A Guide To Today's Government

- January 2006 -

Property Tax Reform Takes Center Stage:
House and Senate Pass Competing Plans

The Pennsylvania House and Senate recently approved legislation to reduce school property taxes. However, the two chambers approved competing versions that raise different taxes to make up for the lost revenue.

THE SENATE PLAN

Senate Bill 30 allows voters to decide in a March 14, 2006, referendum whether to shift school funding dollar-for-dollar from property taxes to sales and income taxes. The ballot question would ask voters whether they want to increase the state sales tax by 1 percent to a total of 7 percent [8 percent in Philadelphia and Allegheny counties] and increase the Personal Income Tax by 0.43 percent to a total of 3.5 percent.

The new tax rates are expected to yield roughly $2.6 billion in annual revenues, which would be dedicated to the Property Tax Reduction and Senior Citizen Tax Assistance Fund. The fund would be used to reduce school property taxes for all homeowners, freeze property taxes for certain senior citizens, and expand the existing Property Tax and Rent Rebate Program for senior citizens and disabled persons.

Once gambling revenues begin to flow, the state would devote a portion of the money to lower the newly raised sales and income tax rates. However, since the new tax rates are expected to lower property taxes by roughly $2 billion and annual gaming revenues are projected to be no more than $1 billion, the sales tax and income tax rates could not be reduced to their current levels. The plan does retain one aspect of Act 72: the back-end referendum. Under the bill, school districts would be required to hold a referendum if they intend to raise taxes beyond the general inflation index. Finally, the plan also includes a “phase 2” provision that would allow school districts to lower their property taxes further by placing a referendum on the ballot asking voters whether they would favor increasing their local earned income tax rate in return for additional property tax cuts.

THE HOUSE PLAN

Expands the sales tax to include currently untaxed items such as:

• Advertising Services - publishing, broadcasting, or disseminating promotional information or notices via newspaper, television, radio, or any other medium.
   

• Computer Software - a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task.
   

• Detective Services - providing investigation and detective services
   

• Lodging Services - providing services, including rental, hookups and rental grounds services at campgrounds, vacation camps, youth hostels, trailer parks and recreational vehicle parks.
   

• Management and Consulting Service - providing business advice and assistance in any of the following areas:

  • Management and operating advice

  • Market Research

  • Public Relations

  • Human Resource/executive search consulting

  • Environmental Advice and assistance

  • Scientific and Technical advice and assistance

   

• Personal Service - coin operated and non-coin operated laundering service.
   

• Recreational Service - Providing services which provide or allow for an activity that diverts, amuses, stimulates, and renews individual health and spirits including:

  • Commercial sports admission

  • Admissions to live shows and presentations

  • Physical fitness facility services

  • Bicycle rental services

  • Golf and Country Club memberships

The following items will also be subject to the sales and use tax: Disposable diapers, toiletries, religious organization of religious publications, interior office building cleaning supplies, candy and gum, food and beverages used for airline catering, mail order catalogs and direct advertising, sale at retail of supplies or materials sold to tourism promotion agencies, trade in value of tangible personal property, including vehicles.

17.5 percent of the revenue generated from the sales and use tax would be deposited in the Property Tax Relief Fund. In addition, the House version increases the Personal Income Tax from 3.07 percent to 3.29 percent ,effective April 1, 2006. 6.687 percent of the revenue generated from the personal income tax will be deposited into the Property Tax Relief Fund. The plan is expected to reduce school property taxes by 40 percent .

House and Senate leaders are currently in discussions with the Governor’s office to forge a compromise. They expect to finalize a plan by March. It is encouraged that organizations negatively impacted by either proposal should contact our Government Relations department for advice and/or assistance.

Governor Vetoes Business Tax Cuts

Passed by General Assembly

HB 515 passed the State House of Representatives by a vote of 183-11 and passed the State Senate by a 35-13 vote. It includes a series of provisions aimed at alleviating the tax burden on businesses. It increased the state’s Net Operating Loss (NOL) cap to $10 million or 75 percent of taxable income, whichever is greater by 2010. Refer to the chart below for the schedule.

The measure also includes a series of graduated increases in the Corporate Net Income Tax apportionment formula. The three-factor apportionment formula consists of property, payroll and sales factors. Currently, Pennsylvania applies this three-factor apportionment by triple-weighting the sales factor in the formula. As a result, the sales factor accounts for 60 percent of the apportionment formula, and the property and payroll factors each account for 20 percent. HB 515 would phase in a Corporate Net Income Tax apportionment formula to 100 percent sales by 2010 to encourage companies to build facilities and increase payroll in Pennsylvania.

Under the income tax rollback, the rate would drop from 3.07 percent to 3.05 percent - a difference of $8 to a family earning $40,000 a year.

Additional Funding Approved for Capital Projects

The Pennsylvania General Assembly recently approved a redevelopment assistance bill authorizing the Governor to borrow an extra $500 million to fund capital construction projects throughout the Commonwealth. In order to qualify for the funding, an organization’s project needs to be included in the upcoming Capital Budget Authorization Bill if the project was not previously authorized in past Capital Budgets. Once the project is “authorized”, the Governor is able to appropriate money towards the given project within a three-year period. It is important to note that this program is very competitive and the window for submitting projects is rapidly closing.

Tucker Arensberg's Government Relations Division

For more than 30 years, Tucker Arensberg has helped clients navigate the halls of the Pennsylvania State Capital, County Government, City Hall and beyond.

Our Government Relations Group represents clients before the State Senate, the State House of Representatives, before all branches, departments and commissions of state government, County and City governments.

Our Harrisburg office, located near the Capitol complex and major state office buildings, allows Tucker Arensberg to be a major force on the state political scene.


Services We Provide

Many companies and organizations retain our services for specific matters such as competing for contracts, obtaining government financing and generating legislation affecting their business. However, we offer additional services that complement all of your companies needs. They include:

• Provide assistance with administrative matters including; procurement, regulatory compliance advice, enforcement, licensing, and dispute resolutions.
   

• Lobby for clients when legislation is enacted, or in the process of, that will affect their business opportunities.
   

• Trade association or non-profit management
   

• Political Action Committee (PAC) advice
   

• Assist with drafting legislation
   

• Monitor/track legislation and analyze for clients
   

• Help develop a grass roots plan to carry out an objective

Tucker Arensberg, P.C.’s Government Relations Practice Group has a proud record of retaining clients based on our understanding of the legislative process coupled with excellent client service.


 

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