On the night before Governor Tom Wolf is unveiling his budget plan Republican lawmakers are already coming out against parts of it, specifically a personal income tax increase.
"We are talking about mom and pop employers," said one lawmaker.
They say it's no secret Pennsylvania has a complicated tax system that is especially hard on small businesses. "We need to help alleviate this," said State Representative Stephen Bloom (R) Cumberland County.
Republicans held a meeting to show their concerns about the way Governor Tom Wolf wants to tackle these problems. They say it will only make things worse.
"If we do see the rumored proposal to raise the personal income tax, that adds gravity to the whole situation. It makes it more pressing for us to get this message out to the governor," said Rep. Bloom.
Governor Wolf has announced plans to lower the Corporate Net Income Tax. The governors proposals is a reduction in the CNIT, reducing corporate net income tax from 9.9% into the 5% range, which is a great thing and all of the corporations are happy," said State Senator John Eichelberger (R) Blair County. Sen. Eichelberger said this isn't good for small businesses, mainly becuase the governor's plan may include raising the personal income tax, which is something small businesses owners have to pay.
"They're looking at a whopping 33- 35% tax increase! We've got to provide some relief for them," said Sen. Eichelberger.
On the eve of the governor's budget address, Republicans unveiled three bills. The goal: simplify the tax code for small businesses, instead of pushing them out of the state.
"We are respectfully asking the governor, don't let small businesses fall through the cracks," said Rep. Bloom.
"This is the first inning of a baseball game," said Representative Kevin Schreiber (D) York County. Schreiber said it's too early for republicans to criticize the budget. "Let's not forget he was the secretary of revenue for several years under Governor Rendell so he knows about taxes, he knows about the revenue shortfalls, he knows that we are staring at a two and a half billion dollar deficit," said Schreiber.
The National Federation of Independent Business (NFIB), which represents 15,000 small businesses in Pennsylvania support the three bills.
“The governor says he wants to improve the business climate in Pennsylvania by lowering the Corporate Net Income Tax, but if he opts to raise the Personal Income Tax that will be devastating to most small businesses,” said Kevin Shivers, executive state director of NFIB/Pa. “On the other hand, bills like the ones introduced today to simplify the tax code are small-business friendly and we are grateful to the sponsors for understanding the obstacles the mom-and-pop businesses face.”
Small Business Tax Reform Summary: [From NFIB]
Like-Kind Exchanges – Prime Sponsors: Rep. Stephen Bloom and Sen. Mike Folmer
Under Federal tax law, a “like-kind” exchange under Internal Revenue Code Section 1031 allows for tax-deferral when property is exchanged for similar property. This long-standing Federal provision facilitates efficient investment in the job-creating assets businesses need to remain competitive. Every state but Pennsylvania provides for a similar deferral on the state level (current Pennsylvania tax law contains no such provision).
This legislation would allow for like-kind exchanges in Pennsylvania to mirror Internal Revenue Code Section 1031, thereby removing a disadvantage Pennsylvania small businesses face when competing with businesses in other states.
Net Operating Loss – Prime Sponsors: Rep. Seth Grove and Sen. John Eichelberger
The Tax Reform Code of 1971 allows corporate taxpayers to deduct Pennsylvania losses from one year from Pennsylvania Income in subsequent years. However, there have been several changes in the carry forward period for Net Operating Losses and limitations on the amount of Net Operating Loss that can be used in a given tax period.
This legislation would allow a small business to use the Net Operating Loss deduction. Since small businesses don’t have access to the capital larger companies have, their ability to use such tax strategies helps them have greater control over their financial positions. For example, if an owner sells some personal items to help the business make payroll, that owner can take the business loss against his or her tax bill created by selling the personal items
Section 179 Expense Deductions – Prime Sponsors: Rep. George Dunbar and Sen. Scott Hutchinson
For Pennsylvania C Corporations, the calculation for Pennsylvania Corporate Net Income begins with federal taxable income, which is then adjusted for certain items specified in Article IV of the Tax Reform Code. Currently, there is no adjustment for Section 179 expenses. The Section 179 expense used in the calculation of Federal taxable income is also used in Pennsylvania C Corporation Net income.
The Federal limit for Section 179 expenses has been $500,000 for the last four years. However, for personal income tax purposes (S Corporations, partnerships, and individuals), Pennsylvania law limits the amount of Section 179 deduction to $25,000.
This has created an inequity for small businesses in Pennsylvania. Pennsylvania C corporations are allowed a 179 deduction that small businesses are not. Senator Hutchinson’s legislation would increase the maximum amount a taxpayer may elect to expense for Section 179 assets: to $100,000 per taxable year. The bill would also increase the phase-out of this deduction from the current $200,000 to the current federal amount of $2,000,000.
Please note: this increase in the deduction is not a tax credit, but simply allows a tax deduction earlier in the useful life of depreciable assets. The proposed increase in limits is an incentive to encourage businesses to buy equipment and to invest, which promotes economic development in Pennsylvania.