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House of Representatives
Session of 2017 - 2018 Regular Session


Posted: July 7, 2017 09:47 AM
From: Representative Russ Diamond
To: All House members
Subject: Reforming the Sales Tax; Reducing Rate from 6% to 1.9%
In the near future I will be introducing a package of bills to reform and modernize Pennsylvania’s Sales and Use Tax (SUT). This effort is aimed at simplifying the system, reducing retailer confusion, recognizing the realities of our economy, and making our Commonwealth more competitive with surrounding states. This plan is intentionally revenue neutral as compared to the fiscal year prior to its effective date.

In short, my legislation will remove all exceptions and exclusions to the SUT, reduce the statewide SUT rate from 6 percent to 1.9 percent, reduce Philadelphia’s total additional SUT rate from 2 percent to 0.64 percent, reduce Allegheny County’s local SUT from 1 percent to 0.32 percent, and reduce the PTAF and PTTF sales tax revenue transfer rates from 0.947 percent to 0.30 percent, and from 4.4 percent to 1.42 percent, respectively.

As a result of this legislation, Pennsylvania’s SUT rate of 1.9 percent will be significantly lower than rates in neighboring states. Those current combined state and local rates are as follows: New Jersey – 6.85 percent, New York – 8.49 percent, Ohio – 7.14 percent, West Virginia – 6.29 percent, and Maryland – 6 percent. The new lower SUT rate will also help reduce “border bleed” to Delaware, which has no sales tax (although it does have a gross receipts tax which all businesses pay, ranging from .1006 to .7543 percent).

When the SUT was first enacted in 1954, services accounted for less than 40 percent of the overall economy. Today, services account for approximately 70 percent of Pennsylvania’s economy. This reality, along with a growing list of SUT exemptions and the impacts of online transactions, has served to make the SUT a less predictable and stable revenue source for the Commonwealth.

Upon enactment of this legislation the SUT will remain an assessment on the end user, as goods and services purchased for resale will continue to qualify for SUT exemptions.

It bears mentioning that Alabama, Hawaii, Idaho, Kansas, Mississippi, Oklahoma, and South Dakota all tax groceries at their full statewide sales tax rates. Arkansas, Illinois, Missouri, Tennessee, Utah, and Virginia also tax groceries, but at lower rates than other goods. Additionally, in Arizona, Colorado, Georgia, Louisiana, North Carolina, and South Carolina, groceries are fully subject to local sales tax.

Clothing is taxable in 38 other states and the District of Columbia. Although the taxation of services varies widely across the nation, Delaware, Hawaii, New Mexico, South Dakota, Washington and West Virginia tax services broadly.

These bills are a package and therefore all four must pass and the Secretary of the Commonwealth, through LRB, must publish a notice in the PA Bulletin notifying of all rate and base changes in order for the new tax rates and base to go into effect. The language to accomplish this can be found below in document 4541, page 42, lines 14-30 and page 43, lines 1-8. Similar language is included in the companion bills.

It’s time we put an end to the sales tax jigsaw puzzle that pits Pennsylvanian against Pennsylvanian and adopt instead a modernized level playing field which acknowledges the realities of our economy and the fact that we’re all in this together. I respectfully ask for your co-sponsorship of these four pieces of legislation.

Document #1

Introduced as HB1905

Description: The first bill in this package amends the Tax Reform Code by removing all SUT exceptions and exemptions, and reduces both the state SUT rate from 6 percent to 1.9 percent and the Philadelphia SUT from 1 percent to 0.32 percent.  In addition, the transfer rate of sales tax revenue to fund public transit (PTAF transfer) is reduced from 0.9470 percent to 0.30 percent to ensure revenue neutrality.
  View Attachment

Document #2

Introduced as HB1906

Description: The second bill amends the Second Class County Code by reducing the Allegheny County local SUT from 1 percent to 0.32 percent.
  View Attachment

Document #3

Introduced as HB1907

Description: The third bill amends the PA Intergovernmental Cooperation Authority (PICA) by reducing the rate for the additional Philadelphia SUT from 1 percent to 0.32 percent.
  View Attachment

Document #4

Introduced as HB1908

Description: The fourth bill amends Title 74 by changing the sales and use tax revenue transfer rate to the PTTF from 4.4 percent to 1.42 percent to ensure revenue neutrality.
  View Attachment