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04/12/2021 07:30 PM
Pennsylvania House of Representatives
https://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=H&SPick=20210&cosponId=34725
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House of Representatives
Session of 2021 - 2022 Regular Session

MEMORANDUM

Posted: February 17, 2021 12:03 PM
From: Representative Eric R. Nelson and Rep. Jim Cox, Rep. Seth M. Grove
To: All House members
Subject: Small Business Tax Fairness Package (Former HB's 105, 1603 & 333)
 
A key to improving our economy is the success of the small businesses that account for 99.6% of all businesses operating in the Commonwealth, employing nearly half of our private workforce. 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.
 
Our small businesses have been significantly impacted by the global health pandemic. This package of bills will be of great assistance to their recovery efforts, which in turn, will generate economic activity in all corners of our Commonwealth and facilitate a return to prosperous times not only for our small businesses, but also our hardworking residents. As such, we respectfully ask for your consideration to join us as a co-sponsor of these important legislation.



Document #1

Introduced as HB105

Description: Document #1
Description:       Like-Kind Exchanges (Previously HB 105) – Prime Sponsor: Rep. Jim Cox
 
Under Federal tax law, a “like-kind” exchange pursuant to Internal Revenue Code Section 1031 allows for tax-deferral when certain 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. Cox’s legislation would allow for like-kind exchanges in Pennsylvania mirroring Internal Revenue Code Section 1031 provisions, thereby removing an unfair disadvantage Pennsylvania small businesses are subject to when competing with businesses in other states.
 
Prior Co-Sponsors: BERNSTINE, DUNBAR, GILLEN, GLEIM, IRVIN, JAMES, KAUFFMAN, F. KELLER, LAWRENCE, MACKENZIE, MENTZER, METCALFE, PICKETT, ROTHMAN, RYAN, SAYLOR, STRUZZI, ZIMMERMAN, JOZWIAK, GABLER, MOUL, KEEFER, THOMAS AND ROWE
 
 

Document #2

Introduced as HB395

Description: Document #2
Description:       Net Losses (Previously HB 1603) - Prime Sponsor: Rep. Seth Grove
 
The Tax Reform Code of 1971 enables Pennsylvania taxpayers subject to the state Corporate Net Income Tax to deduct an amount of net losses that arise in one year from their taxable income in subsequent years.  While several changes made been made to the treatment of net losses over the years, pertaining to the carry forward period and amount limitations, our small businesses, subject to our state Personal Income Tax, have not been afforded this same benefit.
 
Rep. Grove’s legislation would allow a small business to similarly use a net 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.
 
Prior Co-Sponsors: NELSON, GAYDOS, STEPHENS, RYAN, METZGAR, ROTHMAN, MILLARD, BERNSTINE, GREINER, STRUZZI, MACKENZIE, DUNBAR, JOHNSON-HARRELL, KEEFER, STAATS, SAYLOR, ZIMMERMAN, MENTZER, KAUFER AND MASSER
 
 

Document #3

Introduced as HB333

Description: Document #3    
Description:       Section 179 Expense Deductions (Previously HB 333) - Prime Sponsor: Rep. Eric Nelson
 
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 Federal Internal Revenue Code was 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 and indexed to inflation for each tax year thereafter.  The deduction is phased out if the total amount of equipment purchased is over $2,500,000.
It is important to note that a deduction is not a tax credit or a tax cut, but rather simply enables a taxpayer to reduce the value of an asset over its useful life.  For 2021, the deduction limit has been set at $1,050,000 with the phase out of equipment purchases set at $2,620,000.
Pennsylvania C-corporations are able to utilize the full deduction allowed under the IRS tax code; however, for our small businesses (i.e. S Corporations, partnerships, limited liability companies, and individuals) subject to our state income tax, 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 that must be addressed, particularly in light of the economic impacts suffered by our small businesses as a result of the global health pandemic, and will serve as an incentive to encourage businesses to buy equipment and to invest in Pennsylvania.

Former Sponsors Include: GROVE, GAYDOS, STEPHENS, METZGAR, ROTHMAN, MILLARD, BERNSTINE, GREINER, MACKENZIE, DUNBAR, PYLE, KEEFER, SAYLOR, MENTZER, KAUFER, MASSER, THOMAS, GILLEN, GLEIM, RIGBY AND ROWE