Commonwealth of Pennsylvania House of Representatives

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Commonwealth of Pennsylvania House of Representatives COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES FINANCE COMMITTEE PUBLIC HEARING STATE CAPITOL HARRISBURG, PA MAIN CAPITOL BUILDING ROOM 14 0 WEDNESDAY, APRIL 15, 2 015 9:00 A.M. PRESENTATION ON COMBINED REPORTING BEFORE: HONORABLE BERNIE O ’NEILL, MAJORITY CHAIRMAN HONORABLE STEPHEN BLOOM HONORABLE GEORGE DUNBAR HONORABLE MATTHEW GABLER HONORABLE SETH M. GROVE HONORABLE LEE JAMES HONORABLE AARON KAUFER HONORABLE JOHN A. LAWRENCE HONORABLE DUANE MILNE HONORABLE MIKE PEIFER HONORABLE THOMAS QUIGLEY HONORABLE BRAD ROAE HONORABLE THOMAS SANKEY HONORABLE JAKE WHEATLEY, DEMOCRATIC CHAIRWOMAN HONORABLE LESLIE ACOSTA HONORABLE MARY JO DALEY HONORABLE MARGO L. DAVIDSON HONORABLE MADELEINE DEAN HONORABLE SID M. KAVULICH HONORABLE STEPHEN KINSEY HONORABLE DANIEL T. MCNEILL Pennsylvania House of Representatives Commonwealth of Pennsylvania 2 COMMITTEE STAFF PRESENT: TAMARA FOX MAJORITY EXECUTIVE DIRECTOR MARK FOREMAN DEMOCRATIC EXECUTIVE DIRECTOR 3 I N D E X TESTIFIERS ~k k k NAME PAGE FERDINAND S. HOGROIAN, ESQ. SENIOR TAX AND LEGISLATIVE COUNSEL, TESTIFYING ON BEHALF OF COUNCIL ON STATE TAXATION........................... 8 RAYMOND CHOPPER, CPA TESTIFYING ON BEHALF OF PICPA COMMITTEE ON STATE TAXATION..................52 MATTHEW MELINSON, CPA GRANT THORNTON, LLP TESTIFYING ON BEHALF OF PICPA COMMITTEE ON STATE TAXATION..................57 TOM BOWEN, ESQ., CPA SHAREHOLDER OF STEVENS & LEE, CHAIR OF PA CHAMBER TAX EXECUTIVE COMMITTEE, TESTIFYING ON BEHALF OF PA CHAMBER AND PICPA PANEL......................... 65 SUBMITTED WRITTEN TESTIMONY ~k ~k ~k (See submitted written testimony and handouts online.) 1 P R O C E E D I N G S 2 ~k ~k ~k 3 MAJORITY CHAIRMAN O ’NEILL: Good morning, 4 everyone. I ’d like to bring the meeting of the House 5 Finance Committee to order. This is a public hearing. 6 Before we begin, I just want to inform everybody 7 that I believe we are being telecast live but it’s also 8 being filmed by the Chief Clerk’s Office, and so I ’d also 9 ask you to respectfully turn off your cell phones or 10 silence all electronic devices. 11 Before we begin, what w e ’ll do is w e ’ll have the 12 Members introduce themselves. W e ’ll start with the 13 Chairman. 14 DEMOCRATIC CHAIRMAN WHEATLEY: Thank you, 15 Mr. Chairman. 16 Representative Jake Wheatley from Allegheny 17 County, Legislative 19th District, City of Pittsburgh. 18 MR. FOREMAN: Mark Foreman, Democratic Executive 19 Director. 20 REPRESENTATIVE KINSEY: Good morning, 21 Mr. Chairman. Representative Steve Kinsey from 22 Philadelphia County. 23 REPRESENTATIVE KAVULICH: Good morning, everyone. 24 Representative Sid Kavulich, 114th District, Lackawanna 25 County. 5 1 REPRESENTATIVE BLOOM: Representative Stephen 2 Bloom, 199th District, which is Cumberland County. 3 REPRESENTATIVE ROAE: Representative Brad Roae, 4 Crawford County and Erie County. 5 REPRESENTATIVE SANKEY: Tommy Sankey, 73rd 6 District, Clearfield, Cambria. 7 REPRESENTATIVE DUNBAR: Representative George 8 Dunbar, Westmoreland County. 9 REPRESENTATIVE MILNE: Good morning. Duane 10 Milne, Chester County, Malvern area. 11 REPRESENTATIVE PEIFER: Good morning. Mike 12 Peifer, 139th District, Pike and Wayne Counties. 13 REPRESENTATIVE DAVIDSON: Margo Davidson, 14 Delaware County. 15 REPRESENTATIVE QUIGLEY: Tom Quigley, Montgomery 16 County. 17 REPRESENTATIVE GROVE: Seth Grove, York County. 18 MS. FOX: Tammy Fox, Executive Director to the 19 Committee. 20 MAJORITY CHAIRMAN O ’NEILL: And I’m 21 Representative Bernie O ’Neill, the Chairman, and I 22 represent the 29th District, which is the center of Bucks 23 County. 24 Before we begin, I just want to give a little 25 history. Today’s hearing is on combined reporting. I came 6 1 up with this idea because it’s the old teacher in me. 2 Those of you who don’t know, I used to be a schoolteacher 3 at one time. I was actually a behavior specialist. That’s 4 why I can deal with her so well. Only kidding. 5 Anyway, there’s a lot going on with combined 6 reporting through the Governor’s office and other avenues 7 so it’s a very convoluted, difficult tax policy to 8 understand, so I thought it would be good to have an 9 educational hearing to educate the Members of the 10 Committee, as well as any other Members and the public that 11 would like to hear and learn about combined reporting. So 12 therefore, we put this hearing together. 13 W e ’ve made it very clear to the testifiers that 14 they’re only to speak to the educational part of what 15 combined reporting is. We respectfully ask them not to 16 deviate to anybody’s proposals, whether in favor of it or 17 against it or whatever, and we made that very clear. There 18 were some people and organizations that were invited to 19 testify but chose not to because they felt that they could 20 not honor that agreement in sticking just to the 21 educational part, and we respect that. So we thank them 22 for being forthright with us. 23 I spoke to my Members of my Caucus and made it 24 real clear that all questions and comments will be directed 25 towards the task at hand today and not any policy or 7 1 politics of any kind. And I will be asking all Members of 2 the Committee to do the same. 3 So with that, we'll get on with the hearing, but 4 before we begin, I'll open up the comments to Chairman 5 Wheatley. 6 DEMOCRATIC CHAIRMAN WHEATLEY: Thank you, 7 Mr. Chairman. 8 And again, I definitely want to say thank you, 9 Mr. Chairman, for having this educational meeting today. I 10 would like to just go on the record and say, as a former 11 student, it was always good for me to have access to both 12 sides of an issue, and we all know that no one comes 13 totally without their own biases and independent thoughts 14 on subject matters. 15 And so we would just encourage, as we move 16 forward in this season and knowing that we will have 17 numerous other very complex subject matters, that we try as 18 best we can to have both sides of an issue at a table 19 informing the Members so that we can clearly see the full 20 picture and breadth of the scope of whatever we're dealing 21 with. And this is such a complex situation. 22 From a Democratic perspective, we would have 23 liked to have had at least given the Governor and the 24 Administration a chance to lay out why they thought this 25 issue was important for us as a Commonwealth, and hopefully 8 1 moving forward we will be giving the Administration some 2 opportunities to discuss with us their rationale for not 3 only offering combined reporting but other avenues of tax 4 package changes or requests. 5 So with that, I'm definitely looking forward to 6 this information, and hopefully we will have a very engaged 7 conversation. Thank you, Mr. Chairman. 8 MAJORITY CHAIRMAN O’NEILL: Thank you. And 9 hopefully maybe down the future we will be having those 10 types of conversations and hearings. So thank you for your 11 comments. 12 W e ’re going to begin today with our first 13 testifier, and that’s the Council on State Taxation, and 14 Ferdinand -- and I apologize if I do not pronounce your 15 last name right -- Hogroian. 16 MR. HOGROIAN: That’s very good. 17 MAJORITY CHAIRMAN O ’NEILL: Did I get it right? 18 MR. HOGROIAN: Hogroian. 19 MAJORITY CHAIRMAN O ’NEILL: Hogroian. 20 MR. HOGROIAN: Yes, sir. 21 MAJORITY CHAIRMAN O ’NEILL: Okay. Thank you. 22 Before we begin, w e ’ve also been joined by 23 Representative Gabler. 24 The mike’s yours. 25 MR. HOGROIAN: Thank you, Chairman O ’Neill, 9 1 Chairman Wheatley, and Members of the Committee. Thank you 2 again for the opportunity to provide testimony today on 3 behalf of the Council on State Taxation regarding the 4 concept of combined reporting for corporate income tax 5 purposes. 6 As Chairman O ’Neill referenced, these comments 7 are going to be with respect to combined reporting as a 8 corporate income tax filing method and not specifically 9 with respect to any particular proposal. 10 Combined reporting, which originated in 11 California, is more commonly associated with western U.S. 12 States, but more recently has been adopted in certain 13 eastern States as well. This method is quite different 14 from the State separate filing method or the Federal 15 consolidated method familiar to Pennsylvania corporate tax 16 practitioners. In the brief time available today, I will 17 seek to provide the Committee with an overview of the 18 combined reporting method and COST’s and other research on 19 its effects. 20 For State corporate income tax purposes, 21 "separate entity reporting” treats each corporation as a 22 separate taxpayer. This is the Pennsylvania method. Under 23 this method, taxable income is often computed without 24 regard to the Federal consolidated rules, and taxpayers 25 prepare pro forma State returns with tax computed on a 10 1 separate company basis. Again, this is the method 2 Pennsylvania currently uses; it is also used by many other 3 Eastern States. Of Pennsylvania's neighboring States, 4 Delaware, Maryland, and New Jersey employ the separate 5 entity reporting method. 6 However, after two decades without any change to 7 the general East/West dichotomy of separate versus combined 8 reporting adoption, Vermont in 2004 enacted a combined 9 reporting law. Since that time, a small number of States, 10 mainly in the Northeast, have followed suit.
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