Death and Taxes

Governor Wolf earlier this month presented his budget for fiscal year 2015-2016. It was actually one of the more interesting budgets of the past 30 years. Not because it advocated for tax increases and acknowledged a state revenue deficit of over 2.5 billion dollars.

No, this was not just a budget address but almost a complete overhaul of both state government and the tax code. It was a political manifesto as it was a budget.

For decades there have been complaints about the property tax and its inequities. There have been countless solutions, from money from legalized gambling to Allegheny County’s RAD tax—none have stopped the inevitable rise in millage rates. Governor Wolf’s solution is a rate increase and broadening of the base of the state sales tax, with the majority of the additional dollars collected going to local school districts with a mandate to reduce property taxes.

The corporate community has long complained about the high taxes on business in Pennsylvania making us non-competitive with other states in attracting or maintaining businesses. Governor Wolf would complete the long hoped for demise of the Capital Stock and Franchise Tax and also cut the Corporate Net Income rate in half in just two years. He would fund these cuts with the demise of the Delaware Loop hole.

Governor Wolf would use an excise tax on natural gas extraction to increase funding for education and raise the Personal Income Tax to fill the deficit. Plus there would be a tax on cigars and smokeless tobacco to round out the tax smorgasbord.

Reaction from the Republican controlled General Assembly was of course, predictable.

Now whether we will see any or all of these proposed taxes come the end of June when the Pennsylvania Constitution mandates a budget be in place remains to be seen.

There is a deserved skepticism on state mandated property tax reductions, local municipalities, counties and school districts are ultimately responsible for the levying and spending of property taxes. The business tax cuts and closing of loopholes currently has the business community divided between the larger corporations and their S-Corp brethren.

Republican options include selling off the liquor stores and using the money to bridge the revenue gap; fixing the state employee’s pension fund deficits to reduce the cost of the Commonwealth’s contributions into that fund. Or just cutting the state budget even further than the recently unelected Governor Corbett was not willing to do.

Just recently the Independent Fiscal Office proclaimed that our revenue deficit was only 1.8 billion. Regardless, Pennsylvania is not the Federal Government, our beloved Commonwealth is required by law to have a balanced budget.

So whether Governor is successful in the broad sweeping changes his budget calls for or whether the General Assembly is successful in stopping him one thing is ultimately clear.

Taxes will go up. Don’t know which ones or how much. Taxes will go up.

by Nello Giorgetti

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If you have questions please contact Michelle Vezzani at MVezzani@cohenlaw.com or the public affairs professional with whom you work.

Governor Corbett approves budget for Pennsylvania’s 2014-2015 fiscal year

On July 10, 2014, Governor Corbett approved the budget for Pennsylvania’s 2014-2015 fiscal year after announcing that he had decided to line item veto certain funding for the state legislature. The budget provides for $29.1 billion in state spending for this new fiscal year. Budget highlights include:

  • No increases in broad-based state taxes (e.g., Personal Income Tax, Sales and Use Tax).
  • No severance tax on the extraction and production of natural gas in the Marcellus Shale.
  • The continuation of economic development tax credits, including the Film Production Tax Credit.
  • The continued phase out of the Capital Stock and Franchise Tax.
  • $10.5 billion for K-12 education.
  • A $20 million increase in special education.
  • A $10 million increase for PlanCon, a process whereby a school district seeks reimbursement from state government for a major construction project undertaken by the school district.
  • $327.69 million in funding for early childhood education, including a $10 million increase for Pre-K Counts.
  • A $3.5 million increase in funding for community colleges.
  • $5 million for the newly established Ready-to-Succeed Scholarship, which provides merit-based scholarships to students who demonstrate academic achievement and come from families with household income of less than $110,000.
  • $100 million for the newly created Ready-to-Learn Block Grants to support academic achievement with flexible uses that include the following: uses allowable under the Accountability Block Grant; establishing, expanding, and maintaining kindergarten and Pre-K programs; hybrid learning; and curriculum alignment.
  • Requirement that the Environmental Quality Board regulations differentiate between conventional oil and gas wells and unconventional gas wells.
  • Elimination of the state’s pension reimbursement payments to charter and cyber charter schools.
  • No public pension reform. However, pension reform may be taken up by the state legislature in the fall.
  • No liquor store privatization or modernization.