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‘You have to run with what you have’

Pa. budget uncertainty makes it hard for businesses to plan ahead for tax obligations

Even if you believe the status quo of no new state taxes is good for business, the lack of a final budget for 2015-16 — as negotiations begin on the next year’s budget — creates uncertainty and impacts tax planning.

“Unfortunately, you can’t plan for it,” said Jason Skrinak, leader of the state and local tax practice at Manheim Township-based Reinsel Kuntz Lesher LLP. “Pennsylvania is getting more like the federal budget. From a tax perspective, you don’t know what the rules are until you start playing the game.”

Until a final budget resolution is sorted out, what does it mean and how does a business get everything squared away to ensure it is meeting its tax obligations?

“You have to run with what you have and what you know and hope for the best,” Skrinak said. “That’s scary.”

He was reacting to Gov. Tom Wolf’s budget address today. In his speech, the governor focused solely on finalizing the current budget, which was approved with a line-item veto in December. More than $7 billion in supplemental appropriations remains unresolved. 

Wolf wants a $30.8 billion budget for the current year, including pension expenses that were segregated out into a restricted account. He wants $33.3 billion in 2016-17.

To achieve that, he has proposed tax increases of $893 million for the current fiscal year, which ends in June, and $2.7 billion next year. 

The increases include raising the personal income tax to 3.4 percent from 3.07 percent, expanding the sales tax base and adding a 6.5 percent severance tax on natural-gas drilling. 

He also wants to increase cigarette and tobacco taxes, a surcharge on insurance premiums and the bank share tax, plus add a new 8 percent tax on promotional play at casinos.

“There is a lot of give and not much take,” Skrinak said, with no mention of trying to reduce the 9.99 percent corporate net income tax. “I think the two sides were very much apart. I think that exponentially increased (after today’s budget address).”

Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry, said it’s “disappointing” to see the governor continue to offer up tax and spend proposals while doing nothing to address core cost drivers, including pensions. 

“By continuing his demands for more taxation and higher spending instead of looking at innovative ways to move Pennsylvania forward, the governor is hurting our chances to compete on equal standing with other states for investment, economic opportunity and job growth,” Barr said.

Republican leaders called the governor’s plan a “fantasy” and said it is “just not reality to think there is support for 15 new tax increases, including a retroactive increase in the personal income tax, and just so he can spend more.”

“Missing from the governor’s proposal is property-tax reform, public pension reform, liquor privatization and spending accountability,” said House Majority Leader Dave Reed (R-Indiana).

Rep. Stephen Bloom (R-Cumberland) said Wolf is either “disconnected from reality or he’s choosing to play pretend,” suggesting the budget proposal will only create more chaos for taxpayers.

House Democrats said it’s time to put people over politics and to stop ignoring the structural debt crisis in Pennsylvania.

“It’s time for a reality check,” said Democratic Appropriations Chairman Joe Markosek (D-Allegheny).

The consequences of inaction on the budget are real, added Marcel Groen, chairman of the Pennsylvania Democratic Party.

That inaction will play out at the local level as county governments would likely be forced to increase their own human service budgets because of cuts at the state level. That generally means higher property taxes. 

School districts could be forced to pay higher rates on loans for construction activities with limited or no state aid. That also means higher property taxes to cover those costs.

State funding gaps also could mean sizable cuts in public education staff, according to the Wolf administration.

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