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Wolf budget axes some sales-tax exemptions, seeks lower corporate tax rate

Gov. Tom Wolf today proposed a $32.3 billion budget for 2017-18 that would not raise broad-based taxes but instead relies on taxing natural gas and ending a number of sales-tax exemptions enjoyed by businesses.

In his third budget address, Wolf said he wants to eliminate a series of sales tax exemptions, including exemptions on custom computer programming, design and data processing, commercial storage and airline purchases of catered food and non-alcoholic beverages served to passengers on flights.

The governor also said he wants to adopt a 6.5 percent severance tax on natural gas that would raise an estimated $294 million for state coffers in the new fiscal year that begins July 1.

Overall, Wolf’s $32.3 billion budget represents a spending increase of $571.5 million, or 1.8 percent, above the current budget.

Gov. Wolf has targeted the state sales tax as one area to raise additional revenue for his budget plan. He wants to remove some exemptions to the 6 percent sales tax.

Here’s how that breaks down:

  • $330.3 million: Eliminating the exemption for computer-based services such as programming, design and data processing.
  • $153.6 million: Eliminating the exemption for commercial storage (excluding farm product and warehousing storage, as well as transportation services)
  • $800,000: Eliminating the exemption for airline purchases of catered food and non-alcoholic beverages served to airline passengers.
  • $5.1 million: Eliminating the exemption for aircraft sales, use and repair.

Wolf also wants to expand the insurance premiums tax to most previously exempt insurance entities, which would raise $141.5 million.

Corporate net income taxes could change under Wolf’s budget plan. Wolf is proposing to cap net operating losses at 30 percent of taxable income, beginning in 2018. That change would be tied to mandatory combined reporting by businesses.

That change would add $81.2 million in revenue to the 2017-18 budget, according to the administration.

The CNI rate would be lowered from 9.99 percent to 8.99 percent in 2019. From there, it would be phased down to 7.99 percent in 2020, 6.99 percent in 2021 and 6.49 percent in 2022.

In addition, Wolf wants to reduce the corporate net income tax to 6.49 percent by 2022 from its current level of 9.99 percent. He also proposed mandatory combined reporting, which requires multistate corporations to add together into one tax report the profits of all of their subsidiaries, regardless of their locations.

Republican lawmakers and business leaders have opposed combined reporting in the past.

The governor’s budget proposal also calls for increasing the state’s minimum wage to $12 per hour from its current level of $7.25 per hour, which the administration believes will generate $95 million in additional revenue in the budget. It’s unclear how much the state would need to pay to cover wage hikes for hourly workers employed by the commonwealth.

Wage hikes would be tied to inflation to maintain purchasing power over time, the administration said.

Overall, Wolf wants about $1 billion in revenue increases. But he also has proposed shaving about $2.1 billion in spending through merging state agencies and other cost-cutting measures.

The biggest consolidation is the new Department of Health and Human Services, which was announced by the administration last week. The move, combing four agencies into one, could save the commonwealth more than $90 million in the new fiscal year, according to the budget proposal.

Wolf also wants to create a new Department of Criminal Justice that would merge the Department of Corrections and the Board of Probation and Parole. The administration hinted at that possibility last week.

The budget proposal shows a reduction of more than 3,400 salaried positions across agencies. However, that number includes many positions that would be transferred to newly created agencies, including the Department of Health and Human Services.

For example, the Department of Health would lose 1,336 positions, but only about 50 of those positions would actually be eliminated. The rest would be transferred to the new agency.

What else is in the budget

The administration has proposed charging a $25 per resident fee in municipalities that do not have local police coverage and rely instead on the state police.

About 67 percent of municipalities across the commonwealth call on the state police for some level of coverage. The proposal, which will likely be met with resistance from many rural municipalities that don’t have a local police force, is projected to raise $63 million in the first year, according to the administration.

“This would raise money to go toward the state police operating budget,” said J.J. Abbott, a Wolf spokesman.

The $25 fee will hopefully start the conversation to find a fair funding formula to help bolster the state police moving forward, he said. It would be based on population and levied against the municipality.

Wolf also wants to reduce the state’s real estate holdings. He has proposed a so-called lease-leaseback arrangement for the Pennsylvania Farm Show Complex and Expo Center. Under the proposal, the commonwealth would like to lease the complex to a private entity for 29 years at a fair market value of $200 million.

The administration reviewed previous real estate assessments of the complex as well as various improvements that have been made over the last decade to come up with that value, Abbott said.

A private entity would then lease the facility back to the commonwealth with annual rental payments based on a negotiated interest rate. Abbott said any leaseback arrangement would go through a state request for proposal process.

“The exact amount depends on the proposals,” Abbott said.

He said it wouldn’t change anything related to current farm show operations.

Staff tweets on the budget

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