Opposed to hikes in state energy, freight transportation and telecommunications taxes
Testimony of
Warren Hudak
NFIB/Pennsylvania
Pennsyvlania Society of Enrolled Agents
Before the Taxpayers’ Caucus
August 1, 2017
My name is Warren Hudak, and I am president of Hudak and Company, a Central Pennsylvania-based small-business accounting firm specializing in payroll services, bookkeeping, sales tax services, and advanced tax transaction analysis. I am chairman of NFIB’s State Leadership Council. I also serve on the board of the Pennsylvania Society of Enrolled Agents (PSEA) and on the Business Advisory Council of the Council on State Taxation (COST).
I would like to thank the Taxpayers’ Caucus for focusing the conversation on how our state government can most efficiently and effectively perform its duties while keeping tax rates low to spur economic growth and investment in our economy.
Taxes are a top priority for small businesses. They simply cannot pass along to customers all of the costs of doing business, like many larger businesses can. To a small business, higher taxes mean less money to raise wages or offer better benefits, to create new jobs, or to invest in their business.
As a result, it is important to discuss ways to simplify the tax code and compliance process; make state tax rules consistent with federal law; and reduce corporate and personal tax rates as a means to spur economic activity and generate additional state tax revenue.
The organizations with which I am affiliated have watched with interest as this year’s state budget proposals have been debated. We were asked today to comment on tax provisions of the revenue package most recently passed by the Senate, which provides about $2.2 billion in funding, including about $570 million in new taxes.
Higher tax rates in H.B. 542, the Senate’s revenue plan, especially the gross receipts taxes on energy, telecommunications, and transportation will be especially harmful to small businesses by increasing their cost of doing business.
Small businesses create two out of every three net new jobs and employ almost half of Pennsylvania’s private workforce. Most of these businesses do not have the ability to pass these tax increases on to their customers and will be forced to absorb much of it—less money to hire employees or invest in their companies. Increasing costs at a time when we should be focused on investing in and growing our economy would be a mistake.
For energy-intensive small businesses that rely on natural gas for manufacturing or production, where energy costs represent a large portion of overall costs of doing business, the tax increases in H.B. 542 will be immense.
Low natural gas prices have been a bright spot in Pennsylvania’s grim economy over the past few years for these businesses. Losing this competitive advantage may force these businesses to move elsewhere, along with the jobs and economic impact they bring.
The potential changes to Pennsylvania’s tax appeals process that are contained in H.B. 542 are also very concerning. In 2013, after significant legislative changes were made to this process, the Council on State Taxation (COST) declared Pennsylvania the “most improved” state in the nation for tax appeals. H.B. 542 would reverse much of this improvement.
H.B. 542 shortens the tax appeal period from 90 to 60 days; grants the Department of Revenue unilateral authority to hold cases in abeyance; prevents appeals for summary claims orders; and generally, makes it more difficult for taxpayers to comply. In order to improve compliance with state tax laws, the General Assembly should seek to make it easier for businesses, not harder. These changes seem to be moving Pennsylvania in the opposite direction.
In addition, it is unclear from the tax appeal proposal from where the $40 million in revenue would come, and I would be curious what assumptions underlie this estimate.
The cost of tax paperwork is the most expensive burden that government imposes on small-business owners — as much as $74 per hour in tax preparation and compliance costs. This bill would only increase this burden on Pennsylvania businesses.
The focus now should be on growing Pennsylvania’s economy, not on raising taxes and tax burdens for job creators. Jobs and tax revenues will follow when the economy grows. In order to grow the economy, the state’s tax policy should be competitive with other states, conform to federal standards when possible, and remove barriers to growth and investment.
Thank you for the opportunity to address you today. I would be happy to answer your questions.
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