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Pennsylvania State Senate
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Senate of Pennsylvania
Session of 2017 - 2018 Regular Session

MEMORANDUM

Posted: January 19, 2017 09:31 AM
From: Senator Mike Folmer and Sen. John H. Eichelberger, Jr., Sen. Scott E. Hutchinson
To: All Senate members
Subject: Reintroduction of Small Business Reform Package
 
Shortly, we plan to reintroduce our Small Business Reform Package, which was previously Senate Bills 601, 602, and 603:
  • SB 601 (Folmer): like kind exchanges
  • SB 602 (Eichelberger): Net Operating Loss
  • SB 603 (Hutchinson): 179 expense deduction
We believe a key to improving our economy is the success of small businesses that create 65% of Pennsylvania jobs. Removing unfair tax obstacles for small businesses allows them to compete effectively, which helps grow more jobs for current and future generations.

Like kind exchanges - Prime: Senator Folmer (previously Folmer, Eichelberger, Hutchinson, Scavello, White, Ward, Vulakovich, Alloway, McIlhinney, Teplitz, Rafferty, Boscola, Brooks, Aument, Bartolotta, Stefano, Browne, Blake, and Dinniman) would mirror Pennsylvania law to federal, removing a disadvantage Pennsylvania small businesses face when competing with those in other states.

Under Federal tax law, a “like-kind” exchange under 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. Every state but Pennsylvania provides for a similar deferral on the state level (current Pennsylvania tax law contains no such provision).

If you have any questions regarding the Like kind exchanges legislation, please contact Michaele Totino in Senator Folmer's office at 787-5708 or mtotino@pasen.gov.

Net Operating Loss - Prime: Senator Eichelberger (previously Eichelberger, Folmer, Hutchinson, Scavello, White, Ward, Vulakovich, Alloway, McIlhinney, Teplitz, Boscola, Brooks, Aument, Bartolotta, Stefano, Browne, Blake, and Dinniman) 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 positions. For example, if an owner sells some personal items to help the business make payroll, that owner can take the business loss against his or her tax bill created by selling the personal items.

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.

If you have any questions regarding the Net Operating Loss legislation, please contact Lee Derr in Senator Eichelberger's office at 787-5490 or lderr@pasen.gov.

Section 179 Expense Deductions - Prime: Senator Hutchinson (previously Hutchinson, Folmer, Eichelberger, Scavello, White, Ward, Vulakovich, Alloway, McIlhinney, Teplitz, Boscola, Brooks, Aument, Bartolotta, Stefano, Browne, and Blake)

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. Senator Hutchinson’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.

If you have any questions regarding the Section 179 Expense Deductions legislation, please contact Nathan Akers in Senator Hutchinson’s office at 787-9684 or nakers@pasen.gov.


Document #1

Introduced as SB201

Description: Like kind exchanges - Prime: Senator Folmer (previously Folmer, Eichelberger, Hutchinson, Scavello, White, Ward, Vulakovich, Alloway, McIlhinney, Teplitz, Rafferty, Boscola, Brooks, Aument, Bartolotta, Stefano, Browne, Blake, and Dinniman) would mirror Pennsylvania law to federal, removing a disadvantage Pennsylvania small businesses face when competing with those in other states.
 
Under Federal tax law, a “like-kind” exchange under 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.  Every state but Pennsylvania provides for a similar deferral on the state level (current Pennsylvania tax law contains no such provision).

If you have any questions regarding the Like kind exchanges legislation, please contact Michaele Totino in Senator Folmer's office at 787-5708 or mtotino@pasen.gov.
 

Document #2

Introduced as SB202

Description: Net Operating Loss - Prime: Senator Eichelberger (previously Eichelberger, Folmer, Hutchinson, Scavello, White, Ward, Vulakovich, Alloway, McIlhinney, Teplitz, Boscola, Brooks, Aument, Bartolotta, Stefano, Browne, Blake, and Dinniman) 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 positions.  For example, if an owner sells some personal items to help the business make payroll, that owner can take the business loss against his or her tax bill created by selling the personal items.
 
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.

If you have any questions regarding the Net Operating Loss legislation, please contact Lee Derr in Senator Eichelberger's office at 787-5490 or lderr@pasen.gov.
 

Document #3

Introduced as SB203

Description: Section 179 Expense Deductions - Prime: Senator Hutchinson (previously Hutchinson, Folmer, Eichelberger, Scavello, White, Ward, Vulakovich, Alloway, McIlhinney, Teplitz, Boscola, Brooks, Aument, Bartolotta, Stefano, Browne, and Blake)

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.  Senator Hutchinson’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.
 
If you have any questions regarding the Section 179 Expense Deductions legislation, please contact Nathan Akers in Senator Hutchinson’s office at 787-9684 or nakers@pasen.gov.