HARRISBURG, (March 2, 2015)
– The National Federation of Independent Business (NFIB), which
represents 15,000 small businesses in Pennsylvania applaud lawmakers today for
introducing three bills to simplify the state’s tax code. The complexity of the current system is
time-consuming and expensive for small businesses in the Commonwealth.
“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.”
Right now small businesses spend thousands of dollars hiring tax
experts at an average of $74 dollars an hour.
A business owner would much prefer to spend time expanding their
business and creating jobs rather than being burdened with hours of paperwork
preparing tax returns.
Senator Scott Hutchinson (R-Venango), who along with Rep. George Dunbar
is sponsoring a measure involving expensing and depreciation, said “Small
businesses play an integral role in Pennsylvania’s economy and in our
communities, and it’s in our best interests to help them grow and expand.”
The sponsor of a measure on like-kind exchanges, Representative
Stephen Bloom (R-Cumberland) said “Small businesses create more than half of
all jobs in Pennsylvania, but instead of encouraging them to grow, our outdated
tax laws weigh them down with unfair rules and overly complex requirements. The
reforms we are announcing today would replace several unnecessarily complicated
tax obstacles with fairness and simplicity so our small businesses can focus on
growing the jobs our citizens need.” Senator Mike Folmer is also sponsoring a
like-kind exchange bill in the Senate.
Representative Seth Grove (R-York) and Senator John Eichelberger
(R-Blair) are sponsoring a bill on Net Operating Losses. Grove said “This legislation I am working on
with my colleagues will help improve the tax process, allowing Pennsylvania’s
business men and women to spend more time building their companies and creating
jobs.”
Here is a summary of the three bills in the small business tax package:
Small
Business Tax Reform Summary
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.
