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12/12/2019 10:49 PM
Pennsylvania House of Representatives
https://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=H&SPick=20190&cosponId=29566
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House of Representatives
Session of 2019 - 2020 Regular Session

MEMORANDUM

Posted: May 13, 2019 01:57 PM
From: Representative Seth M. Grove and Rep. Eric R. Nelson
To: All House members
Subject: Small Business Tax Package
 
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 legislation which focuses on removing unnecessary impediments to small business. The legislation, explained below, will focus on reforming tax treatment to even the playing field for small business owners.



Document #1

Introduced as HB1603

Description:     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.
 
Former Sponsors Include: GROVE, BLOOM, NELSON, KNOWLES, COX, GREINER, BAKER, PICKETT, JAMES, DUNBAR, RYAN, ROTHMAN, RAPP, FEE, KAUFFMAN, ORTITAY, WARD, PEIFER, STAATS, MENTZER, B. MILLER, R. BROWN, MILLARD, SIMMONS, LAWRENCE, IRVIN, GABLER, SAYLOR AND ZIMMERMAN
  View Attachment
 

Document #2

Introduced as HB333

Description: 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 was recently updated by the federal Tax Cuts and Jobs Act in December 2017 to allow businesses to deduct the full purchase price of qualifying equipment purchased during the tax year, up to $1 million, for tax years beginning after 2017.  The deduction is phased out if the total amount of equipment purchased is over $2,500,000. In addition to these increases, these amounts are indexed for inflation for tax years beginning after 2018. 
 
Currently, at least 33 other states allow the same limit under their state tax code.

Pennsylvania C-corporations are able to utilize the full $1 million 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 and phased out for purchases in excess of $200,000. 

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.

Former Sponsors Include: BLOOM, GROVE, KNOWLES, COX, GREINER, BAKER, PICKETT, JAMES, DUNBAR, RYAN, ROTHMAN, RAPP, FEE, KAUFFMAN, ORTITAY, WARD, PEIFER, STAATS, MENTZER, B. MILLER, R. BROWN, MILLARD, MILNE, SIMMONS, LAWRENCE, IRVIN, GABLER, SAYLOR, ZIMMERMAN, GILLEN, PHILLIPS-HILL, DUSH AND FARRY
 
  View Attachment