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House of Representatives
Session of 2017 - 2018 Regular Session

MEMORANDUM

Posted: January 17, 2017 02:53 PM
From: Representative Stephen Bloom and Rep. Seth M. Grove, Rep. Eric R. Nelson
To: All House members
Subject: Small Business Tax Fairness Package (Previously HB 700, HB 701 & HB 702)
 
A key to improving our economy is the success of the small businesses that create 65% of Pennsylvania’s jobs. Removing unfair tax obstacles for small businesses allows them to compete effectively, so they can grow more jobs for current and future generations.

In the near future, we will be reintroducing a tax reform package focused on removing unnecessary impediments to small business. The legislation, explained below, will focus on reforming tax treatment in three critical scenarios: like-kind exchanges; net operating loss carry forwards; and, Section 179 expense deductions. Identical legislation will be introduced in the Senate by Senators Folmer, Eichelberger and Hutchinson, respectively.


Document #1

Introduced as HB331

Description: Like-Kind Exchanges (Previous HB 700) – Prime Sponsor: Rep. Stephen Bloom

      Under Federal tax law, a “like-kind” exchange pursuant to Internal Revenue Code Section 1031 allows for tax-deferral when property is exchanged for similar property.  This long-standing Federal provision facilitates efficient investment in the job-creating assets businesses need to remain competitive, and every state but Pennsylvania provides for a similar deferral on the state level.
 
      Currently, Pennsylvania tax law contains no such provision.  Rep. Bloom’s legislation would allow for like-kind exchanges in Pennsylvania mirroring Internal Revenue Code Section 1031 provisions, thereby removing an unfair disadvantage Pennsylvania small businesses face in competing with businesses in other states.

      Previous Co-Sponsors: Grove, Dunbar, Mackenzie, Baker, Diamond, Pickett, Cox, Schemel, Tallman, James, Kauffman, Knowles, Millard, Mentzer, Gabler, McGinnis, Staats, Irvin, Cutler, Peifer, M. K. Keller, Lawrence, Simmons, Metcalfe, Murt, Saylor, Fee, Gillen, Gingrich, Maloney, Regan, Everett, Phillips-Hill, Ortitay, Harhart, Zimmerman, Klunk, Toohil, Sankey And Farry
 

Document #2

Introduced as HB332

Description: Net Operating Loss (Previous HB 701) – Prime Sponsor: Rep. Seth Grove

      The Tax Reform Code of 1971 allows corporate taxpayers to deduct Pennsylvania losses from one year from Pennsylvania Income in subsequent years.  However, there have been several changes in the carry forward period for Net Operating Losses and limitations on the amount of Net Operating Loss that can be used in a given tax period.

      Rep. Grove’s legislation would allow a small business to use the Net Operating Loss deduction.  Since small businesses don’t have access to the capital larger companies have, their ability to use such tax strategies helps them have greater control over their financial position.  An example: If an owner sells some personal items to help his business make payroll, he can take the business loss against the tax bill he creates selling the personal items.

      Previous Co-Sponsors: Bloom, Dunbar, Mackenzie, Baker, Diamond, Pickett, Cox, Schemel, Tallman, James, Kauffman, Knowles, Millard, Mentzer, Gabler, McGinnis, Staats, Irvin, Cutler, Peifer, M. K. Keller, Lawrence, Simmons, Murt, Saylor, Fee, Zimmerman, Gillen, Gingrich, Maloney, Regan, Everett, Phillips-Hill, Harhart, Klunk, Toohil And Farry
 

Document #3

Introduced as HB333

Description: Section 179 Expense Deductions - Prime Sponsor: Rep. Eric Nelson (Previously HB 702, Rep. George Dunbar)
 
      When a business buys machinery and equipment, the business typically will write them off a little at a time through depreciation.
 
      However, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased during the tax year, up to $500,000.  The deduction is phased out if the total amount of equipment purchased is over $2,000,000.  This provision was made permanent at the federal level in 2015.
 
      Currently, at least 33 other states allow the same limit under their state tax code.

      Pennsylvania C-corporations are able to utilize the full $500,000 deduction allowed under the IRS tax code.  However, for personal income tax purposes (S Corporations, partnerships, limited liability companies, and individuals), Pennsylvania law limits the amount of Section 179 deduction to $25,000.  Pennsylvania is unique in being the only state that allows for full Section 179 expensing for larger businesses while not allowing small businesses to do the same.

      This has created an inequity for small businesses in Pennsylvania.  Representative Nelson’s legislation would close this loophole by allowing small businesses in Pennsylvania to take the full 179 deduction currently allowed under the IRS tax code.

      Please note:  this increase in the deduction is not a tax credit or a tax cut, but simply allows a tax deduction earlier in the useful life of depreciable assets.  The proposed increase in limits is an incentive to encourage businesses to buy equipment and to invest, which promotes economic development in Pennsylvania.

      Previous Co-Sponsors: Bloom, Grove, Mackenzie, Baker, Diamond, Pickett, Cox, Schemel, Tallman, James, Kauffman, Knowles, Millard, Mentzer, Gabler, McGinnis, Staats, Irvin, Cutler, Peifer, M. K. Keller, Simmons, Murt, Saylor, Fee, Zimmerman, Gillen, Gingrich, Maloney, Regan, Everett, Phillips-Hill, Harhart, Klunk, Toohil And Farry