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Senate of Pennsylvania
Session of 2015 - 2016 Regular Session

MEMORANDUM

Posted: February 2, 2015 04:12 PM
From: Senator Mike Folmer and Sen. John H. Eichelberger, Jr., Sen. Scott E. Hutchinson
To: All Senate members
Subject: Reintroduction of Small Business Reform 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, which helps grow more jobs for current and future generations.

With this in mind, we plan to reintroduce a three-bill legislative package to help small businesses:
  • Like kind exchanges
  • Net Operating Loss
  • 179 expense deduction
Identical legislation is being introduced in the House by Representatives Bloom, Grove, and Dunbar.

More detailed information follows.



Document #1

Introduced as SB601

Description: Like-Kind Exchanges - Prime Sponsor, Sen. Mike Folmer
(Previously SB 1416, Sen. Mike Folmer)


Under Federal tax law, a “like-kind” exchange under 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.  Every state but Pennsylvania provides for a similar deferral on the state level (current Pennsylvania tax law contains no such provision).

Senator Folmer’s legislation would allow for like-kind exchanges in Pennsylvania to mirror Internal Revenue Code Section 1031, thereby removing a disadvantage Pennsylvania small businesses face when competing with businesses in other states.

Previous cosponsors were Senators FOLMER, BRUBAKER, HUTCHINSON, ERICKSON, VOGEL, TEPLITZ, VULAKOVICH, WHITE and ALLOWAY.
 

Document #2

Introduced as SB602

Description: Net Operating Loss - Prime Sponsor, Sen. John Eichelberger
(Previously SB 1417, Sen. Mike Brubaker)


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.

Senator Eichelberger’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 positions.  For example, if an owner sells some personal items to help the business make payroll, that owner can take the business loss against his or her tax bill created by selling the personal items.

Previous cosponsors were Senators BRUBAKER, FOLMER, HUTCHINSON, ERICKSON, VOGEL, VULAKOVICH, WHITE, ALLOWAY and SCHWANK.
 

Document #3

Introduced as SB603

Description: Section 179 Expense Deductions - Prime Sponsor Sen. Scott Hutchinson
(Previously SB 1418, Sen. Scott Hutchinson)


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 expenses.  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 four years.  However, for personal income tax purposes (S Corporations, partnerships, and individuals), Pennsylvania law limits the amount of Section 179 deduction to $25,000.

This has created an inequity for small businesses in Pennsylvania.  Pennsylvania C corporations are allowed a 179 deduction that small businesses are not.  Senator Hutchinson’s legislation would increase the maximum amount a taxpayer may elect to expense for Section 179 assets:  to $100,000 per taxable year.  The bill would also increase the phase-out of this deduction from the current $200,000 to the current federal amount of $2,000,000.

Please note:  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 proposed increase in limits is an incentive to encourage businesses to buy equipment and to invest, which promotes economic development in Pennsylvania.

Previous cosponsors were Senators HUTCHINSON, FOLMER, BRUBAKER, ERICKSON, VOGEL, TEPLITZ, VULAKOVICH, WHITE and ALLOWAY.