While the Pennsylvania budget process is still in its early stages, Pennsylvania taxpayers may want to keep their eye on three bills.
First, Senate Bill 227 would require that intangible expenses and costs paid to related parties be added back to taxable income, unless a taxpayer can prove that the transaction that generated the payment was not motivated by tax avoidance. Additionally, any net operating losses generated in years beginning in or after 2003 as a result of transactions that would have been subject to addback would no longer be deductible.
Senate Bill 227 also proposes to convey IRC Section 482-type powers on the Department of Revenue so that the Department may adjust income or deductions between companies "so as to make a fair and equitable determination of taxable income."
House Bill 411 would introduce a single sales factor apportionment formula.
Finally, Senate Bill 386 would expressly exempt returnable pallets from sales and use tax. The language of this bill is similar to Senate Bill 1494, which was introduced last year. That bill had significant support in both the House and the Senate, but was dropped along with some other bills that would have been budget expense items. If passed, the proposed amendment would apply retroactively to 2000.
At this point it is difficult to determine the likelihood of any of these proposals becoming law. Addback provisions and single sales factor have both been proposed in the Pennsylvania General Assembly in past years, but have not been passed. In addition, earlier this year, Gov. Rendell stated that he did not intend to resort to broad-based tax increases to close Pennsylvania's projected budget shortfall. However, at that time, the governor left the door open for "loophole closers" targeted at out-of-state companies. Given the current fiscal situation, it is possible that the governor may throw his support behind Senate Bill 227 by characterizing it as a loophole closer, rather than as a tax increase.