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Senate of Pennsylvania
Session of 2019 - 2020 Regular Session

MEMORANDUM

Posted: December 5, 2018 02:32 PM
From: Senator Scott E. Hutchinson and Sen. John DiSanto, Sen. Judy Ward
To: All Senate members
Subject: Reintroduction of Small Business Reform Package
 
Shortly, we plan to reintroduce Senate Bills 201 (Folmer), 202 (Eichelberger), and 203 (Hutchinson) to help small businesses:
  • SB 201: like kind exchanges (DiSanto)
  • SB 202: Net Operating Loss (Judy Ward)
  • SB 203: 179 expense deduction (Hutchinson)

We believe a key to improving our economy is the success of small businesses that create 65% of Pennsylvania jobs. Removing unfair tax obstacles for small businesses allows them to compete effectively, which helps grow more jobs for current and future generations.



Document #1

Introduced as SB201

Description: Like kind exchanges (previously Folmer, Hutchinson, Eichelberger, Brooks, Ward, Bartolotta, White, Stefano, Scavello, Aument, Vulakovich, Boscola, Browne, Wagner, Vogel, and Reschenthaler) would mirror Pennsylvania law to federal, removing a disadvantage Pennsylvania small businesses face when competing with those in other states.
 
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).
 
SB 201 was overwhelmingly passed by the full Senate last Session but was not considered by the House.  Companion legislation from the House (HB 331) passed that chamber but was not considered by the Senate.
 
If you have any questions regarding these pieces of legislation, please contact Jonathan Humma in Senator DiSanto’s office at 717-787-6801 or jhumma@pasen.gov.
 
 

Document #2

Introduced as SB202

Description: Net Operating Loss (previously Eichelberger, Folmer, Hutchinson, Brooks, Ward, Bartolotta, White, Stefano, Scavello, Aument, Vulakovich, Boscola, Browne, Wagner, Vogel, and Reschenthaler) 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.
 
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.
 
SB 202 was reported from the Senate Finance Committee but was not considered by the full Senate.  Companion legislation (HB 332) was reported from the House Finance Committee but was not considered by the full House.
 
If you have any questions regarding these pieces of legislation, please contact Cheryl Shriner in Senator Ward’s office at 787-5490 or cschriner@pasen.gov.
 
 

Document #3

Introduced as SB203

Description: 179 expense deduction (previously Hutchinson, Eichelberger, Folmer, Brooks, Ward, Bartolotta, White, Stefano, Scavello, Aument, Vulakovich, Boscola, Browne, Wagner, Vogel, and Reschenthaler) would increase the maximum amount a taxpayer may elect to expense for Section 179 assets:  to $100,000 per taxable year.  It would also increase the phase-out of this deduction from the current $200,000 to the current federal amount of $2,000,000.
 
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.
 
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.
 
SB 203 was reported from the Senate Finance Committee but was not considered by the full Senate.  Companion legislation from the House (HB 333) passed that chamber but was not considered by the Senate.
 
If you have any questions regarding these pieces of legislation, please contact Justin Leventry in my office at 787-9684 or jleventry@pasen.gov.
 
Please join us in supporting these important pieces of legislation.