PA Proposed Tax Increases – Governor Wolf’s Budget Proposal for 2017

March 6, 2017
By S. John Kelly
Posted in Business Services

To balance his budget, Governor Wolf has proposed the following tax law changes:

  • Collect a 6 percent severance tax on natural gas extraction from all formations. Effective date – July 1, 2017.  A credit would be allowed for the annual nonconventional gas well impact fees (e.g. Marcellus Shale well fees).  Comment – Governor Wolf proposed a similar change in 2015.
  • Collect PA sales tax on sales of custom software, as well as support and maintenance services for such custom software. In addition, data processing services would be subject to PA sales tax. Effective date – July 1, 2017.   Comment  – Any third party service that manages or manipulates your electronic data is likely to be considered taxable “data processing.”   Today, only “canned” software is subject to PA sales tax.  61 Pa. Code § 60.19
  • Impose PA sales tax on purchases of commercial storage of at warehouses or transportation terminals. Effective date – July 1, 2017.  Comment – Today, only self-storage services are subject to PA sales tax.  61 Pa. Code § 60.12.
  • For corporate net income (CNI) tax purposes, the net operating loss (NOL) annual cap on would be changed to 30 percent of taxable income for all corporations. Effective date – July 1, 2018.  Comment – This annual cap would resolve the current Uniformity Clause challenge (Nextel case) to the existing law.  Today, the annual NOL cap is the greater of $5 million or 30 percent of taxable income.
  • For CNI purposes, PA would mandate unitary combined reporting by corporations. Effective  date – January 1, 2019.  Comment – The Legislature has rejected similar proposals many times since 2004.  Today, PA only allows separate company reporting.  Of the 44 states with a corporate income tax, about 24 plus DC, require some form of combined reporting.
  • A gradual reduction in the CNI tax rate starting on January 1, 2019. The tax rate would drop from 9.99 percent today to 6.49 percent in 2022.
  • More insurance companies would be subject to the insurance premiums tax (typically a 2 or 3 percent tax). Effective date – January 1, 2018.  Comment – Most of the tax increase is anticipated to be imposed on domestic casualty insurance premiums.

Meanwhile Senate Democrats, possibly in Senate Bill 76,  propose to: raise the state sales tax rate to 7 percent, raise corporate taxes, and raise the personal income tax rate to 4.95 percent.  These tax increases would be used to pay for a reduction in local real property taxes.  This bill reintroduces tax proposals from June 2015[1].  The tax proposal would impose new sales taxes on food, legal services paid by individuals, other than family and criminal law, architectural services, nursing home fees, veterinary services, and daycare, among other items.

The annual Pennsylvania budget negotiations between the Governor Wolf (D) and the Republican controlled Legislature are convoluted.  Only some of the Governor’s tax proposals might be enacted into law.

Strassburger McKenna Gutnick & Gefsky can help you with your taxes. Please contact John Kelly, jkelly@smgglaw.com  or Dave Pollack, dpollack@smgglaw.com  at (412) 281-5423 for tax guidance.   This post is provided for informational purposes only. Nothing in this post creates an attorney client relationship.

[1] http://www.legis.state.pa.us/cfdocs/billInfo/billInfo.cfm?sYear=2015&sInd=0&body=S&type=B&bn=0076