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House of Representatives
Session of 2019 - 2020 Regular Session


Posted: January 3, 2019 12:30 PM
From: Representative Francis X. Ryan
To: All House members
Subject: LEGISLATION - Reimbursement of Small Business Expenses
In the future, I will be introducing legislation (former HB1579) to require the Pennsylvania Department of Revenue to promulgate regulations that permit Commonwealth small business and their employees to use per diems, as authorized by the Federal IRS, for the deduction of necessary, ordinary and reasonable business expenses.

Pennsylvania instituted the Personal Income Tax in 1971 after a constitutional amendment was adopted in the late 1960's and likewise adopted a "necessary, ordinary and reasonable" rule for the deduction of all expenses whether they were for business, farming or unreimbursed employee business expenses. At the time of the adoption of Pennsylvania’s constitutional amendment, the federal government used the same rules for the deduction of “necessary, ordinary and reasonable” business expenses but has since modernized its rules to permit the use of "per diems" to allow businesses to streamline record keeping and to eliminate wasted time during IRS audits on businesses and taxpayers.

The Pennsylvania Department of Revenue prohibits the use of per diems for the deduction of necessary, ordinary and reasonable business expenses and has stated that the "Per Diems" as adopted by the U S Treasury for the IRS and other branches of the federal government, are excessive in nature and do not constitute necessary, ordinary and reasonable deductions. As a result of the inconsistent application of rules, Commonwealth businesses and their employees are disadvantaged. Specifically, Pennsylvania taxpayers must maintain separate record keeping for the deduction of business expenses to file state tax returns that is not required to file federal tax returns. Because of this additional record keeping requirement, many taxpayers forfeit business expense deductions they are rightfully entitled to.

I believe the use of per diems for the deduction of necessary, ordinary and reasonable business expenses would simplify the expense reporting process for both the taxpayer and the Department. Pennsylvania should accept what the federal government as already determined as necessary ordinary and reasonable, which benefits Commonwealth taxpayers and the Department considering it would no longer be required to review and maintain state tax returns accompanied by voluminous paper expense receipts and likewise speeds up the processing of state tax returns.

Thank you for your consideration.

If you have any questions or concerns, please contact Julianne Naccarato in my Capitol office via jnaccara@pahousegop.com or 717.783.1815.

Introduced as HB69