October 1, 2015
The Honorable Bernie O’Neill, Chair
House Finance Committee
Room 47, Capitol East Wing
P.O. Box 202029
Harrisburg, PA 17120-2029
RE: House Finance Committee hearing of October 6, 2015 to consider proposed amendments to the governing provisions for administration of local income taxation prescribed in Act 32 of 2008 and related Pennsylvania statutes
Dear Chairman O’Neill:
By this letter, Pennsylvania Farm Bureau (“Farm Bureau”) is submitting written comments to the House Finance Committee, relative to the aforementioned hearing and Committee’s overall consideration of legislative amendments to the provisions of Act 32 of 2008 and related statutes, which govern administration of local income and nets profits taxation in the Commonwealth.
Farm Bureau is a statewide, general farm organization whose membership is comprised of more than 61,400 farm and rural families in the Commonwealth. Within Farm Bureau’s organizational structure are fifty-four affiliated County Farm Bureaus, which are active in sixty-four of Pennsylvania’s sixty seven-counties. Farm Bureau has provided political and personal support, advocacy and informational services for agriculture and member families since 1950. We are the state affiliate of the American Farm Bureau Federation.
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 and federal income tax. The governing rules for reporting and payment of local income and business net profits taxes established under current statutes deviate seriously, and in our opinion needlessly, from the applicable rules for reporting and payment of personal and business income taxes prescribed under state and federal income tax laws. Pennsylvania’s statutory rules for local income tax reporting and payment have incorporated virtually none of the special reporting and periodic tax payment provisions of state and federal income tax laws intended to simplify and accommodate periodic income tax reporting and payment for various types of taxpayers, including farmers.
Taxpayers whose income is primarily generated from farming are essentially required under the current provisions of local income tax statutes to comply with the same requirements for filing and payment of local estimated tax each quarter as other taxpayers. Both state and federal income tax statutes provide for an individual taxpayer whose gross income from farming is at least two-thirds of his or her total gross taxable income to apply a simpler and more sensible reporting and payment option. Under that option, the taxpayer only needs to make one reporting and payment of estimated taxes, and the timing of reporting and payment is deferred until after completion of the tax year. No similar option is available to farmer-taxpayers in applicable statutes that govern reporting and payment of local income taxes.
State and federal income tax laws also provide a “safe harbor” option for periodic quarterly reporting and payment of estimated taxes that ensures individual taxpayers adhering to the option will lawfully comply with their minimum reporting and payment requirements. The “safe harbor” option allows for taxpayers to report and proportionately pay estimated taxes each quarter on the basis of the income tax liability the taxpayer had incurred for the previous tax year. By the time the first installment of estimated tax reporting and payment is due for the current tax year, taxpayers commonly know the total income tax liability they incurred for the previous tax year. Taxpayers exercising the “safe harbor” option are able to apply simple math to determine the equal installments of estimated tax to be reported and paid for the current year, and are relieved of the burden of committing significant personal and professional time and resources every quarter to separately account and calculate the “actual” tax liability incurred by the taxpayer for a particular quarter. Again, no similar “safe harbor” option is provided to taxpayers under laws that govern reporting and payment of local income taxes.
Many farmers and other family-owned businesses still find “paper filing” of state and federal income tax returns to be better suited to their internal business and bookkeeping operations than 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, both 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, several individual local taxing districts and tax collectors are mandating all of the district’s local income tax returns be filed electronically, and are additionally mandating that taxpayers only use and file the tax reporting forms that the district (or collector) has specially designed.
We understand that taxpayers in those isolated districts who fail to fully comply with the district’s special form and filing mandates are being assessed monetary penalties, even when the taxpayer has no tax liability or has fully and timely paid the amount of annual or estimated income and net profits taxes due.
We believe a major goal intended by the General Assembly through enactment of Act 32 was to encourage and facilitate uniform and consistent procedures and mechanisms for local income tax filings throughout the Commonwealth. To that end and in that spirit, the Department of Community and Economic Development has developed standard and user-friendly local income tax forms, which a great number of taxing districts in the Commonwealth are utilizing and accepting as integral part of their filing and administrative procedures. Administrative mandates in form and manner of filing that are uniquely being imposed several individual taxing districts clearly run counter to this goal, and impose unnecessary operational burdens and costs for those farmers who need to file in multiple taxing districts and for tax preparers who largely service farm clients.
The legislation contained in Senate Bill 356 addresses each of the issues discussed above, and effectively resolves the problems that have emerged in filings and procedures that taxpayers are to follow in reporting and payment of local income and net profits taxes. This legislation has been unanimously passed by the Senate, not only in the General Assembly’s current legislative term but also in the prior legislative term (see Senate Bill 491 of the 2013-2014 term). The proposed amendments contained in Senate Bill 356 significantly enhance the goals of simplicity and uniformity in tax filing that was attempted to be accomplished through Act 32. More specifically, the legislation would primarily make the governing rules for filing of local income tax returns and payment of local income tax much more consistent with the governing rules for filing and payment of state income tax, and would provide greater uniformity in application of rules among local taxing districts. Senate Bill 356 was developed with review and input from the Department of Community and Economic Development. Adoption of legislative amendments contained in Senate Bill 356 would:
- Establish the same allowance for simplified and deferred filing and payment of local estimated tax by taxpayers whose income is primarily from farming as is provided under state and federal income tax laws.
- Establish a similar “safe harbor” allowance for taxpayers to proportionately report and pay estimated taxes on the basis of the tax liability incurred by the taxpayer in the previous tax year in meeting the taxpayer’s reporting and payment requirements.
- Establish consistent, three-month periods for reporting of quarterly estimated income tax and determination of estimated tax liability.
- 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).
We would note that Senate Bill 356 is currently in the House Finance Committee. Farm Bureau strongly supports all of the legislative amendments contained in this bill, and urges this Committee to act promptly in reporting this bill on its own merits, independently of other legislative amendments to statutory rules governing the administration of local income and net profits taxation you may consider.
At a minimum, we would ask that any legislation to amend the administrative and procedural rules for reporting and payment of local income and net profits taxes to be favorably adopted by the Committee include and incorporate all of the legislative amendments contained in the version of Senate Bill 356 adopted by the Senate.
We appreciate the opportunity to provide comments relative to the Committee’s overall consideration of Act 32 and related local income tax laws. And we would be happy to answer any questions in response to our comments that you or other members of the House Finance Committee may have subsequent to the hearing.
John J. Bell
Government Affairs Counsel
cc: Committee Members