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Rendell's Tax Restructuring After last year's rancorous 101-day budget impasse, officials in Harrisburg are pledging to finalize a budget by the June 30th state constitutional deadline this year. However, the issues have not changed much since Governor Rendell has proposed an overall spending increase that may be difficult to justify in an economy with flat wages, declining revenues, budget shortfalls, and high unemployment. With members of the legislature opposed to new or increased taxes, and increased spending, this looks a lot like the formula for another protracted stalemate. The Chamber of Commerce applauds Governor Rendell’s proposals within his budget to reform a number of business taxes such as the elimination of the restrictive cap on net operating losses, movement toward basing the Corporate Net Income tax solely on sales, and reducing the CNI tax rate, the second-highest in the nation. However, during his budget address, Rendell proposed an overhaul of the state's sales tax. The governor wants to lower the statewide sales tax from 6 percent to 4 percent, but would tax many goods and services that are now exempt. This includes a substantial expansion of the sales tax to business services such as, accounting, auditing and bookkeeping services, administrative services, advertising, public relations & related services, all other professional and technical services, amusement & recreation industries, architectural, engineering & related services, consulting (scientific, environmental, & technical), data processing, dry-cleaning & laundry services, heating & AC service fees, financial institutions fees, funeral parlors & death care services, information services, legal, parking lots & garages, personal care services, theater, dance, music & performing arts admissions for-Profit-tourist promotion agencies, transit & ground transportation, waste management and remediation services and water and sewage services. The Governor also called for combined reporting, which will impact companies that do not have passive investment, such as Delaware State holding companies. Combined reporting is a complex tax reporting system that would have far-reaching, harmful effects on large and small employers. Rendell’s proposal treats affiliated taxpayers (parents and subsidiaries) engaged in a unitary business as a single entity for the purpose of determining taxable income. Proponents say it is necessary in order to close so-called “tax loopholes” – an increasingly popular term used by supporters to negatively characterize legitimate and legal tax planning policies with regard to some corporations’ use of passive investment (Delaware holding) companies in other states. Gene Barr, Vice President of Government Affairs for the Pennsylvania Chamber stated “there is no guarantee combined reporting would bring in additional revenue for the state, as some companies could actually see their tax burden lowered under combined reporting. Further, when compared to other states that have adopted combined reporting, Pennsylvania's proportion of corporations that do not pay the Corporate Net Income tax is typical.” The certain result would be lost investment and lost jobs in the Commonwealth. Governor Ed Rendell also proposes eliminating an existing state provision were Pennsylvania retailers and other businesses that collect and remit sales tax in Pennsylvania receive a one percent discount for paying on time. Currently, a vendor who timely files a return and remits the tax receives a one percent discount of the tax collected as compensation for the expense of collecting and remitting the tax. Indeed, the Commonwealth mandates that businesses perform the function of the state’s tax collection agents, at a substantial cost to businesses. Costs include calculating, recording, collecting and remitting various taxes and fees from customers; developing systems to gather data and prepare and file reports; preparing sales tax manuals; training personnel and supervising performance; and undergoing internal and Department of Revenue audits. As you can see, Governor Rendell’s last budget proposal contains tax proposals potentially detrimental to the business community, especially small businesses. Last year, with your help, the Chamber worked successfully with the state’s business community to stop the Governor’s proposed broad base tax increase. This year, the Chamber will also work diligently to oppose increased or expanded tax increases that fall on the backs of small businesses. But, we need your involvement and voice. Please attend the next Government Affairs Committee meeting held monthly on the third Friday at 8am or contact the Chamber offices on how you can help our advocacy initiatives. A positive business climate in our Commonwealth benefits our residents, municipalities, and various other institutions. Support of pro-business policies go a long way towards making our region and Pennsylvania a better place to live, work, and raise a family.  |
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 Chamber Newsletter: Business Connections UPCOMING EVENTS 9/14/2010 Tuesday 3:30 PM Membership Orientation Sponsored by Sphere 9/16/2010 Thursday 5:00 PM Business After Hours @ Penn State Brandywine 9/23/2010 Thursday 5:30 PM DCYP Mortgage Seminar 9/28/2010 Tuesday 11:30 AM Knowledge @ Noon - Knowledge is Power: Is it Safe to Get Back in the Water?
IN THE NEWS
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