CPA assesses effect of Pa.'s 'most-improved' status for tax policy
If Pennsylvania were a student in a class on business tax climate, its report card would say: “Room for improvement.”
Jason Skrinak, a principal at Hampden Township-based McKonly & Asbury LLP, agrees.
One of the biggest hurdles left in attracting businesses to the commonwealth is the 9.99 percent corporate net income tax. Another would be doing more with the net operating loss cap, he said.
"I think those are two of the biggest items coming up," said Skrinak, who leads the firm's state and local tax practice and serves as chairman of the Pennsylvania Institute of Certified Public Accountants' state and local tax committee.
Despite those shortcomings, Pennsylvania was recognized at the end of last year for having the "most improved" tax administration system in the country. The commonwealth leapt from a D grade to an A- in the latest scorecard from the Council on State Taxation, or COST.
The COST survey monitors state tax appeals processes and administrative practices. Its focus is on what states are doing to settle disputes in a fair and transparent fashion.
Pennsylvania's high honors were helped largely by reforms to provide independence in tax appeals heard by the Board of Finance and Revenue.
Last year, the legislature changed the makeup of the BF&R to an independent three-member tribunal from a six-member board of various state officials. That group has included the secretary of revenue, the auditor general, attorney general, treasurer, secretary of the commonwealth and the governor's general counsel.
The reform takes effect in April.
"It's huge," Skrinak said of the change, which also requires the board to publish its opinions.
Prior to achieving legislative reform, beginning in 2011, the Department of Revenue implemented a number of administrative improvements to the tax appeals process that streamlined operations and improved taxpayer service.
Most notably, it began considering requests for compromise, which provided taxpayers an opportunity to resolve tax appeals in a matter of weeks, rather than endure a costly process that could last years.
The department also waived for taxpayers with good credit the requirement to file a costly appeal bond before an assessment can be challenged, eliminating a potential "pay-to-play" obstacle to achieving a fair result.
Skrinak spoke to the Business Journal recently about tax policy changes under the Corbett administration and the short- and long-term effects on business attraction and retention in Pennsylvania.
Q: Rank for me the biggest recent changes in tax policy. How were those items prioritized by PICPA or how was the business community able to get them addressed in a timely manner?
A: The COST grade a few years ago had numerous areas it addressed. Pennsylvania, over the last two to three years, has made necessary changes to look better. Revenue did a great job of abating penalties at the audit level. That was step one.
The compromise ability through the appeals process wasn't there. Revenue now offers compromises. Before, you had to go through the Board of Appeals and the Board of Finance and Revenue and then to Commonwealth Court. Getting that early on is a great benefit to taxpayers.
The biggest lift was changing the actual board. You are taking six members and coming up with a whole new board. The Board of Finance and Revenue worked great. It was just a perception across the country it was not independent.
Nothing really came up (on reforms) until they got that COST grade (in 2010). We had a new governor and new leadership at the department. It just opened their eyes.
What is the most significant change taxpayers will notice in 2014?
Transparency of decisions and the independence of the administrative appeals process. COST and practitioners thought the board slanted in favor of the commonwealth. Audits were being done by revenue, the appeal would go to the Board of Appeals, which is part of revenue. If you don't like their decision, then you file with the Board of Finance and Revenue. Revenue is sitting on that as well.
We thought there would be pushback. We thought they would have issues with losing seats on the board. Everyone was on board with it. It makes sense to have a more independent board.
On the Board of Finance and Revenue restructuring, how much time and money will that save taxpayers on appeals?
Potentially, it could cut a year off that process. In effect, Pennsylvania knew it was getting tax dollars at some point. (Now) Pennsylvania is (going to be) getting tax dollars in the door quicker, if you have compromise earlier in the game.
Six months is possible instead of one to two years.
In the short term, what does this "most-improved" tax designation from COST mean for Pennsylvania and business growth?
It shows that Pennsylvania is looking to make sure any issues companies have with coming into PA or staying in PA is being addressed by revenue and the legislators.
It was a joint effort. We sat down and bounced ideas off each other. We had meetings with revenue, the treasury, auditor general and the attorney general. I think people had some fresh thoughts. It wasn't just the status quo. It was a good new approach.
What are the long-term effects of the reforms?
I think businesses will have a much better idea about policies in the Department of Revenue, specifically with the transparency. They are going to be issuing actual decisions and allowing taxpayers, their representatives, anyone to have access to these decisions and see what PA is coming up with.
As it stands, there was a lot of gray area. Taxpayers were left behind the eight-ball. If you shed some light on the matter and everyone understands the rules, it will make PA a lot easier to deal with and work in. Pennsylvania will get the appropriate tax dollars in the door a lot quicker. They addressed some key hurdles.
More about Jason Skrinak
He has been a principal at McKonly & Asbury LLP since 2007. Before that, he worked at PricewaterhouseCoopers for more than 11 years.
Skrinak, 41, is a 1995 graduate of Villanova University, where he earned his bachelor’s degree in accountancy.
He is married with two children and lives in Lower Paxton Township.