United States

Pennsylvania proposes budget changes


Recently, Pennsylvania Gov. Wolf announced his proposed budget for the Commonwealth’s fiscal year beginning July 1, 2017. The estimated deficit for the Commonwealth is approximately $3 billion through the next two fiscal years – one of the largest potential deficits of any state this budget season. Pennsylvania taxpayers have watched closely in the last few years as the budget deficit continues to increase. Past proposals to reduce growing deficits have ranged from short term revenue enhancers (expanded gaming fees) to both minor and meaningful structural changes to sales and use and income taxes.

Although the governor’s proposed budget does not include an increase in the personal income or the sales tax rates, it does include several tax revenue enhancers including:

Corporate income tax – similar to his previous two budget proposals, Gov. Wolf is advocating for mandatory combined filing and an incremental reduction in the tax rate.

  • Mandatory combined report – starting with tax years beginning on or after Jan. 1, 2018
  • Incremental reduction in the tax rate to 6.49 percent by 2022 from 9.99 percent

Severance tax on natural gas – another past proposal, would impose new tax on the value of gas extracted as of July 1, 2017, at a rate of 6.5 percent.

Sales tax – a new tax on digital products was successfully imposed last year, and the current proposal would reenact a tax on computer services, and an expansion of the tax to several other services including:

  • Commercial storage
  • Aircraft sales, use and repair
  • Airline catering

Tax credits and incentives program – proposal to reduce Pennsylvania credits and incentives by $100 million as they are not seen as competitive with surrounding states

In addition to those tax-related changes, the governor has proposed a series of spending cuts and other structural changes in the budget to help produce cost reductions.

While the Pennsylvania budget is constitutionally due before July 1, the last two budgets were more than five and six months late, respectively, as the legislature debated the merits of various proposals. While this year’s tax proposals appear relatively minor compared to prior years, there are a number of other proposals that have recently gained traction. Included in those proposals is the perennially-debated elimination of the local property tax which may have renewed interest this year.

Pennsylvania taxpayers should be aware of the current proposals, but should be cautious of assuming any will pass. As with past years, the budget process can be politically charged, long-lasting and result in only minor changes. 

Matt Wilk

Senior Manager

Matt provides multi-state planning, M&A and controversy assistance with a focus on income and franchise tax and state tax incentives. Contact him at matt.wilk@rsmus.com.

Areas of focus: State Income and Franchise TaxTax Controversy

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