Pennsylvania’s 2010-11 budget brings a sales taxing issue
Every year beginning about this time or maybe a bit earlier, Pennsylvanians get upfront seats to watch the drama of our annual budget unfold.
This year is no different in that respect and Gov. Rendell presented his proposed 2010-2011 budget to the General Assembly on Feb. 9.
There are some differences in 2010, however.
This year residents need to pay particular attention to proposals on Pennsylvania’s sales tax and services on the income side in addition to any proposed cuts in expenditures. If the governor’s package were to pass as proposed, residents would be paying taxes not only on more items but also on legal, data processing, IT and consulting services, accounting and advertising, sports and performing arts admissions, and funerals.
As one legislator quipped in a take on the saying that nothing is certain but death and taxes — likely with a view toward recognizing that funerals, legal and accounting services would be taxed — “He’s going to be taxing death and taxes.”
Here is some background.
The balancing act the state must do each year to pass the budget with tax income dropping and need for services increasing, is admittedly not for the faint-hearted. Still, each year for the past seven years, Pennsylvania’s budget has been adopted late. As some might remember, Pennsylvania distinguished itself in 2009 as being one of the last states in the U.S. to adopt its budget, running 101 days beyond its July 1 deadline.
The effect was state employees for a time working on IOUs to receive their salaries and vendors waiting to be paid. With all of the state House of Representatives up for election and half of the Senate this November, legislators are likely to experience special urgency to move this along this year, and the problems are no less daunting.
Stimulus funds from the federal government are expected to end during 2011. At about the same time, sizable pension increases will be coming due to state and public school employees.
The state has known of the increases for some time but has failed to fund them. This is where the governor’s budget comes in.
The proposal is to fund a “Stimulus Transition Reserve Fund” similar to the former and now, with last year’s budget, exhausted Pennsylvania “Rainy Day Fund” by reducing the overall sales tax rate from 6 percent to 4 percent statewide but including 74 more taxable goods and services including those described above. The governor proposes holding this fund aside until July 2011, when the pressure would hit the general fund.
Of the $29 billion Pennsylvania budget, $26.3 billion is expected to come from the state and the remaining $2.7 billion from federal stimulus money.
If there had not been conditions in federal funding in 2009 that acceptance of the money for Medicaid meant the state could not change qualifications for the program or toss Medicaid recipients off, the chances are good that Pennsylvania would have made these reductions.
A federal extension of additional Medicaid funding is anticipated.
Budget cuts made last year exhausted most if not all of the sources from which the state might readily and legally pull funds. Libraries, legal services for the poor, and even the supplement for SSI for the very low-income disabled were affected. The one major addition to the governor’s budget for 2010-2011 is $354 million additional for public education.
A few added sources of revenue are being considered.
One is to make Interstate 80 a toll road at a projected revenue increase of about $472 million.
Another, which is controversial, is to tax the now-well known Marcellus Shale natural gas reserves which have begun to be tapped as a source of unanticipated income for some Pennsylvanians.
On proposed taxation of legal services, Pennsylvania Bar Association President Clifford Haines Esq. has written legislative leaders of the House and Senate noting that the proposal, particularly when combined with recent court fee increases and reduced funding for the Pennsylvania courts, affects citizens’ access to justice.
He noted that “clients seeking legal advice on the dissolution of marriage, bankruptcy, child support, collection, and other similar cases are often those who are least able to afford to pay an additional charge …”
Also, with the overwhelming majority of business owners in Pennsylvania being small businesses that cannot afford to hire their own in-house attorneys, the taxes would place a strain on small business and act as a disincentive for business and professionals to locate here.
Haines’ complete letter of Feb. 16 can be found at www.pabar.org.
On a related note, taxation of services at a time when Pennsylvanians who are unemployed are looking to strike out on their own and to consult may not be the strategy to pull the economy out of its current downturn.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.