(The Center Square) – The Pennsylvania House Finance Committee approved numerous bills Tuesday aimed at aligning state and federal tax codes to help boost businesses in the commonwealth.
The committee approved House Bill 105, sponsored by Rep. Eric Nelson, R-Westmoreland, on a vote of 16-9 to amend the state tax code and allow tax deferrals for like-kind exchanges permitted in the federal tax code, a move designed to remove a disadvantage for the state’s small businesses.
“This allows a business that would sell one property and expand into another to be able to roll that value into that new property,” Nelson told the committee. “The goal is to incent growth and keep our businesses working here in Pennsylvania.”
The legislation mirrors a bill already passed by the Senate earlier in the session. Pennsylvania is the only state that does not permit the lifetime exchange provision. The bill was supported by business and real estate associations.
Democrats on the committee opposed the legislation, as did the Pennsylvania Department of Revenue, because of an expected loss of revenue.
“I’m concerned about a structural deficit if all these bills are passed today and become law tomorrow,” Minority Chair Patty Kim, D-Dauphin, said.
Kim expressed the same concern about House Bill 1960, sponsored by Rep. Joshua Kail, R-Monaca, to align the treatment of net losses incurred by corporations with federal law. The bill, approved in a 15-10 vote, would allow a deduction against taxable income in subsequent tax years for up to 80% of taxable income, rather than the current 40% allowed by Pennsylvania law.
“Something I have heard from people coming to my area is Pennsylvania’s tax code is really a problem, and it’s more favorable in West Virginia and Ohio, and this is one of the provisions they talk about,” Kail said. “For me, it’s about jobs. It’s about growth. It’s about keeping people in Pennsylvania.”
The committee also approved House Bill 199, sponsored by Rep. George Dunbar, R-Westmoreland, on a vote of 15-10 to allow a deduction for personal income tax for the cost, or percent depletion, of mines, oil and gas wells and other natural deposits, as allowed by federal law.
“This is not anything for oil and gas companies,” Dunbar said. "It’s for landowners.”
The committee also voted, 15-10, to approve House Bill 333, to allow a greater tax deduction for the purchase of new equipment and reinvestment. The bill would align Pennsylvania’s deduction, currently limited to $25,000 for small businesses, with the limit for C-corporations, which is set at $1.050 million.
“Our goal is to level the playing field, create consistency and allow Pennsylvania businesses to reinvest if they want,” said Nelson, the bill’s sponsor.
Rep. Mike Jones, R-York Township, chair of the House Economic Growth Caucus comprised of 27 Pennsylvania business leaders, commended the committee for addressing several tax issues the caucus is working to address.
“Four of the bills here today – 105, 285, 333 and 1960 – are four of our top 10 priorities,” he said. “This is coming right from business owners who have lived this, who have been particularly devastated the last couple of years with COVID all the associated lockdowns and impacts to their business.”
Kim argued the changes to the state tax code could result in a half-billion dollar hole.
“We are not the same as the federal government,” Kim said. “They have a graduated rate and the ability to deficit spend. We by law have to balance an annual budget.
“If we take something out, how do we replenish that hole in our budget?”
The committee approved House Bill 285, sponsored by Rep. Daryl Metcalfe, R-Cranberry, on a vote of 15-10 to apply provisions of the IRS code to the deferral of tax on lump sum distributions from Employee Stock Ownership Plans. The committee also unanimously approved House Bill 324, sponsored by Rep. Martina White, R-Philadelphia, to permit businesses in Philadelphia to carry forward net operating losses.
The Philadelphia City Council voted 15-2 to extend the ability to 20 years upon authorization of the General Assembly.
“This is one of the most important tools that Philadelphia uses to retain business and lure new businesses into the city,” White said.