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House of Representatives
Session of 2015 - 2016 Regular Session

MEMORANDUM

Posted: January 28, 2015 12:35 PM
From: Representative Stephen Bloom and Rep. Seth M. Grove, Rep. George Dunbar
To: All House members
Subject: Small Business Tax Fairness Package (Previously HB 2400, HB 2401 & HB 2402)
 
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, Aument and Hutchinson, respectively.



Document #1

Introduced as HB700

Description: Like-Kind Exchanges (Previous HB 2402) – Prime Sponsor: Rep. Steve 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 a disadvantage Pennsylvania small businesses face in competing with businesses in other states.

      Previous co-sponsors: Baker, Barrar, Benninghoff, Cox, Cutler, Dunbar, Fee, Gillen, Greiner, Grove, Harhart, Harris A., James, Kauffman, Lawrence, Mackenzie, Marshall, McGinnis, Metcalfe, Millard, Milne, Picket, Pyle, Rapp, Sankey, Saylor, and Tallman.
 

Document #2

Introduced as HB701

Description: Net Operating Loss (Previous HB 2401) – 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: Baker, Barrar, Benninghoff, Bloom, Cox, Cutler, Dunbar, Fee, Gillen, Greiner, Harhart, Harris A., Kauffman, Lawrence, Mackenzie, Marshall, McGinnis, Millard, Picket, Rapp, Sankey, Saylor, and Tallman.
 

Document #3

Introduced as HB702

Description: Section 179 Expense Deductions (Previous HB 2400) – Prime Sponsor:  Rep. George Dunbar

      For Pennsylvania C Corporations, the calculation for Pennsylvania Corporate Net Income begins with federal taxable income which is then adjusted for certain items specified in Article IV of the Tax Reform Code.  Currently there is no adjustment for Section 179 expense.  Therefore, the Section 179 expense used in the calculation of Federal taxable Income is also used in Pennsylvania C Corporation Net income.

      The Federal limit for Section 179 expenses has been $500,000 for the last 4 years. However, for personal income tax purposes (S corps, partnerships and individuals) Pennsylvania law limits the amount of Section 179 deduction to $25,000.

      This has created an inequity for our small businesses in Pennsylvania.  Pennsylvania C corporations are allowed a 179 deduction that small businesses are not.  So Rep. Dunbar is asking for your support for legislation he will soon introduce to increase the maximum amount a taxpayer may elect to expense for Section 179 assets to $100,000 per taxable year. He is also proposing to increase the phase out of this deduction from the current level of $200,000 to the current federal amount of $2,000,000.

      Understand that this increase in the deduction is not a tax credit, but simply allows a tax deduction earlier in the useful life of depreciable assets. The increase in limits is an incentive to encourage businesses to buy equipment and invest in themselves thus creating economic development in Pennsylvania.

      Please join with Rep. Dunbar in co-sponsoring this legislation to help small businesses grow in an economy that is still struggling to get back on its feet.

      Previous co-sponsors: Baker, Barrar, Benninghoff, Bloom, Cox, Cutler, Fee, Gillen, Greiner, Grove, Harhart, Harris A., Kauffman, Mackenzie, Marshall, McGinnis, Millard, Picket, Rapp, Sankey, Saylor, and Tallman.