Government Affairs Committee UpdateAugust 17, 2012 10:28am
Government Affairs Committee Update
The information below includes updates from our Gov't Affairs Committee on
issues that the Committee is currently discussing
Keystone Works Program
Under the Keystone Works Program, the Department of Labor &Industry will match claimants with businesses who are willing to provide training and meet specific needs for current job openings in High Priority Occupations. High Priority Occupations are jobs which are in demand by employers, and which are listed annually by the Department to specific industry clusters where the skill level required will provide family-sustaining wages.
Participating businesses will provide the claimant with a maximum of 24 hours of unpaid training weekly for up to 8 weeks. In accordance with the Federal Unemployment Tax Act (FUTA), UC benefits continue to be paid during that period. At the cessation of the 8-week training period, the business must consider the claimant for employment in the job opening, but is not required to hire the claimant. The training portion of the Keystone Works proposal is modeled on the highly-successful Georgia Works Program, which was launched in 2003. Other states have used the Georgia Works Program as a model in recent years, including New Hampshire and Missouri.
The Keystone Works Program will connect displaced workers to employers in High Priority Occupations. This innovative approach to mitigate unemployment in Pennsylvania will:
• leverage trust fund dollars to stimulate job growth;
• incentivize businesses large and small to recruit, train, and hire new workers; and
• allow claimants to receive valuable on-site training for jobs which are in-demand by
employers and which provide family-sustaining wages.
This was supported by the PA Chamber of Commerce also.
The General Assembly recently enacted several laws that make various changes to Pennsylvania taxes. These changes present traps for the unwary as well as planning opportunities for businesses and individuals seeking to reduce their Pennsylvania tax liability.
Single-Factor Apportionment for Corporate Net Income Tax
Pennsylvania traditionally required corporate taxpayers with business both inside and outside of Pennsylvania to apportion business income to Pennsylvania for Corporate Net Income Tax purposes based on (i) the percentage of the taxpayer's payroll inside of Pennsylvania, (ii) the percentage of the taxpayer's property inside of Pennsylvania, and (iii) the percentage of the taxpayer's sales inside of Pennsylvania (the PA Sales Factor). In recent years, the PA Sales Factor has been given increased weight; currently, the PA Sales Factor is given 90 percent of the weight in apportioning business income.
For tax years beginning after December 31, 2012, the payroll and property factors will be eliminated and the PA Sales Factor will be the sole apportionment factor for Corporate Net Income Tax purposes. This change creates a tax benefit to corporations that are located in Pennsylvania and have large numbers of Pennsylvania employees.
Continued Phase-Out of Capital Stock / Foreign Franchise Tax
The scheduled phase-out of Pennsylvania's Capital Stock / Foreign Franchise Tax remains on schedule to expire effective for tax years beginning after December 31, 2013.
Changes to Corporate Tax Report Obligations
For tax years beginning after December 31, 2012, the deadline for reporting federal changes to the Department of Revenue will be extended from 30 days to six months after the federal change becomes final. Also, for tax years beginning after December 31, 2012, the due date for Pennsylvania corporate tax reports will automatically be extended if an extension to file the federal tax return is granted.
Realty Transfer Tax
New limits will be imposed on so-called 89/11 transactions, where a seller transfers 89 percent of an interest in a real estate company and then waits three years before transferring the remaining 11 percent interest. Under previous law, no realty transfer tax was imposed on such a transaction because there was not a transfer of 90 percent or more of a real estate company within a three-year period.
Under the new law, realty transfer tax will be imposed if (i) there is a "legally binding commitment" to transfer 90 percent or more of a real estate company within a three-year period, (ii) the terms of the transfer are fixed and not subject to negotiation, and (iii) the transferring party receives the full consideration within the three-year period.
The change does not apply to a transaction or a series of transactions that occurs in whole or in part before January 1, 2013.
Expansion of Pennsylvania Tax Credits
Several new laws substantially expand the availability of tax credits:
Educational Improvement Tax Credit
Currently, there is a tax credit available for an eligible business that contributes funds to (i) a scholarship organization, (ii) an educational improvement organization, or (iii) a pre-K scholarship program. The credit is equal to 75 percent of the amount contributed for a single contribution or 90 percent of the amount contributed if the eligible business makes a two-year commitment. The tax credit must be used in the tax year of the contribution and may not be carried forward, carried back, sold or assigned. The new law raises the amount of the credit that an eligible business may claim from $300,000 to $400,000 for the 2012-13 fiscal year and $750,000 for years thereafter (although smaller caps apply to credits for contributions to pre-K scholarship organizations). The new law also makes it easier for the owner of a pass-through entity to claim the credit for a contribution by the pass-through entity. Finally, the annual cap on aggregate credits was increased from $75 million to $100 million.
Job Creation Tax Credit
Currently, there is a tax credit available for the creation of new jobs in Pennsylvania by a qualified taxpayer. The credit may be used to offset tax liabilities in the year the new jobs are created or carried forward for five years. The new law increases the credit from $1,000 per job to $2,500 per job. The annual cap on aggregate credits was increased from $40 million to $55 million. Additionally, the new law clarifies that $11 million of the credits must be set aside for businesses that employ 100 or fewer individuals if such small businesses agree to increase the number of employees by 10 percent within three years.
Film Production Tax Credit
Currently, there is a 25 percent tax credit available to a film production company that spends at least 60 percent of its total film production budget in Pennsylvania. The credit may be used to offset tax liabilities in the year the expenses are incurred or carried forward for three years. Additionally, a film production company may apply for approval to sell or assign the credits. The new law expands the existing credit to include an additional 5 percent credit for filming in a "qualified production facility" located in Pennsylvania. Additionally, the new law allows a purchaser or assignee of credits during 2010 to carry the credits forward for use against 2011 or 2012 tax liabilities and allows, in future years, banks and insurance companies to purchase the credits. Finally, the annual cap on aggregate credits in future years was set at $60 million.
Educational Opportunity Scholarship Tax Credit
A new tax credit is available for an eligible business that contributes to a new organization formed to offer opportunity scholarships to students residing within the area of a public school that is ranked in the lowest 15 percent in the state based on certain academic criteria. The credit is equal to 75 percent of the amount contributed for a single contribution or 90 percent of the amount contributed if the business makes a two-year commitment. The tax credit must be used in the tax year of the contribution and may not be carried forward, carried back, sold or assigned. The annual cap on total credits is $400,000 for the 2012-13 fiscal year and $750,000 for years thereafter.
Historic Preservation Tax Credit
A new tax credit is available for taxpayers that incur qualified expenditures to rehabilitate a qualified historic structure. The Department of Community and Economic Development, together with the Department of Revenue, will release guidance implementing technical aspects of applying for and claiming the credits but, beginning on July 1, 2013, a taxpayer will be able to apply for approval and, upon making approved qualified expenditures, receive a credit of up to 25 percent of the qualified expenditures, up to a maximum $500,000 per taxpayer. The annual cap on total credits is $3 million. Additionally, a taxpayer may apply for approval to sell or assign the credits.
Community-Based Services Tax Credit
A new tax credit is available, effective for the fiscal year July 1, 2013, for an eligible business that makes a contribution to a nonprofit entity that provides community-based services to individuals with intellectual disabilities or mental illnesses. An eligible business may receive a credit of up to 50 percent of the qualified contributions, up to $100,000 per business. The tax credit must be used in the tax year of the contribution and may not be carried forward, carried back, sold or assigned. The annual cap on total credits is $3 million.
Pennsylvania Resource Manufacturing Tax Credit
A new saleable and assignable tax credit is available to an eligible business that purchases ethane for purposes of manufacturing ethylene at a facility in Pennsylvania in the amount of $0.05 per gallon of ethane used between January 1, 2017 and December 31, 2042. This credit is only available for an eligible business that makes a capital investment of at least $1 billion and creates at least 2,500 new jobs. This credit is designed to provide an additional incentive for Shell Chemical LC to build a $4 billion petrochemical complex in an area of Beaver County that previously was designated as a Keystone Opportunity Zone.
Sales and Use Tax
Welcome relief has been provided to taxpayers required to make prepayments of sales tax as a result of a 2011 change to the sales and use tax law. Under the new law, taxpayers with reported sales tax liability between $25,000 and $100,000 during the third quarter of the previous year are required to make a prepayment equal to or greater than 50 percent of the current month's liability as opposed to 50 percent of the preceding year's liability for the same month.
Also, there are new exclusions and exemptions from sales and use tax:
Wrapping and packaging services are excluded from sales tax if the property wrapped or packaged is resold.
Egg processing services are excluded from sales tax.
Volunteer firefighters' relief associations are exempt from sales and use tax.
Business taxpayers that make non-wage payments that are reportable on IRS Forms 1099-MISC are required to submit copies of the forms to the Department of Revenue.
A surviving spouse is permitted to file a joint return with his/her deceased spouse for the tax year of the spouse's death if a joint return could have been filed if the spouse was living.
The Department of Revenue has the ability to attach bank accounts of delinquent businesses that fail to comply with deferred payment plans.
Transfers of family farms between members of the same family are excluded from the Pennsylvania inheritance tax.
*The below information includes introduced legislation that has not yet passed, but is being presented by local Congressman Jim Gerlach
Gerlach introduces bipartisan legislation aimed at boosting small businesses
Encouraging small business startups, providing relief from rising health insurance rates for self-employed business owners and making permanent several important tax deductions are all part of legislation recently introduced by Congressman Jim Gerlach, a West Pikeland Township Republican, and Congressman Ron Kind, a Wisconsin Democrat. Here's a look at some of the provisions of H.R. of H.R. 6102, the proposed America's Small Business Tax Relief Act.
• Deductibility of Health Insurance for the Purposes of Calculating Self-Employment Tax. Under current law, business owners are not permitted to deduct the cost of health insurance for themselves and their family members for purposes of calculating self-employment tax. This is considered fundamentally unfair given that all other businesses except the self-employed are able to deduct these costs, and it is something that Senators Snowe and Landrieu have been seeking to correct on a permanent basis. This provision would allow business owners to deduct the cost of health insurance incurred for themselves and their family members in the calculation of their self-employment tax in 2011 and 2012, while we continue to search for a longer-term solution.
• Increase of Section 179 Expensing and Expansion to Certain Real Property. Under current law, taxpayers may elect to write off the costs of certain tangible personal property that is purchased for use in the active conduct of a trade or business in the year of acquisition, in lieu of recovering these costs over time through depreciation. For the taxable year beginning in 2010, taxpayers may write off up to $250,000 of these capital expenditures subject to a phase-out once these capital expenditures exceed $800,000. This bill would increase the thresholds to $500,000 and $2,000,000 for the taxable years beginning in 2010, 2011, and 2012. Absent this extenders package, the amounts revert to $25,000 and $200,000, respectively. Within the temporary higher thresholds, the bill would allow taxpayers to expense up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. Again, absent this extenders bill, the amounts revert to $25,000 and $200,000, respectively.
• Increased Deduction for Start-up Expenditures. Under current law, taxpayers may deduct up to $5,000 in trade or business start-up expenditures. The amount that a business may deduct is reduced by the amount by which start-up expenditures exceed $50,000. Start-up expenditures are defined as expenses paid or incurred in connection with investigating or creating an active trade or business, which would be deductible if paid or incurred in connection with the operation of an existing trade or business. The bill would temporarily increase the amount of start-up expenditures that may be deducted to $10,000, subject to a $60,000 phase-out threshold, through 2012.
• Extension of General Business Credit Carry-Back to 5 Years. Under current law, a business's unused general business credit may generally be carried back to offset taxes paid in the previous year, and the remaining amount may be carried forward for 20 years to offset future tax liabilities. This bill extends the one-year carryback for general business credits to five years for those sole proprietorships, partnerships, and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years.
• Permissibility of General Business Credits Against AMT. Under the Alternative Minimum Tax (AMT), taxpayers may generally only claim allowable general business credits against their regular tax liability, and only to the extent that their regular tax liability exceeds their AMT liability. A few credits may be used to offset AMT liability, such as the credit for small business employee health insurance expense. This bill allows small businesses to use all types of general business credits against their AMT. This applies to general business credits for those sole proprietorships, partnerships, and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years.
• S Corp Built-in Gains Tax. Generally, a C corporation converting to an S corporation must hold onto any appreciated assets for 10 years following its conversion or face a business-level tax imposed on the built-in gain at the highest corporate rate of 35 percent. This holding period is reduced where the seventh taxable year in the holding period preceding the taxable year beginning in 2009 or 2010. This bill temporarily shortens the holding period of assets subject to the built-in gains tax to five years if the fifth taxable year in the holding period precedes the taxable year beginning in 2011 or 2012. The provision also includes a technical correction to prevent installment sales from avoiding the built-in gains tax for payments made in years covered by this provision.