I am writing to clarify the recent reporting in “Officials Worry Taxation Bill Could Hurt Local Budgets.” By arguing loss of revenues, local governments are using misinformation and scare tactics in an attempt to influence legislators. In fact, there is a very real threat of double taxation for businesses due to the court decisions in V.L. Rendina Inc. v. Harrisburg and A&L Inc. v. Township of Rostraver, and Senate Bill 405 is simply an effort to restore fairness, predictability, and balance to the taxation equation. Senate Bill 405 is not a tax cut.
Senate Bill 405 would restore the “base of operations” test that existed before the Rendina decision eviscerated that standard and before A&L opened the door for double taxation by allowing multiple jurisdictions to tax the same stream of income without allowing for a proper credit. Senate Bill 405 clarifies that the act of engaging in individual transactions within a jurisdiction, without more presence, should not rise to the level of “doing business.”
Essentially, municipalities are arguing to be treated like separate states that can tax any entity that enters their jurisdiction. That would mean that wherever the entity engages in a transaction, and not limited to where they have a place of operations (as was the previous bright-line test), that entity would be forced to pay for a business license and be subject to the local business privilege tax for that transaction. So, in essence, if a company does business in 50 municipalities that impose a business privilege tax, that entity would be required to file for 50 licenses, file 50 business privilege tax returns, and pay 50 sets of business privilege taxes. This Byzantine local tax structure was never contemplated by Act 511.
One commentator stated, “Our residents … are inconvenienced with traffic and the large trucks and dirt.” This justification for double taxation is shortsighted and counterproductive to good and fair tax policy. Moreover, municipalities are not limiting the Rendina decision to contractors; they are expanding the reach of the business privilege tax to anyone entering the jurisdiction to conduct any business whatsoever. This holds frightening implications for business in Pennsylvania.
Senate Bill 405 would restore fairness and certainty to local taxation. The General Assembly should pass the legislation immediately upon its return to Harrisburg next month.
Peter N. Calcara, CAE
Vice President—Government Relations
Pennsylvania Institute of CPAs