PRINTER'S NO. 73
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
69
Session of
2019
INTRODUCED BY RYAN, BERNSTINE, GROVE, IRVIN, KEEFER, LONGIETTI,
MILLARD, OBERLANDER, PICKETT, ROTHMAN AND ZIMMERMAN,
JANUARY 28, 2019
REFERRED TO COMMITTEE ON FINANCE, JANUARY 28, 2019
AN ACT
Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
act relating to tax reform and State taxation by codifying
and enumerating certain subjects of taxation and imposing
taxes thereon; providing procedures for the payment,
collection, administration and enforcement thereof; providing
for tax credits in certain cases; conferring powers and
imposing duties upon the Department of Revenue, certain
employers, fiduciaries, individuals, persons, corporations
and other entities; prescribing crimes, offenses and
penalties," in personal income tax, further providing for
definitions and for classes of income.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. The General Assembly finds and declares as
follows:
(1) Pennsylvania instituted the Personal Income Tax
(PIT) in 1971 after a constitutional amendment in the late
1960s.
(2) Pennsylvania's PIT is levied against the taxable
income of resident and nonresident individuals, estates and
trusts, partnerships, S corporations, business trusts and
limited liability companies that are not taxed as
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corporations for Federal income tax purposes.
(3) Pennsylvania, at the time of the adoption of the
constitutional amendment, adopted a "necessary, ordinary and
reasonable" rule for the deduction of "all expenses" whether
they were for business, farming or unreimbursed employee
business expenses.
(4) At the time of the adoption of the constitutional
amendment, the Federal Government applied the same
"necessary, ordinary and reasonable" rule but currently
permits the use of "per diems" to allow business to
streamline recordkeeping and to eliminate wasted time during
Internal Revenue Service (IRS) audits on businesses and
taxpayers.
(5) IRS regulations allow businesses to reimburse their
employees for work-related expenses by providing businesses
with the option to account for each expenditure or use a per
diem rate plan that is based on IRS-established per diem
rates for lodging and meals plus incidental expenses.
(6) The Department of Revenue has concluded that "per
diems" as adopted by the United States Treasury for the IRS
and other branches of the Federal Government are excessive in
nature and do not constitute necessary, ordinary and
reasonable deductions, which create a financial hardship on
Pennsylvania businesses and Commonwealth employees.
(7) It is the intent of the General Assembly to rectify
the Department of Revenue's interpretation of the necessary,
ordinary and reasonable rule by requiring that the Department
of Revenue allow the constitutionally mandated deduction for
all ordinary, reasonable and necessary business expenses,
including the use of per diems established by the Federal
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Government and to promulgate regulations accordingly.
Section 2. Sections 301(d) and 303(a)(1)(i) of the act of
March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of
1971, are amended to read:
Section 301. Definitions.--Any reference in this article to
the Internal Revenue Code of 1986 shall mean the Internal
Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.),
as amended to January 1, 1997, unless the reference contains the
phrase "as amended" and refers to no other date, in which case
the reference shall be to the Internal Revenue Code of 1986 as
it exists as of the time of application of this article. The
following words, terms and phrases when used in this article
shall have the meaning ascribed to them in this section except
where the context clearly indicates a different meaning:
* * *
(d) "Compensation" means and shall include salaries, wages,
commissions, bonuses and incentive payments whether based on
profits or otherwise, fees, tips and similar remuneration
received for services rendered, whether directly or through an
agent, and whether in cash or in property. The term
"compensation" shall include any part of a distribution under a
plan described in section 409A(d)(1) of the Internal Revenue
Code of 1986 (Public Law 99-514, 26 U.S.C. § 409A(d)(1)), as
amended, attributable to an elective deferral of income or the
income on any elective deferral of income, whether paid or
payable during employment or to a retired person upon or after
retirement from service.
The term "compensation" shall not mean or include: (i)
periodic payments for sickness and disability other than regular
wages received during a period of sickness or disability; or
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(ii) disability, retirement or other payments arising under
workmen's compensation acts, occupational disease acts and
similar legislation by any government; or (iii) payments
commonly recognized as old age or retirement benefits paid to
persons retired from service after reaching a specific age or
after a stated period of employment; or (iv) payments commonly
known as public assistance, or unemployment compensation
payments by any governmental agency; or (v) payments to
reimburse actual expenses, including per diem reimbursements
made pursuant to an accountable plan operated in accordance with
Federal law; or (vi) payments made by employers or labor unions,
including payments made pursuant to a cafeteria plan qualifying
under section 125 of the Internal Revenue Code of 1986 (Public
Law 99-514, 26 U.S.C. § 125), for employe benefit programs
covering hospitalization, sickness, disability or death,
supplemental unemployment benefits or strike benefits: Provided,
That the program does not discriminate in favor of highly
compensated individuals as to eligibility to participate,
payments or program benefits; or (vii) any compensation received
by United States servicemen serving in a combat zone; or (viii)
payments received by a foster parent for in-home care of foster
children from an agency of the Commonwealth or a political
subdivision thereof or an organization exempt from Federal tax
under section 501(c)(3) of the Internal Revenue Code of 1954
which is licensed by the Commonwealth or a political subdivision
thereof as a placement agency; or (ix) payments made by
employers or labor unions for employe benefit programs covering
social security or retirement; or (x) personal use of an
employer's owned or leased property or of employer-provided
services[.]; or (xi) amounts that are ordinary, reasonable or
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necessary business expenses incurred by the taxpayer to the
extent the expenses are not reimbursed or are not eligible to be
reimbursed by the employer.
* * *
Section 303. Classes of Income.--(a) The classes of income
referred to above are as follows:
(1) Compensation.
(i) All salaries, wages, commissions, bonuses and incentive
payments whether based on profits or otherwise, fees, tips and
similar remuneration received for services rendered whether
directly or through an agent and whether in cash or in property
except income derived from the United States Government for
active duty outside the Commonwealth of Pennsylvania as a member
of its armed forces and income from the United States Government
or the Commonwealth of Pennsylvania for active State duty for
emergency within or outside the Commonwealth of Pennsylvania,
including duty ordered pursuant to 35 Pa.C.S. Ch. 76 (relating
to Emergency Management Assistance Compact). For the purposes of
this subparagraph, the term "compensation" shall not include
costs and expenses lawfully deducted.
* * *
Section 3. The following shall apply:
(1) The Department of Revenue shall, within 90 days of
the effective date of this section, promulgate temporary
regulations that effectively incorporate the regulations at 5
U.S.C. § 5702 and sections 162 and 274(d) of the Internal
Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §§ 162 and
274(d)) to effectuate the amendment of sections 301(d) and
303(a)(1)(i) of the act. The temporary regulations shall not
be subject to the following:
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(i) Sections 201, 202, 203, 204 and 205 of the act
of July 31, 1968 (P.L.769, No.240), referred to as the
Commonwealth Documents Law.
(ii) Sections 204(b) and 301(10) of the act of
October 15, 1980 (P.L.950, No.164), known as the
Commonwealth Attorneys Act.
(iii) The act of June 25, 1982 (P.L.633, No.181),
known as the Regulatory Review Act.
(2) The temporary regulations shall expire upon the
promulgation of final-form regulations or two years following
the effective date of this section, whichever is later.
Section 4. This act shall take effect immediately.
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