No Tax Cuts For All, But Tax Cuts For Some In The Pennsylvania Budget
There are no changes to key Pennsylvania personal or business tax rates in the new $ 40.8 billion budget.
But with a lot of leeway in this year’s budget, there is a number of smaller, industry-specific tax breaks that were included in the plan. In total, the changes resulted in a net reduction of $ 35.8 million from the current tax base in 2021-22, and then reduced to $ 89.2 million in 2022-2023.
The cuts could have been much wider.
Several sources familiar with the negotiations told PennLive that while there had been preliminary discussions on cutting the state’s net corporate income tax, all momentum in that direction appeared to dissipate after Republican leaders and Wolf’s staff failed to come to an agreement on the broader changes to school funding.
This corporate income tax, at 9.99%, is currently the second highest rate in the country.
Governor Tom Wolf has made several attempts to reduce it, but always as part of a broader tax restructuring that would broaden his base.
“It was very disappointing, but it happens. Every time we talked about it, it was kind of married with some kind of raise elsewhere, ”R-Center County Pro Tempore Senate Speaker Jake Corman said after Friday night’s votes.
“As a Commonwealth, we have to deal with the issue of corporate net income tax. Every economic development professional across the state, across the country, says it’s a flashing light for why people, when they are looking, won’t even consider coming to Pennsylvania.
- Pennsylvania has received $ 7.3 billion in federal COVID-19 rescue assistance. The new state budget is spending $ 1 billion of this money.
But enough about what could have been.
Here’s what really made the cut.
In addition to the $ 40 million increase in state tax credits for companies that contribute to private and parochial scholarships, for a total of $ 225 million next year, a series of interest Businesses are getting tax breaks in this year’s budget from hopeful developers. from data centers to real estate developers and companies manufacturing helicopter training simulators.
Data centers: The biggest potential disruption, if it works, could be the loss of around $ 14 million in 2021-22 and $ 41 million the following year from a sales tax exemption on used computer hardware. that fills the data centers, described by supporters. as a public computing service that are necessary to meet the ever increasing demand for web capacity.
The centers themselves don’t create a ton of jobs. But they can generate a lot of property tax revenue for municipalities, counties and schools, and they would also become a major new customer for the state’s power producers.
Supporters are hoping to tease something like the investment explosion that has occurred in northern Virginia over the past year. According to the Washington Post, there was about $ 9 billion combined in data center investments in Loudoun and Prince William counties alone.
This is a growing industry that many in the state believe Pennsylvania can capitalize on due to its proximity to major East Coast markets and plentiful supplies of low-cost energy here. Republicans in both chambers worked on legislation to exempt all necessary equipment from state sales and use taxes.
Manufacturing: Another bigger change would help manufacturers. Those who are entitled to an existing state-level tax break that allows tax deductions for the cost of large investment projects could now apply these deductions once their income has been distributed among the various states in which they make. of business, thereby creating better value for money.
Sources said the change reflects the original intent of the deduction program and could save manufacturers $ 24 million this year, and then up to $ 50 million in 2022-23. Against a corporate net income tax base of over $ 2.8 billion, that would represent a reduction of about 1.7%.
Affordable housing: Another new tax break is the Pennsylvania State’s First Home Development Tax Credit.
This program would give developers who undertake federally qualified low-income social housing projects – where a certain portion of the units are reserved for low-income households – the opportunity to claim state income tax credits. of these projects, in addition to the long-standing federal tax. credits.
Many are seeing the lack of affordable housing quietly reaching crisis proportions in Pennsylvania now. According to the nonprofit National Low Income Housing Coalition, on average in the state per 100 households earning 50% of their area’s median income, there are only 69 units available in their price range.
Ten million dollars have been allocated for 2021-2022, capped at 1.5 million dollars for a specific project.
Farmers: Farm owners will benefit from a provision that would allow them to defer any crop insurance payment, which by definition is paid at the end of the devastating harvest season, the ability to defer reporting that income for tax purposes for a while. a full year.
Supporters said the provision – which mirrors provisions in the federal tax code – is an important financial aid for farmers recovering from a drought or other disaster, and can help them cover the costs of the seeds they have. need to bounce back in the following years.
“When you receive crop insurance payments, it means things didn’t go well that year, and it helps a lot in planning your cash flow,” said Liam Migdail, Pennsylvania Farm Bureau spokesperson. .
Casino: Not everyone got a cut.
The legislature chose to repeal the planned extinction of a 2% tax on table games at the state’s 13 commercial casinos. This part of the table game tax was supposed to expire on August 1, but has now been permanently extended. This effectively makes the table game tax permanent at 16 percent.
This part of the gambling tax goes to the general fund, so it will allow the state to collect around $ 20 million per year.
Helicopters: There is an industry-specific disruption that would give manufacturers and operators of helicopter flight simulators, as well as training materials, operational documents and software used for pilot training and instruction, a valuable sales tax exemption for the use of their products. This equates to an 8% discount for a Philadelphia business.
“Look, in Philadelphia we have very high taxes,” R-Philadelphia Rep. Martina White said as she explained the hiatus on Friday.
“It really is a city where it is difficult to do business in terms of regulations. So the state is intervening in this way to make sure that a large manufacturing company in my area is actually able to keep the employees – there are over three hundred people working there, many of whom are military veterans.
“So the fact that we can help ensure that well-paying jobs stay here in Pennsylvania is really key. “
White’s benchmark was supposed to be Italian helicopter maker Leonardo, which recently opened a 60,000 square foot training facility in northeast Philadelphia designed to serve pilots, aircrews and maintenance mechanics, as well as engineers from North America and Latin America.
Show-business: And finally, unused tax credits for this fiscal year that would normally have been collected by production companies that organize major national and international music tours to facilities like Rock Lititz in Lancaster County, have been revived for another year.
These entertainment improvement credits are triggered when show producers purchase a certain amount of goods and services in Pennsylvania, and also require touring artists to include two stops – one at a major market and a minor market – at their location. route. The 2020-21 credits have not been used due to the collapse of the live concert industry in the face of the coronavirus pandemic.
The tax code bill is reviving them for 2021-2022, as the industry comes to life.
There remained on the floor of the editing room a tax credit extension that allows film production companies to earn credits on dollars spent in the state on film shoots. This cap will be maintained at $ 70 million in the new spending plan.
Supporters had argued that, until the pandemic, there was consistently more interest in these credits than in their availability. With an increase in the current cap, they believe Pennsylvania could see a marked increase in the number of on-location shoots in the state.
Senator Camera Bartolotta, of R-Washington County and chair of the new Senate Cinema Caucus, called this a missed opportunity, stating: “I remain hopeful that we can resolve this issue when the legislature returns to it. ‘autumn.”
One last thing.
The breaks have been associated this year with a body of provisions emanating from a 2019 state grand jury report that found serious shortcomings in the government’s management of one of its tax credit programs.
The new rules set new training standards for all departments involved in the administration of tax credit programs to improve screening of candidates at the front door and standardize reporting requirements on recipients, benefits provided and the resulting increase in jobs and economic activity give decision-makers a more precise understanding of their effectiveness.
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