the expansion of sales and use tax to include many nontaxable services and the elimination of a number of sales tax exemptions. While broadening the base, the original proposal would have lowered the state tax rate from 6% to 4%. This proposal was met with much opposition as taxes on services, such as professional services, would eventually just be passed down to the end consumer. Additionally, the 1% vendor discount would have been eliminated. This discount is awarded to vendors as an agent fee for collecting sales tax from customers on behalf of the Commonwealth and remitting it on time.

 

Pennsylvania may also readdress various corporate tax issues next year such as combined reporting, lowering the corporate income tax rate, revising the cap on the net operating loss carry forward, and revising the apportionment formula.

 

As a member of the State and Local Tax Committee and Legislative Committee of the Pennsylvania Institute of Certified Public Accountants (PICPA), our firm continues to evaluate proposed tax legislation and work with the legislators in determining the best course to take. We greatly welcome your thoughts, suggestions, or concerns that you might have with any future proposed Pennsylvania tax legislation. If you have any questions regarding the contents of this article, please feel free to contact us.

Comments

[Matt Z]

It seems that Pennsylvania's tax policy (especially sales tax) is terribly complex and based a hodgepodge of outdated and often politically motivated decisions to give a tax break to the industry du jour.

It's just bad policy to have such a complex tax code that picks winners and losers and then layer on top of it other tax-break policies to further involve government in choosing one industry over another.

Does your team believe that the tax code should be simplified and broadened, and the rates lessened?