Consistency of local income tax reporting and payment with state income tax:
Farmers and their professional tax preparers have been significantly frustrated by the inconsistency of rules governing the filing, reporting and periodic payment of local income tax with rules governing the filing, reporting and payment of state income tax. Taxpayers whose income is primarily generated from farming are required to comply with the same requirements for filing and payment of local estimated tax each quarter as other taxpayers. Unlike the laws for state and federal income tax, which allow farmers the option to use a simpler method that requires only one filing and payment to be made after the tax year is fully completed, no similar allowance is provided for farmers under laws for local income taxation.
Current state and federal income tax laws have “safe harbor” provisions that allow taxpayers to base the current tax year’s obligations for quarterly estimated tax payments on the income tax liability experienced by the taxpayer in the previous tax year, instead of having to commit time and resources to account and calculate the income tax due for every quarterly period of every year. However, no similar “safe harbor” basis is provided to taxpayers under laws governing local income taxation.
Many farmers and other family-owned businesses still find “paper filing” of state and federal income tax returns to be the preferred method over electronic filing of tax returns. Preparation of returns to be filed in hard copy often provide for small business greater compatibility and efficiency with the activities normally performed by business or tax personnel than returns to be filed electronically. Additionally, farmers and tax preparers would prefer to use standardized tax return forms developed for statewide use, because of the consistency and efficiency in tax preparation that can be achieved when filing in multiple local taxing districts. However, particular districts are requiring all of the district’s local income tax returns be filed electronically, and are requiring that taxpayers only use and file the district’s specially designed tax return forms and penalizing taxpayers who attempt to file the standardized forms developed for statewide use.
Senate Bill 491 (Prime Sponsor – Senator Mike Folmer:
- Senate Bill 491 would make numerous amendments to laws to make the governing rules for filing of local income tax returns and payment of local income tax more consistent with the governing rules for filing and payment of state income tax, and provide greater uniformity in application of rules among local taxing districts. The amended version of this bill (developed largely from input from Farm Bureau) reported from the Senate Finance Committee would:
- Establish the same allowance to defer filing and payment of local estimated tax by taxpayers whose income is primarily from farming as is provided for state income tax.
- Establish a similar “safe harbor” for taxpayers to use the prior year’s income tax as the basis for determining the current year’s requirements for periodic payments of local estimated tax as is provided for taxpayers of state income tax.
- Make the deadlines for quarterly payment of local estimated income tax the same as the deadlines for quarterly payment of state estimated income tax.
- Prohibit any local taxing district from prohibiting or penalizing taxpayers for making paper filings of local income tax returns or using and filing standardized local income tax forms developed by the state Department of Community and Economic Development.
- Prohibit any local taxing district from imposing penalties on any taxpayer for failing to file a local estimated income tax return for any quarter in which no estimated tax was due (as shown in the taxpayer’s annual income tax return).
- Senate Bill 491 was reported from the Senate Finance Committee. It is currently in the Senate Appropriations Committee.
Pennsylvania Farm Bureau urges all Senators and Representatives to support and work for prompt passage of language contained in the current version of Senate Bill 491 (Printer’s No. 1599), which would provide greater uniformity among local taxing districts and greater consistency with state income tax laws on requirements and allowances for payment of local income taxes and filing of local income tax returns.