HOUSE OF REPRESENTATIVES COMMONWEALTH OF PENNSYLVANIA
* * * * Budget Hearing Department of Revenue * * * * House Appropriations Committee Main Capitol Building Majority Caucus Room 140 Harrisburg, Pennsylvania Monday, March 14, 2011 - 10:00 a.m. --oOo—
BEFORE:
Honorable William Adolf, Jr., Majority Chairman Honorable Douglas Reichley Honorable Gordon Denlinger, Subcommittee Chair on Fiscal Policy Honorable Thomas Killion, Subcommittee Chair on Health and Welfare Honorable David Millard, Subcommittee Chair on Health and Welfare Honorable Scott Petri, Subcommittee Chair on Criminal Justice Honorable Mario Scavello, Subcommittee Chair on Education Honorable Martin Causer Honorable Jim Christiana Honorable Brian Ellis Honorable Glen Grell Honorable T. Mark Mustio Honorable Bernie O'Neill Honorable Michael Peifer Honorable Scott Perry Honorable Tina Pickett Honorable Jeffrey Pyle Honorable Thomas Quigley Honorable Curtis Sonney Honorable Joseph Markosek, Minority Chairman Honorable Cherelle Parker, Minority Subcommittee Chair on Health and Welfare BEFORE: (CONT'D) Honorable Steve Samuelson, Minority Subcommittee Chair on Education Honorable Matthew Smith, Minority Subcommittee Chair on Economic Impact and Infrastructure Honorable Greg Vitali, Minority Subcommittee Chair on Fiscal Policy Honorable Jewell Williams, Minority Subcommittee Chair on Criminal Justice Honorable Matthew Bradford Honorable H. Scott Conklin Honorable Paul Costa Honorable Deberah Kula Honorable Tim Mahoney Honorable Michael O'Brien Honorable John Sabatina, Jr. Honorable Ronald Waters
IN ATTENDANCE:
Honorable Kerry Benninghoff Honorable Dom Costa Honorable Lawrence Curry Honorable Margo Davidson Honorable Pam DeLissio Honorable Maria Donatucci Honorable Bob Godshall Honorable Adam Harris Honorable Tim Hennessey Honorable Rick Mirabito Honorable Phyllis Mundy Honorable Joseph Preston
ALSO PRESENT:
Dr. Edward Nolan, Majority Executive Director Joanne Hunt, Majority Administrative Officer Jeanna Gettys, Majority Administrative Asst. Darlene Schaffner, Majority Budget Adm. Asst. Kathryn Vranicar, Majority Budget Analyst
Mariam Fox, Minority Executive Director C O N T E N T S
WITNESSES PAGE
Honorable Joseph Markosek 6 Opening remarks
Department of Revenue Dan Meuser, Acting Secretary 9 Dan Hassell, Deputy Sec.,.Tax Policy. 9 Stacie Amsler, Director 9 Bureau of Fiscal Management Drew Svitko, Acting Director 9 PA Lottery CHAIRMAN ADOLF: Good morning and welcome. The hour of 10:00 having arrived, I would like to call to order the House
Appropriations budget hearings.
I would like to welcome all of the members, and I want to thank the officials from the executive branch that have been working through the transition to provide us with this information. I know the transition period and process is an enormous undertaking, and I appreciate you coming before us.
Someone has to go first and that being you, Mr. Secretary.
There is an awful lot of information that the members are going to be asking of you. And I am sure the information that you may not be able to have for us today, if you just, please, get back to us with that information, that will be helpful.
We are here to go through this.
This is actually the second step of the budget process. Obviously, Governor Corbett did his job in presenting his budget last week; and now it's the House and the Senate's turn to go through this budget process, so we can develop a budget, a spending plan and a revenue plan that best suits the residents of Pennsylvania.
So at this time, I would like to explain to the members of the committee as well as the presenters the rules of the budget hearings.
Because of time, what I would like the presenters to do is submit your comments for the record, and then give the committee a brief introduction and a cliff note version of your testimony.
Then we are going to open it up to questions for all of the members. Each member of the committee in the first round will ask one question with a follow-up question, provided that it's all within a ten-minute span.
So each member will get ten minutes in the opening round; and then if further questions are necessary, if you have other, further questions, there will be a second round; and there will be a third round, if necessary.
But in order to get everybody in that first round, we will limit it to one question, maybe with a follow up. Because I know when you are conversing and having a conversation, sometimes it takes a follow-up question.
So I would now like to have
Chairman Markosek for some brief opening comments.
REP. MARKOSEK: Thank you very much, Chairman Adolf.
It's great to be here. And I know our committee is looking forward, the members of our -- the Democratic members of the committee are looking forward to these hearings, to get at a lot of the detail of the budget.
And I certainly want to welcome our first testifiers here, the Department of
Revenue, the Secretary-designate, and all of that.
What I would like to do is introduce our members from the Democratic side. First and foremost, we have the Chair of the Finance Committee, Phyllis Mundy, from
Luzerne County. ACTING SEC. MEUSER: Good morning.
REP. MARKOSEK: We also have Rep.
Scott Conklin from Centre County; Rep. Paul
Costa from Allegheny County; Rep. Tim Mahoney from Fayette County; Rep. Deberah Kula from
Fayette County; Rep. Mike O'Brien from
Philadelphia County; Rep. Cherelle Parker from
Philadelphia County; Rep. John Sabatina from
Philadelphia County.
And I don't think I left anybody out. I am sure some of our members are on their way; we will have them drop by. And I appreciate the offer to be here today, and we look forward to the hearing. Thank you.
CHAIRMIAN ADOLF: Thank you, Mr.
Chairman.
To my immediate left is the House
Republican Executive Director of the
Appropriations, Doctor Ed Nolan.
And then what we would like to do is now have each and every Republican member of the committee identify themselves and the county that they represent.
REP. KILLION: Tom Killion,
Delaware and Chester counties. REP. ELLIS: Brian Ellis, Butler
County.
REP. SONNEY: Curt Sonney, Erie
County.
REP. MUSTIO: Mark Mustio,
Allegheny County.
REP. PYLE: Jeff Pyle, Armstrong and Indiana counties.
REP. CAUSER: Marty Causer, McKean,
Potter and Cameron counties.
REP. DENLINGER: Gordon Denlinger,
Lancaster County.
REP. CHRISTIANA: Jim Christiana,
Beaver County.
REP. QUIGLEY: Tom Quigley,
Montgomery County.
REP. GRELL: Good morning. Glen
Grell in Cumberland County.
REP. PICKETT: Tina Pickett,
Bradford, Sullivan and Susquehanna counties.
REP. SCAVELLO: Mario Scavello,
Monroe County.
REP. PEIFER: Good morning. Mike
Peifer, Pike County. like to also acknowledge the presence of our
House Finance Committee Chair, Rep.
Benninghoff.
REP. BENNINGHOFF: Hi.
CHAIRMIAN ADOLF: Thank you.
Without further ado, it's my pleasure to introduce Acting Secretary of
Revenue, Mr. Meuser.
Mr. Meuser, it's yours.
ACTING SEC. MEUSER: Well, good morning. It's a pleasure being here.
My name is Dan Meuser. I am the
Acting Secretary of the Department of Revenue.
To my left is Drew Svitko; he is the Acting
Executive Director of the Pennsylvania
Lottery. To my right is Dan Hassell, Deputy
Secretary, Tax Policy. To his right is Stacey
Amsler, the Director of the Bureau of Fiscal
Management at the Department of Revenue.
CHAIRMAN ADOLF: Would you like to have any opening comments?
ACTING SEC. MEUSER: Well, certainly. We have submitted some opening testimony. pleased to be working at the Department of
Revenue. I am working for the Governor, for our Governor Corbett, as well as for the people of the Commonwealth.
I am very much pleased to have met many of you over the course of the last seven-and-a-half weeks that we have been in
Harrisburg. And I've gotten to know many of you, and I hope that those relationships get very much enhanced over time.
It's very important that we maintain the same priorities. I have always believed the better we stay on the same page with priorities, the more likely we are to accomplish our goals.
The Department of Revenue is, through my critical review over the last seven weeks and through the transition, is a department in pretty sound shape.
Our goal will be to take it from good to great. Our goal is to improve in customer service, improve in the equitable collection of taxes, and to improve in efficiencies and cost reductions. CHAIRMIAN ADOLF: Okay. Thank you,
Mr. Secretary. I have the privilege of asking you the first couple of questions.
As you know this, the federal government has given the -- extended the deadline from the normal April 15th to April
18th. Does the Department of Revenue have any intentions of extending their revenue deadline to filing their tax returns to April 18th?
ACTING SEC. MEUSER: Well, our filing deadline is April 18th, in line with the federal code.
CHAIRMIAN ADOLF: Okay. All right.
So the folks out there should realize that they have an extra weekend to do their tax returns; is that correct? Is that what you are saying?
ACTING SEC. MEUSER: The April 16th is emancipation proclamation day; therefore, in Washington, D.C., and other cities, it will be honored on April 15th - particularly in
Washington, D.C. For that reason, the federal
IRS has allowed taxes to be paid on Monday, midnight, April 18th. very much.
The second question is regarding sales tax. We had a budget informational hearing earlier this year, and it was brought to our attention not only by some outsiders but as well as staff, as well, that regarding compliance of the Pennsylvania sales and use tax.
And in doing some research, it has come to our attention that approximately 23 other states on their personal income tax returns have a question or a calculation as well that they ask their residents whether they have purchased any out-of-state merchandise on their -- throughout the year.
I know New York State actually has the residents calculating a sales tax or use tax on the form. It's my understanding that
Pennsylvania does not ask that question or have the calculation on their PA-40.
Would you and your administration take into consideration doing something like that and putting added -- adding an extra question onto the PA-40 regarding whether individuals purchased any out-of-state merchandise during the year?
ACTING SEC. MEUSER: Absolutely.
Use tax is a important tax for purchasers of goods that fall into our tax code pay, of course. Use tax is not something that is paid as regularly as it should be.
Out -- We're in the business in the
Department of Revenue of collecting taxes that are due and enforcing those laws.
There is a plan to include a use tax line on the PA-40 form. Presently, as you know, there is a separate form for the use tax.
Now, we are just beginning our approach and developing the plan for this inclusion as per the Governor; and we hope that within next year's tax date, taxpayers can include their use tax in a far simpler way than they do now.
CHAIRMAN ADOLF: Does the
Department of Revenue have any idea of the type of dollars that could be out there as a result of doing something like this?
ACTING SEC. MEUSER: Well, we do.
Presently, use tax payments are in the neighborhood of -- or $350 million. The number may be three forty-three.
The -- We believe the level of use tax not being paid is somewhere in that neighborhood as well, so it is significant.
We -- It is something that is not just a line item on the PA-40 form; but through other measures, we plan to enforce the laws of payment on use tax and also educate the general public as well as businesses to the point and fact that use tax should be paid.
CHAIRMAN ADOLF: And thank you very much.
Chairman Markosek.
REP. MARKOSEK: Thank you very much, Mr. Chairman.
Mr. Acting Secretary, the whole idea of collecting taxes out of state through the Internet, as it was mentioned, it has been an issue that has come up.
There have been a lot of folks that think that, you know, given better tools to enforce that or better technology or however it's done would create a situation where we would get a lot more of the money that is actually owed us. That a lot of our in-state folks, you know, if the customers go to them and they have to pay the sales tax.
But yet, there are, you know, certain entities that you can get online and buy something through the Internet and avoid the sales tax, and some other states have stepped up and have, you know, some legislation that has corrected that or at least tried to address that.
But there have been a couple of folks from outside of the Commonwealth, I believe, who have indicated that that would be considered a tax increase and would not fall within any current pledges not to raise taxes.
And my question to you, sir, by -¬
If we were able to come up with some sort of legislation or technology that would be able to collect those taxes, would you consider the enforcement of our current tax laws in these cases a tax increase, or in your mind would that be just folks paying what they owe?
ACTING SEC. MEUSER: Well, the
Department of Revenue and the Governor is interested in enforcing the tax laws that exist and enforcing them at the highest level possible in a highly professional manner.
The fact is that purchases made on goods from out-of-state e-commerce or Internet companies or any company for that matter, a use tax is due on those items that fall within our tax code that we apply sales tax to.
We need to enforce that level of collection better through certainly education of consumers but also through the help of those retailers.
We -- The fact is that the law does dictate that that use tax is due by a consumer.
The fact is the law states that if there is nexus, a location within the
Commonwealth of such a e-commerce or any company selling from out of state, then also those taxes are due. The fact is that if a consumer purchases those items as stated, then that tax is due.
So we can do a better job of enforcing the laws, educating both from a consumer side and the business side, the retailer side. And we plan to do so; we are watching closely developments that are occurring in other states.
But as of right now, what the
Governor is interested in doing is enforcing to the letter of the law the tax laws that exist; and in so doing, know that is not considered a tax increase.
REP. MARKOSEK: Okay. Well, let me just make sure I understand that we are all clear here.
If we make our Pennsylvania retailers collect this tax--of course, and there are folks like Amazon.com is the popular one now, and some other states have moved to get the tax from people like them, who currently, for whatever reason, seem to dodge that tax or be able to dodge that tax--if we put legislation or if there is legislation here, will you advise the Governor to favor that legislation and sign that legislation if we can get it passed here?
ACTING SEC. MEUSER: Well, the
Governor will provide direction at that time upon reviewing. REP. MARKOSEK: Well, no, I understand that.
I am asking: Will you advise, as his Revenue adviser, will you advise him?
I mean, obviously, he can make his own decision; but will you, one on one, when you are sitting with him, and we are not around and the cameras aren't around, will you advise him that this is not a tax increase, that he should sign this?
ACTING SEC. MEUSER: Well, we have a law enforcement Governor; and the laws are there, which will, should allow us to gain these due taxes.
The Governor has indicated that he is interested in providing the Department of
Revenue with added powers in order to further investigate companies that do, in fact, have nexus in the state but aren't paying the appropriate taxes.
Our role at DOR, my role as
Secretary, will be to provide the Governor with all of the appropriate information; and from there, he makes the decision. that as a yes?
ACTING SEC. MEUSER: Interpret that as we will give him all the right information he needs in order to make the best decision.
REP. MARKOSEK: All right. Thank you.
CHAIRMIAN ADOLF: Thank you.
Rep. Scavello.
REP. SCAVELLO: Thank you, Mr.
Chairman.
And good morning, Mr. Secretary.
ACTING SEC. MEUSER: Good morning.
REP. SCAVELLO: I have had a tremendous amount of e-mails since the
Governor proposed his budget.
One of the issues I think we spoke about briefly in my office a few weeks ago, and it has to do with the purchase -- It's actually federal law. President Obama and
Congress signed it into law and then sent it to businesses, to purchasers of equipment, over the course of the year, and allowing for to take that tax break at one time versus depreciating that tax break. here in this room has received this number that is over $800 million.
And first and foremost, I wanted to give you the opportunity to explain that how much it really costs the Commonwealth, and that it is a -- that it is supposed to be a job creation item, and the Governor is following through with the federal law.
ACTING SEC. MEUSER: Yes. What you are referring to is a bulletin that the
Department of Revenue put out in response to the President's continuation of the '01-'03 tax relief.
And he, as well, the President added a few provisions to that; one of which is allowing for a 100-percent bonus depreciation as of September 8, 2010, running through December 31st, 2011.
We at the Department of Revenue assessed the law. We reviewed it as far as its legality and its impact on the state. We provided that information to the Governor and his office; and the Governor felt that under the circumstances, we should issue a bulletin, which stays in line with the intent of the federal law, allowing for Pennsylvania businesses during this timeframe a 100-percent bonus depreciation, write-down.
The Governor felt that this was in the best interests of job creators throughout
Pennsylvania, and he also felt that it was the way to deliver the most level of clarity so as we were not in contradiction to the federal policy.
REP. SCAVELLO: Isn't it a fact also that the business or the company that would take this break would actually -- is not really a break?
It's just a break for this year, but they would have received that depreciation over a period of time. So, if it cost the
Commonwealth, let's say, I will use the number
200 million this year or in the next two years, it's money that is going to come back to the Commonwealth over the next couple of -¬ the course of four or five years; am I correct?
ACTING SEC. MEUSER: Yes,
Representative, that is correct. The bonus depreciation allows for a 100 percent write-down in 2011.
Our current depreciation allows for a 30-percent first year followed by continued three-seventh deductions over the course of time so as 100 percent is also realized.
This allowing for it now serves certainly as a stimulus directly to businesses, and, again, it was felt the appropriate move to make and action to make for the -- in the interests of job creators.
As far as the tax implications of the bulletin, of the ruling, we believe for
2010-11, we don't -- the tax implication would be the level of taxes that would not -- that would be saved by Pennsylvania businesses will be $69 million and throughout 2011 the number will be $132 million and that's a total of 200 million for the action.
REP. SCAVELLO: That's a far cry from the e-mails that we are getting in regard to it; over $800 million is what it's going to cost the Commonwealth. Those are the e-mails that went out to the legislators on that.
But thank you so much for clarifying that. ACTING SEC. MEUSER: Thank you.
REP. SCAVELLO: And the best of luck in your position.
ACTING SEC. MEUSER: Thank you.
CHAIRMIAN ADOLF: Thank you. Rep.
Mundy.
REP. MUNDY: Thank you, Mr.
Chairman. And thank you for allowing me the courtesy of sitting on these Appropriations hearings.
Good morning, Mr. Secretary, my constituent.
ACTING SEC. MEUSER: Good morning,
Chairman.
REP. MUNDY: Nice to see you here.
ACTING SEC. MEUSER: Thank you.
REP. MUNDY: I would like to follow up on this issue of the accelerated bonus depreciation. Because with regard to tax policy, I can understand why the President would believe that it's an economic stimulus in the country, given that probably a great deal of plant and equipment that is purchased, machinery and equipment that is purchased, would be purchased somewhere in the United States and may very well result in job creation in the nation.
But I guess I am not understanding, unless there is something I am missing, unless there is something in your directive that you have issued to Pennsylvania businesses that they purchased plant -- that this machinery, machinery and equipment, in Pennsylvania, or that there is some job creation tied to it in
Pennsylvania.
I am really not sure how these multi-state, multi-national corporations that might benefit, I am not sure why you believe that that's economic stimulus for
Pennsylvania. Could you respond to that, please?
ACTING SEC. MEUSER: Certainly.
Again, the intent of -- from the federal side was as a business stimulus, and the Governor saw it this way. Again, it was vetted from a historical standpoint; there are precedents surrounding our ruling.
In the past, such requirements or statutes were passed on the federal side as a
50-percent depreciation. We then, twice in the past, the Commonwealth, the Department of
Revenue and the Governor's Office, did allow for the 50 percent to become law in
Pennsylvania as well as -- or policy in
Pennsylvania as well as the continued three-sevenths deduction.
So, again, we felt as well, along with it being what's deemed as a move that treats all taxpayers the same and serves as a real bonus to Pennsylvania businesses in a time when they could use it most, just as we are very focused on job creation as the ultimate goal, we felt that it was clear that this should be the action taken regardless of the positive job creation implications.
REP. MUNDY: Well, first of all, we decoupled from the state, with the state from the federal tax code in 2002. Can you tell me what you are relying on other than precedent?
And you didn't really specify what year that would have been, what precedent you are referring to; but what are you relying on that gives you the authority to just, by policy directive, offer a $200 million tax break to these multi-state, multi-national corporations?
ACTING SEC. MEUSER: Well, again, we have a pretty thorough legal department that analyzed it thoroughly, did look at precedent, did look at the definition of the decoupling statute, which does allow for relevant portions of the federal statute to be affected within the Commonwealth; and it just completely passes legal muster from a precedent standpoint as well as a current day legal standpoint.
Now, would we benefit by some legislative clarity on a 100-percent depreciation should that occur again in the future? Yes, we would.
But in answer to your larger question on the business stimulus and the job creation stimulus that takes place, we are already hearing, Chairman Mundy, from many companies and other groups that this is precisely what the job creation community could use right now - a direct impact on their reinvestment in themselves.
And when reinvestment occurs in businesses, that means added jobs. So, we are expecting some very good returns, some very positive returns from what is a $200 million
-- A $200 million shortfall in revenues is a
$200 million savings for our state's job creators.
REP. MUNDY: Well, we met a couple weeks ago, and I asked you to provide some legal justification and I still would like to see that. If you could, show me, you know, what it is legally that you are relying on that allows you and the Governor to do this without any change in tax law.
And secondly, am I mistaken, is there any tie to job creation or buying this machinery and equipment in Pennsylvania, is there any tie to any of that in this directive or in the tax code in Pennsylvania?
ACTING SEC. MEUSER: Well, hiring is left up to the businesses themselves. Ah, what -¬
REP. MUNDY: That's not my question. I was talking about the tax -- The accelerated bonus depreciation that you are giving, is it in any way tied to job creation in Pennsylvania through this precedent that you are referring to, through your policy directive, through current law?
In other words, you know, this $200 million that you are giving to multi-state, multi-national corporations at the same time that we are cutting services to Pennsylvania taxpayers, is there any tie at all, in law, to job creation or economic stimulus?
ACTING SEC. MEUSER: Chairman
Mundy, the work of Governor Corbett is to now and over time create a far more competitive atmosphere for business growth, which leads to job creation and also to make Pennsylvania a far more competitive state versus other states.
And many other states have adopted this, the federal statute, so as allowing for the 100 percent. And so, by us being able to do that as well, keeps us competitive, sends the right message, and at the same time has the substantive effect of providing businesses with added capital in order to grow.
REP. MUNDY: And my last question.
You referenced companies that are already planning to use this stimulus as job creation. Can you give us examples of any of those companies?
ACTING SEC. MEUSER: Well, I have heard from a couple of industry groups. We have heard from -¬
REP. MUNDY: Such as?
ACTING SEC. MEUSER: -- the public accountants groups. Well, the Manufacturers
Association as well as the Pennsylvania
Chamber of Commerce and other smaller chambers of commerce that felt that it was a very positive development.
REP. MUNDY: So the lobbyists are telling you this is a good idea; but I am really asking if there are any particular businesses, Pennsylvania corporations or companies, that you can point to that believe that this stimulus will help them create jobs in Pennsylvania, or that they are going to purchase equipment and machinery in
Pennsylvania as a result of this, this policy change?
ACTING SEC. MEUSER: Well, anecdotally and in social conversation I have had, and it's probably not appropriate to offer the names of those companies now; but it is something that I would be happy to continue a conversation with you on, and we can look at it together.
And I do apologize that you have not received our -- We did put together a three-page-or-so report, which I was under the understanding it was being delivered to your office on Friday afternoon, so.
REP. MUNDY: It's probably still in legal.
ACTING SEC. MEUSER: No, I believe it's out of legal. I was keeping an eye on it.
REP. MUNDY: Okay. I will look for it again.
Thank you, Mr. Chairman.
Thank you, Mr. Secretary.
ACTING SEC. MEUSER: Thank you.
CHAIRMIAN ADOLF: Okay. Thank you.
Mr. Secretary, all of the information that may be requested of you at these -- at this hearing today, if you could get the information to my office? And then we will get it over to whatever, whoever the representative was that requested it, okay?
ACTING SEC. MEUSER: Yes, Chairman.
CHAIRMIAN ADOLF: At this time, Rep.
Peifer.
REP. PEIFER: Thank you, Mr.
Chairman.
I just want to talk a little bit, too, Mr. Secretary, about some of the bonus depreciation and continue this discussion and maybe we can clear up some of these questions.
But over and over again, since the budget announcement from our Governor, we have heard that we are doing nothing but helping big corporations; and we know that's false. I mean, depreciation is a deduction that is standard on every business tax return that is filed, whether you are a sole proprietor, whether you are a LLC, whether you have a rental property, whether you have a farm.
Yes, in truth, big businesses also get this deduction, but this deduction is used by small business just as much as it is by big business.
It is also used by taxpayers in preparing a package of what they plan to do with their tax liabilities owed by taxpayers.
Very simply, a farmer could probably look at their year, depending upon their crops, depending upon the weather conditions, and say, this might be a year that I need to buy large capital assets such as a tractor; something that's very near and dear to
Pennsylvania since agriculture is the number one industry. They can simply buy this tractor.
And let's just talk about the timing. We have heard it's a tax break. It's not a tax break, it's a timing adjustment of a valid deduction.
And what are we saying? If you buy that tractor, we are going to let you deduct a lot of the cost up front of that tractor instead of taking it over time.
So, we have heard a lot of fallacies. We have seen a lot of e-mails, you know, talking about how this is a big tax break for big business. We have seen many people, you know, discouraged from cuts in the budget, which we are concerned about. business community, and say, look, this is a valid deduction that has a timing adjustment change, so you are allowed.
And what are we trying to do? Just like President Obama and just like Washington,
D.C, we are trying to get money off the balance sheets of businesses to spend.
Because someone out there is manufacturing that tractor--it might not be in
Pennsylvania--but someone is manufacturing that tractor; and if we live in a worldwide economy, which we do today, we need to spur the entire country's economy, just not
Pennsylvania.
So, Mr. Chairman, I just wanted to take a moment to clarify some of those fallacies. Thank you.
CHAIRMIAN ADOLF: Thank you.
Rep. Parker.
REP. PARKER: Thank you, Mr.
Chairman.
Good morning, Mr. Secretary.
ACTING SEC. MEUSER: Good morning.
REP. PARKER: In the Governor's proposed budget, Tobacco Settlement funds that were used to fund PACENET and the home- and community-based services for seniors, who are seeking care, were directed to the General
Fund; and those services are now to be paid for out of the Lottery Fund. So, with that in mind, talk to us about the solvency and the help of the Lottery Fund now and where we are.
ACTING SEC. MEUSER: I would be happy to. I came into this as Acting
Secretary with an open mind, but on the same note had a -- came in critically reviewing all aspects of the Department of Revenue; and I still am, and as well as the Lottery.
I have come to find at this point in time that the Lottery is financially sound, is -- has many, many very positive aspects of it, and it is highly accountable.
The Lottery, last year, had revenues of over $3 billion. The Lottery has maintained a operational overhead of 2.5 percent; somewhat extraordinary for an operation of $3 billion.
The Lottery has delivered over $915 million directly to seniors' programs. Of course, we could provide you a breakdown of exactly where that would go:
A large portion of that $277 million goes to the Property Tax and Rent and
Rebate Program, which is extremely important to our state seniors;
We have provided checks, on average, in the neighborhood of $500. I believe that's the average, 595 -- I believe the average was $495 to over 600,000 seniors that have come to rely upon this property tax relief.
Now, is there room for improvement?
Yes, ma'am, there is, and we are focused on that very much so.
REP. PARKER: Tell me, has there been a shortage in the amount of funds that we are projecting for this fiscal year based on what we have seen take place with the crisis in our economy, the projections for the
2011-12 versus last year?
ACTING SEC. MEUSER: No, we have projections, which we believe are justified and legitimate. There is -- And that they are in line with the overall GDP projections. we set forth for -- from the Department of
Revenue, they are not high, they are not low; if we have erred at all, we have erred on the side of being conservative. So we -¬
REP. PARKER: I guess my question is: It's less on your projections this year; how much less are they when you compared them to our previous fiscal year?
And I have seen numbers that that equals out to approximately $9 million, but I just wanted to know if you had any comment on that. Are they different?
ACTING SEC. MEUSER: I am sorry, $9 million?
REP. PARKER: Nine million dollars less than the 2010-2011 year.
ACTING SEC. MEUSER: Okay. I may turn this over to our acting director, Drew
Svitko.
My understanding is we are projecting about a 2.4-percent increase for next year as well as this year, which now I will just add that we do need a bit of legislation to assure that we get there; and that is something we maybe could talk about along these proceedings and that is a relief from the -- a continued relief from the
30-percent margin requirement, but.
REP. PARKER: Okay. So 2011-2012, what you have available to spend, and its comparison to the previous fiscal year?
ACTING SEC. MEUSER: (Nods affirmatively.)
REP. PARKER: Great. Thank you.
ACTING SEC. MEUSER: You are welcome.
REP. PARKER: Finally, the final question is about, in '08-'09, we talked about this antiquated, outdated technological system you have within the department. Tell me where you are with this modernization project, how is it set, what's the timeline like, and how has it been an asset to the department.
ACTING SEC. MEUSER: Well, a very important question, and certainly something that we are dedicating many resources to as well as the Commonwealth is dedicating many resources to.
We currently have a informational system, which truly is quite outdated. Some aspects of it are 25 to 30 years old. Even running off of Cobalt, which, you know, I used in high school.
We are looking for a lot from this advancement from the Revenue Modernization
Project. We are looking forward to great efficiencies. We are looking forward to a higher level of customer service.
And we are also looking forward to much cross-referencing of various data, which will allow us to look at a taxpayer in a more holistic manner, which also means that our enforcement effectiveness will increase quite a bit.
We have a lot of confidence that along with the implementation of the Revenue
Modernization Project, which is receiving a very, very high level of scrutiny by myself and many, many talented people within the
Department of Revenue, will, once implemented and during the course of its implementation, once we begin getting online, will pay for itself within short order.
Now, a couple of specifics. We, in
'09-'10, we -- there was 15 point -- $15 million allocated to advancing the project, and from a hardware, software, data cleansing.
We can provide you the details within our -- within the overall imaging, which is a -- of all tax documents, and utilizing that information and data processing it appropriately.
In '10-'11, our present year, we have made a request of $23.2 million; and so far, 15.8 has been received. December 1st,
2010, Accenture, our management integrator of the system, which is partnering with us on this project, began their operation.
I am sorry?
REP. PARKER: I am finished.
ACTING SEC. MEUSER: So, we are looking at it closely, and we like the progress that is being made.
REP. PARKER: Thank you, Mr.
Chairman.
Thank you, Mr. Secretary.
CHAIRMIAN ADOLF: Thank you.
All right. Chairman of the House
Finance Committee, Rep. Benninghoff. Chairmen Adolf and Markosek for allowing me to be a part of this hearing.
As you know, our committee is not about appropriating money, it's more about policy; so, it's nice to be a part of this.
I want to compliment you and your staff in some of the preliminary meetings we have had; and talk about some issues, and I look forward to working with you.
Actually, I have a quick comment.
You have actually answered all of my $5,000 questions I have scribbled down here, so you have done pretty well.
But I want to make this commentary.
Recently--several weeks ago actually--prior to that announcement regarding accelerated depreciation, I have hosted several meetings within both of my counties, my legislative district, to business leaders, chambers leaders, economic development directors.
And one of the things I thought was very interesting is, not one of them had mentioned wanting tax credits from the government; but the consistent message I did hear is simplifying regulations and simplify your tax code. Get out of our way. We'll develop jobs and we'll create jobs and we'll create business.
And I thought it was pretty interesting. And so, I thought that accelerated depreciation was a good step in that manner. Some of these individuals have to purchase equipment totaling 3, $400,000 for one piece of one truck, one loader, and many of these are in harsh, heavy road construction.
It's something that we need very much in this Commonwealth when we are looking and trying to find money, to invest in.
And I thought: This is great.
These guys understand mathematics. Give them accelerated depreciation. Put that money that they would have been having to accomplish several of these in a row, up front; more equipment. And if they need someone to drive that equipment, they hire; more jobs.
So, I thought that was a pretty proactive move on the Governor's part and a pretty decisive decision. Revenue Modernization Project. You pretty much touched on it. Because I had also shared the concerns, as our landscaping, on how to purchase, buy things, more so electronically, sitting in their homes.
Is part of that Revenue
Modernization Project going to give you that ability to be more aggressive in enforcing or trying to get what I believe is un-captured revenue that's already owed to the
Commonwealth?
It's not new tax revenue. It's a fairness to the rest of us who are paying as we go and are creating more businesses.
ACTING SEC. MEUSER: Yes, very much so. The -- Our enforcement compliance department spends quite a bit of time with the revenue modernization team, providing for exactly what they will need moving forward to leverage technology, so as we can far more effectively assure that we are closing the so-called tax gap.
The modernization program will allow us to build trust. To build trust certainly with taxpayers, the legitimate good taxpayers, which are, of course, the vast majority -¬
REP. BENNINGHOFF: Sure.
ACTING SEC. MEUSER: -- of
Pennsylvanians, by -- through clarity, through a high level of organization, through faster responses to questions.
But it is also going to send messages and in a real way. Those who aren't, who are shirking their tax duty, or not paying taxes that are due, to understand that the cross-referencing that is now taking place, the licensing that we will be able to utilize.
As an example, if somebody gets a sales -- a retail license, we can then immediately be expecting sales taxes to be coming through.
So, the level of enforcement, that and through other means, that the Governor is extremely interested in empowering the
Department of Revenue to, again, just assure that we are collecting taxes that are due according to the law, this system will set us in the direction so as we can accomplish that.
REP. BENNINGHOFF: In closing, I suspect part of that sent message is, we'll be educating the people about the fact that this is an obligation. If you get the license, part of that obligation of that license will be your rendering of taxes owed to the
Commonwealth.
I think some of these people just aren't sure, not necessarily knowledgeable they do owe this; and we saw a pretty successful ability through the Amnesty program that when people were alerted, hey, you owe this, they get their revenue in.
ACTING SEC. MEUSER: Absolutely.
REP. BENNINGHOFF: And this would be a great tool to educate the public as well.
ACTING SEC. MEUSER: Yes, sir. And we want to stress that. We are about creating a high level of education, a high level of transparency and access, education programs.
Willing compliance is certainly the best enforcement.
REP. BENNINGHOFF: Thank you.
Thank you, Mr. Chairman, to both of you, for allowing us to be here.
CHAIRMIAN ADOLF: Thank you.
At this time, I would like to acknowledge the presence of Rep. Dave Millard as well as Rep. Jewell Williams.
REP. MARKOSEK: Excuse me. Yes, we have Rep. Ron Waters has arrived, Rep. Steve
Samuelson has arrived, and Rep. Greg Vitali has arrived since our opening remarks.
Thank you, Mr. Chairman.
CHAIRMAN ADOLF: Probably all on the same train.
Rep. Conklin.
REP. CONKLIN: Thank you, Mr.
Chairman.
And thank you, Secretary.
Just very quickly. I am looking over this, your budget numbers. And am I correct that the '10 and '11 budget was a little over about 189 million, to this year's budget is about 197 million point six; is that correct? About a 4.2-percent increase, or about 8?
ACTING SEC. MEUSER: From '10-'11 to '11-'12?
REP. CONKLIN: Yes. About a $8 million increase? sorry. The Department of Revenue operating budget -¬
REP. CONKLIN: Yes.
ACTING SEC. MEUSER: -- has an $8 million increase.
REP. CONKLIN: And then am I correct in saying that part of that $8 million increase was a 8.3 million transfer from the
PHEAA budget and your budget?
ACTING SEC. MEUSER: My understanding is that our budget received -¬ is static with this year's and the increases are due to the modernization project.
REP. CONKLIN: But, no. My question was: Did I see that you are using a
$8.3 million transfer from the PHEAA funds in your funds this year? There is actually a surplus in the PHEAA monies.
ACTING SEC. MEUSER: No, and I understand that the PHEAA was transferred to the General Fund.
Let me ask our fiscal director if she has any comment on that.
MS. AMSLER: It went to the General
Fund, not to the Department of Revenue. Our $8 million increase was the modernization funding that we received. It went from 15.8 million to 22.9.
REP. CONKLIN: But I am sorry, the paperwork I have is showing that of a transfer of $8.3 million.
But my question is: Do you think it would be prudent at this time, seeing a
50-percent cut in higher education, to be able to take those PHEAA loans, knowing that our parents and our children are going to have to go out for more money?
Don't you think that $8.3 million would be much better used left in the PHEAA accounts, that surplus rolled over to help out those parents with the increases next year?
ACTING SEC. MEUSER: Well, obviously, that's a budget decision, not the
Department of Revenue.
I think we have clarified, and we will definitely clarify, that the PHEAA dollars went to the General Fund and not to the Department of Revenue.
Now, on the more -- on the larger budgetary question that you are asking, there was a freeze, as you well know, on PHEAA for the remainder of the year; and those dollars were, as has been done in the past, it's typical, have been placed into the General
Fund. It has been done many times in the past.
And I certainly agree, as does the
Governor, that education is as important a leg on the stool as the prior -- right tax climate as well as just a focus on public safety and just overall economic advancement for the state.
But as you probably also well know, the levels of increases for -- in our overall spending over the last three years, four years, five years are no longer sustainable, so.
And as you can also see from our revenue numbers, revenues aren't the problem.
We have got revenues of -- total revenues before deductions of 29 billion, 975 million projected for '11-'12. It is some of the highest revenues the Commonwealth has ever seen. problem is spending; and that's what the
Governor's budget reflects.
REP. CONKLIN: Just one quick follow up. You were talking about the $200 million tax deductions that a business will be able to take for buying new equipment this year and will get a write-off this year versus over an extended period of time.
My question is, is that if a corporation, say, purchases a piece of machinery, gets a tractor that costs $150,000, and they pay cash for it, will they be able to write that piece of equipment off this year?
ACTING SEC. MEUSER: They would be able to write-down the level of depreciation that is anticipated from that piece of equipment this year, right.
REP. CONKLIN: If they would have to finance the whole $150,000, would the depreciation change at all? Or would it only be based on the new -- based on the amount of the loan, or the amortization, what they have to take at that point?
ACTING SEC. MEUSER: I don't see -¬
I am not -- I am not -- I don't have the information to answer that question
100-percent accurately for you, but I don't see why financing it would make any difference.
Maybe I will turn that over to our
Deputy Secretary of Tax Policy, Dan Hassell.
MR. HASSELL: Well, I agree with the Secretary's answer that the financing shouldn't change the depreciation.
REP. CONKLIN: Okay. Thank you.
CHAIRMIAN ADOLF: Thank you.
Just a point of clarification. On that $8 million that is being transferred from various programs that PHEAA administered, it's not the state grant program; it's other special programs, quite frankly.
Unfortunately, some of our students have not been able to take advantage of, or who are interested in it. And it was $8 million that have been around for two or three years, and that was transferred not to the
Department of Revenue but just into the
General Fund.
In reality, though, PHEAA took a $7 million decrease in funding going into this year. So, just a point of clarification, it did not go to the Department of Revenue.
Rep. Pyle.
REP. PYLE: Thank you, Mr.
Chairman.
And thanks for being with us today,
Mr. Secretary.
ACTING SEC. MEUSER: Thank you.
REP. PYLE: I am going to switch gears with you a little bit here.
I noticed in our budget address last week that revenues are up greatly over what were originally anticipated. In your opinion, is this a result of the previous administration front-loading all of those projections, or are these actual revenues?
As kind of a follow up to that, do you see that as a sustained revenue collection, the pattern? Or is this just the bump we get traditionally out of the last quarter of the year because of the increased consumer spending, the end of Christmas and whatnot?
all of that. We do presently have a $243 million surplus for '10-'11. We are projecting, however, a $78 million surplus come the end of this fiscal year.
Now, there are a couple of significant reasons for that. One is that our gross receipts tax is -- has been overestimated by about 110 million. All right?
The other reason for that, is that the initial personal income tax estimates that were submitted largely last year, or submitted through -- for '11, the initial estimates, we are anticipating they be lower than will -¬ than what will continue.
But the other large factor is the
$69 million due to the bonus depreciation.
So, if you add that up, that's a -- that's about $250 million. So, if you look at that versus where the current surplus is, it is easy to see that pretty much everything else is continuing on trend and moving in the right direction.
Personal income tax, corporation taxes, sales tax, use tax - it has all continued. It is more or less moving in the right direction. We are anticipating that to continue in '11-'12.
REP. PYLE: Thank you very much,
Mr. Secretary.
CHAIRMIAN ADOLF: Thank you.
Rep. Michael O'Brien.
REP. O'BRIEN: Thank you, Mr.
Chairman.
And good morning, Mr. Secretary.
ACTING SEC. MEUSER: Good morning.
REP. O'BRIEN: Maybe it goes back to my years as legislative staff, but when I was reading your written testimony this morning, equitable kind of popped out, and then it became intriguing when you finished your oral testimony on the equitable note.
Now, when we put together a piece of legislation, we spend an inordinate amount of timing on definitions. Help me get my head around this. Define equitable for me, if you would.
ACTING SEC. MEUSER: Fair.
REP. O'BRIEN: Fair?
ACTING SEC. MEUSER: Yes. REP. O'BRIEN: So, our tax policies or tax collection policies to this point have not been equitable?
ACTING SEC. MEUSER: Good question.
No.
REP. O'BRIEN: Enhanced revenues through equitable, flesh that out for me, please.
ACTING SEC. MEUSER: Well, I mean, equitable for all taxpayers. When we refer to the equitable collection of taxes and to administer the tax laws, as is the mission of the Department of Revenue, in a fair and accurate manner, we mean for all taxpayers, not some; not 90 percent but a hundred percent.
So, largely, we want to always treat all taxpayers the same, and all laws should do that. You know, policy should do that and the Department of Revenue should do that. But when we refer to the word, equitable, we mean for all taxpayers.
REP. O'BRIEN: So identify for us where the lack of equity has been. are companies that set up subsidiaries out of state in some cases.
REP. O'BRIEN: Better known as the
Delaware loophole?
ACTING SEC. MEUSER: I wouldn't narrow it to something of that nature. I would just define as organizations, companies that deliberately set up passive investment subsidiaries for the purpose of tax avoidance; and they exist everywhere, not just in
Delaware.
REP. O'BRIEN: I see.
The second part of the question.
Within the same paragraph that you use equitable, you speak of enhanced sales and use tax collection is on our radar. Could you flesh that out a little bit for us?
ACTING SEC. MEUSER: Well, yes. We are very interested in collecting all taxes that are due. The Governor has made it clear that he expects us to enforce the tax laws that exist in the most effective and professional manner possible.
In so doing that, along with creating a far more conducive and effective overall tax environment, we, that through those two measures, we hope to remove the incentive, quote, unquote, for companies to go way out of their way to practice tax avoidance, and also allow us -- Or excuse me, and also allow us to talk to, to analyze effectively and clearly, those organizations nationwide who owe use tax within the
Commonwealth.
REP. O'BRIEN: So, finding that phrase within the same paragraph as equitable, it would be reasonable to say that those
Pennsylvania companies, regardless of size or standing, that have avoided their fair share of taxes should be of guard?
ACTING SEC. MEUSER: I would say any company or person or consumer, what have you, who is not paying the taxes according to our current tax code and tax laws, first of all, should in a willing manner.
We at the Department of Revenue would be happy to show them, and help them, how to do that.
And those who aren't and continue to deliberately avoid that, yes, we would like to think that they have a certain apprehension about the fact that they will eventually be caught.
REP. O'BRIEN: And it would be reasonable to assume that the administration will be -- start down the path to close any loopholes that would allow for avoidance?
ACTING SEC. MEUSER: Our role as per the Governor is to enforce, to the best of our ability, the tax laws that exist today, so; and that, and additionally the Governor has spoken about adding certain empowerment to the Department of Revenue so as we can enforce those laws that exist today.
Now, as far as labeling it in any manner, we are not -- that is not a directive from the Governor.
REP. O'BRIEN: I appreciate that clarification. Thank you, Mr. Secretary.
And thank you, Mr. Chairman.
CHAIRMIAN ADOLF: Thank you.
Rep. Tina Pickett.
REP. PICKETT: Good morning,
Secretary Meuser. Nice to see you here. REP. PICKETT: I would like to talk a little bit more about the technology upgrades. I may be dovetailing into the previous question a little bit.
It's a midstream project right now.
Right -- Back in '08, the previous administration felt that we needed to do this then. So far, we have already appropriated
$57 million to do it. This year, we are talking about approximately $23 million.
And this project will continue through 2014 and '15, listed as a crucial move for the department to be able to efficiently and effectively collect our taxes. And the word equitable was just used, in how we might do that according to today's laws and to the tax code.
But can you give us just a little more layman's view on exactly what it is that the department is doing to upgrade itself, what kind of differences it makes?
Is it -- Obviously, I would think you would view it as an investment in being able to more securely meet those tax code needs. ACTING SEC. MEUSER: Yes. Thank you.
Well, we currently have a system that runs on 37 different silos trying to talk to each other.
We currently have a system that requires manual labor in order to compensate for its lack of effectiveness. For instance, with the recent semi-annual sales tax, which will be remitted and collected, that procedure--and that begins next month--that procedure, in order to do that, will be done manually. Hundreds and hundreds of hours of employees within the Department of Revenue are assuring that that takes place in an accurate way.
So, what we will be able to deliver with this is a true advancement in -- in what the results of it will be. Will be a, as I stated before and I will try not to be repetitive, a higher level of customer service, much more automation, allowing for more e-commerce, more -- certainly more done online. measures to take place. Those hundreds and hundreds of hours, well, they won't be necessary in the future.
It will allow us, rather, not necessarily to cut our budget but that might be a part of it, but could allow those to spend more time on collections and leveraging that technology so as the highest -- so we are maximizing the appropriate revenues that are due; and that falls right into enforcement.
The inability, for our compliance and enforcement, I mean, the job they are doing with the tools that they have at their disposal is somewhat remarkable; and it's due to some very good bureau directors and an excellent deputy and a lot of hard work, and they are doing the best job that they can.
Now, when we state that it will pay for itself over time? This is just using examples from other states.
We at the Department of Revenue are just getting accustomed, and we will more so over time, to try not to reinvent the wheel but to look at what other states are doing very effectively and use what works for the Commonwealth, to the best of our ability.
And the states that we have looked at that have engaged in this sort of initiative and investment have seen a great return on that investment. It's just an essential, new tool that will, again, deliver a return on the investment.
REP. PICKETT: Over the years in my office, I have seen constituents come in to get this tax form, that tax form. We actually have an entire shelf area that has -- You know, it seems like a huge array of tax forms on it.
So, with customer service, you are saying, more of that will be online, more instruction, more ability to just get that form and fill it out online and so forth; is that part of that customer service you are talking about?
ACTING SEC. MEUSER: It is. It is.
Our customer service is good. We want it to go to great. It's very constrained due to the number -- our number of employees that are dedicated to customer service, answering the phone, answering e-mails. We -- I can guarantee the citizens of Pennsylvania this: Once they do get an answer, it's a very well-qualified answer.
Yet, our waiting time in our customer service area right now is about seven-and-a-half minutes; I think last month's average.
With tax season fast approaching, if not upon us, unfortunately that time for call waiting will probably go up to about eleven and a half, twelve minutes, in spite of our efforts to manage the situation as effectively as possible and make some changes to the web site for this tax season.
We don't want to go making too many changes to the web site just now, as many tax, well, accountants and prof.'s and professionals are used to our web site; so, we don't want to make any -- too many drastic changes right now.
But we are moving in the right direction with it, and it really could be exciting from many aspects; but also from enhancement - particularly, in enhancement of revenue. Hopefully, there are some pleasant surprises in that regard. REP. PICKETT: Thank you, Mr.
Secretary and Mr. Chairman.
CHAIRMIAN ADOLF: Thank you.
Rep. Vitali.
REP. VITALI: Thank you, Mr.
Chairman.
Mr. Acting Secretary, I would like to shift, if I could, to the issue of
Marcellus drilling tax.
And I just want to say at the outset, I think it's indefensible, from a matter of good public policy, to -- for the
Governor not to endorse such a tax and at the same time suggest cuts in Basic Ed. of up to a billion dollars, cutting funding for Higher
Ed. in half, reducing health care costs, and so forth.
And I would also like to say from the perspective of public confidence: As I walk the streets of my district, what people are telling me is when they hear the hundreds of thousands of dollars in campaign contributions and lobbying expenses and do not hear a General Assembly that endorses this tax, they feel we have a government in the pockets of drilling interests. I just want you to convey that to the Governor.
My question -- first question is this: I have discussed the projected revenues from such a tax, a West Virginia type tax, which has been suggested in the past. And the
Pennsylvania Budget and Policy Center, based on their best estimates of well production figures and the market price of natural gas, project that a West Virginia type tax could generate perhaps $200 million in fiscal year
2011 and 2012, increasing to perhaps about
$430 million in fiscal year 2015-2016.
Have you or your office done calculations as to what a severance tax might generate for this Commonwealth?
ACTING SEC. MEUSER: No. The
Department of Revenue, as with my being the
Acting Secretary, we have not done any estimates on a Marcellus Shale tax as there is no legislation, to my understanding, that exists.
I know you folks did that last year, but. House Bill 33. I know that our majority leader, Senator Pileggi, has publicly endorsed this concept.
ACTING SEC. MEUSER: Okay.
REP. VITALI: Do you think it might be a good idea to do some revenue projections on this?
ACTING SEC. MEUSER: Well, we have done many revenue projections, particularly on the taxes that are being paid right now by the
Marcellus Shale industry and some of its suppliers; those are well in the neighborhood of approaching $100 million.
And I will just add something about
West Virginia. Since West Virginia passed their severance tax--and I will get you this exact number-- I believe 20 wells were drilled in the State of West Virginia; and in the same timeframe, in Pennsylvania, we have drilled about 600.
REP. VITALI: The Governor has posited that job loss and the intended loss in personal income tax would result in this state. that of the 15 major gas producing states,
Pennsylvania is the only state that does not impose a Marcellus drilling tax. California has a fee, but all 15 major gas producing states have such a tax.
ACTING SEC. MEUSER: Right.
REP. VITALI: And one of the reasons the Governor suggested for not doing this is job loss.
Have you done any calculations with regard to any personal income tax loss that might be imposed should you impose this
Marcellus drilling tax?
ACTING SEC. MEUSER: The studies that we have done are on the taxes that are being yielded and collected by the gas companies.
We looked at '09, and we looked at a portion of '10 because those numbers weren't available.
The numbers in '09, even though '09 was an incredibly depressed year for the gas industry--the financial markets were in shambles, rumors were that a couple of the large gas companies were on their way to going out of business, natural gas price fell to about $2.50, there was no leasing taking place nor certainly were there any royalties taking place--even with that there was a $44 million
-- $44 million of taxes paid in, in income tax and in sales tax, within those counties.
Withholding tax, excuse me.
REP. VITALI: So, you do not have any estimates with regard to job loss, with creating it, should the Marcellus join the tax being imposed?
ACTING SEC. MEUSER: Estimates on job loss. Well, some have been done. There's a -¬
REP. VITALI: The reason I ask, you know, has the Governor done any estimates on
Pennsylvania job loss that might occur should the Marcellus drilling tax be imposed?
ACTING SEC. MEUSER: We have not been requested to engage in such a hypothetical.
CHAIRMAN ADOLF: If I may?
REP. VITALI: Yes.
CHAIRMAN ADOLF: If I may? For the members' information, the Budget Secretary will be here in front of the members on March
31st; and I really believe those type of questions, Representative, should be addressed to the Budget Secretary.
And I understand they are important questions, and but I believe they should be directed at the Budget Secretary and not the
Secretary of Revenue.
REP. VITALI: Okay. Let me ask a revenue question then.
CHAIRMIAN ADOLF: Okay.
REP. VITALI: Let's focus in on revenues you might get via the corporate net income tax, for example, should the Marcellus drilling tax be imposed. Has your office done any projections as to how revenues might need to be changed should a Marcellus drilling tax be imposed?
ACTING SEC. MEUSER:
Representative, I have been the Acting
Secretary for seven weeks. I am sure some of these studies were done in the past, but it has not, at this point in time, been a directive from the Governor to me. of any quantification of any Pennsylvania job loss, corporate flight that might occur should a Marcellus drilling tax be imposed? You can't give me any convocation with regard to that?
ACTING SEC. MEUSER: Well, you can certainly --
CHAIRMIAN ADOLF: Mr. Secretary?
ACTING SEC. MEUSER: Yes, Mr.
Chairman.
CHAIRMAN ADOLF: I really believe that, to your credit, Representative, that was a good change of pace, but it got back to the same question. And I wouldn't expect any -¬ anything else from you.
But I really believe that that question--and I think the Secretary has answered it--that, you know, the Department of
Revenue has not made a study, doesn't have that information; and that, those questions will be directed at the Budget Secretary since they develop the budget and the revenue and these folk's job is to collect the revenue.
REP. VITALI: Okay. Thank you.
That concludes my questioning. ACTING SEC. MEUSER: Thank you.
CHAIRMAN ADOLF: I am glad you see it that way. Thank you.
Okay. Rep. Brian Ellis.
REP. ELLIS: Thank you very much,
Mr. Chairman.
And just if I could help clarify a little bit on the job loss situation. I am sure the previous speaker, the constituents he represents will not have any job loss if there is a severance tax. Just keep that in mind,
Mr. Chairman.
In all seriousness, to follow up on the same line of questioning, we read over and over again that the Marcellus Shale industry is not paying their fair share of taxes; and, in my estimation, that would be patently false.
Do they not pay personal income tax, capital stock and foreign franchise tax, the corporate net income tax, just like any other industry in Pennsylvania?
ACTING SEC. MEUSER: Yes, they do.
A severance tax is an extra tax that most corporations, if not all, do not pay. They -- We pay -- Businesses pay the taxes that as you outlined, as does the gas companies and those that supply them. So, in fact, they do pay personal income tax.
They do pay withholding tax. They pay all appropriate sales taxes, including corporate taxes.
REP. ELLIS: And I would assume that we have, you know, having leased off the state lands, having received substantial revenue from those leases as well as the royalty payments going forward; is that correct?
ACTING SEC. MEUSER: Last year, the
-- my understanding is that a number of the
State lands were leased for a fair market number; and that's a very substantial level of one-time revenues, which, as you stated, will be recurring revenues once drilling takes place and royalties are paid.
REP. ELLIS: Okay. And then my final thought on this is -- And I am not going to ask you if you had a study done because you have only been there for seven weeks, as you have pointed out. But I think if you look further beyond the actual companies that are doing the drilling and the money that's generated from the landowners who are paying personal income tax on their royalties as well as their lease payments, the indirect revenue flow that is going to be coming from the Marcellus Shale industry has got to be a substantial number that you are going to anticipate using in the future.
ACTING SEC. MEUSER: Absolutely.
One company claims to have paid as much as
$1.3 billion in bonus fees just in the last year and that's the initial lease payment for land.
Royalties largely have not begun in many portions of the -- particularly in the eastern portion of the Marcellus Shale, so that will add a lot as well.
But those royalties, obviously, will be spent by those -- Or the bonus payment, sorry, will be spent by those receiving them. And there are many, many supplier companies gearing up and equipping from pipeline development to, frankly, you name it, in order to provide what's necessary for the industry.
Now -- Well, I am sorry.
REP. ELLIS: Go ahead. Well, I was just going to say, in addition to that, I think -- You know, you didn't give us the exact numbers, but you said $44 million.
One of the things that I would be willing to bet, and I don't know if you can answer this or not, but in the areas that is
-- are actually experiencing activity within the shale play, I would imagine that the sales and use tax there are drastically higher than some of the other areas of the Commonwealth because our people are working, people are buying goods, they are continuing to invest the money that they make back into the community. And, naturally, our taxes in the food and lodging and all of those other industries are going to be higher in those areas; is that correct?
ACTING SEC. MEUSER: Yes,
Representative. We did do a study recently, where again we derived the $44 million number.
Again, that was for 2009, a very depressed time.
We also showed that the withholding tax, employer withholding tax, increased by over $20 million just for the portion of 2010 that we reviewed -- or for 2010 versus 2009.
We are also seeing significant increases in sales tax. I am trying to find it here, but it is my understanding that it is double.
Dan, do you have that data?
MR. HASSELL: I do not, but we can provide that to the committee.
ACTING SEC. MEUSER: Okay.
REP. ELLIS: Oh, and that would be great. I would appreciate that information.
And thank you very much, Mr.
Chairman.
CHAIRMIAN ADOLF: Thank you.
Rep. Samuelson.
REP. SAMUELSON: Thank you, Mr.
Chairman.
And thank you, Mr. Secretary, for your testimony.
As I am hearing lots of numbers this morning and juxtaposing some of them against each other, I can't help but notice that the proposed 8 million -- the proposed $8 million transfer out of PHEAA would be enough to restore the proposed $7 million cut in the
PHEAA grants that the Governor has set before us.
Your testimony about the cost of the accelerated bonus depreciation tax change, the tax cut, if it is $69 million that it would cost the General Fund this year, I remember hearing a similar number last weekend. It was the $169 million cut to Penn
State. That the second year, on the bonus depreciation, 132 million. That would be enough to restore 70 percent of the money to
Pitt, Lincoln, and Temple.
So, as we are hearing the revenue numbers, it is hard not to put them in the context of this overall budget that has such deep cuts proposed for education.
My question is about a program that
I am sure we agree about, the Property
Tax/Rent Rebate Program. And when that law was passed four years ago, when we expanded the Property Tax/Rent Rebate Program, we projected that as many as 700,000 people could take advantage of it with the new higher income limits; I note that it is now about 590 or 595,000.
So, my question is about outreach on this program and a specific change that I would suggest.
I know that when these booklets are printed up, they are actually held in the
Revenue offices around the state until about
February 10th.
We have tax volunteers out in our community through the AARP, the Community
Action Committee, and, of course, all of the legislative offices. They are doing rebates earlier than that. We did one on January 22nd this year.
So, when the books are printed up,
I know they are mailed to the seniors.
Couldn't it also be possible to release them to the public, to release them to the AARP, to release them to the Community Action Committee so that those who do their taxes in early
February could also take advantage of that
Property Tax/Rent Rebate Program? ACTING SEC. MEUSER: Well, we would certainly like to be as responsive as at all possible.
We are restricted by some federal regulations. We do have to assure that those who are submitting for the PTRR are, in fact -- do, in fact, qualify for it so that does require some additional data that is largely held up by the federal government.
Stacie Amsler does oversee the
PTRR. As far as the refunds that go out,
Stacie, do you have anything to add on that?
MS. AMSLER: We have about -- over
600,000 rebates issued this year from the department for the program.
REP. SAMUELSON: A quick follow up.
Some of my constituents are getting letters in the mail from a for-profit business offering to do the rebates for $39, and they ask the senior to send the money up front even before they calculate whether or not the senior qualifies.
It's a group somewhere here in
Harrisburg, a Post Office box, that is sending out these rebates. Now, I know that there is the
Department of Revenue does these rebates at no charge for seniors, legislators' offices at no charge, AARP at no charge. There are many places where a senior can get this rebate done for free.
Is the department taking a look at this new for-profit business trying to charge seniors $39 to do a rebate that really should be done for -- at no charge?
MR. MEUSER: Well, we have. We have heard a lot from legislators on it, and we are doing our best to promote, educate, and raise awareness of the fact that it can be done at no charge through various avenues and various entities.
We are providing additional information to legislative offices; something that is very important to us, having a stronger level of legislative outreach.
And we are also working with other groups that come to our attention such as
AARP, any organization that is formalized and established, to offer that free assistance to seniors; but we can probably improve that, in what will work on that.
MS. AMSLER: Right.
REP. SAMUELSON: Thank you.
CHAIRMIAN ADOLF: Thank you.
Rep. Mustio.
REP. MUSTIO: Thank you, Mr.
Chairman.
Mr. Secretary, thank you for your testimony today.
MR. MEUSER: Um-hum.
REP. MUSTIO: I would like to get back to this, and apologize for it, the bonus depreciation. I know we have talked about it a lot today, but I have, like other members, received e-mails.
We have already addressed, I think, the correct number as far as the taxes that will be collected this year by the State of
Pennsylvania.
But my first comment is from a couple of members and their questions. One relating to this benefit to multi-state, multi-international conglomerates, basically.
Then I heard others reference that it will help the farmer pay for a tractor. This tax bonus depreciation, rather, affects all businesses? Because I gave some comments to local, smaller retailers this weekend, and I want to make sure I gave them the right answer.
ACTING SEC. MEUSER: Right. I just wanted to confirm. No, this, the bonus depreciation, is only valid for C corporations.
REP. MUSTIO: Okay.
MR. MEUSER: Those paying corporate net income tax. Okay.
REP. MUSTIO: So, the smaller companies that are incorporated then? Not the
LLC's that we are seeing developed, just the C corp's that we are talking about? Not S corp's, nothing else?
ACTING SEC. MEUSER: Correct.
REP. MUSTIO: Okay. So the lady that got the tax advice from her CPA, stating that she purchased this $60,000 embroidery machine for her shop, because of this, I am assuming she is a C corporation? Since her
CPA told her that this was going to be a benefit to her, she would be able to write this piece of equipment off, in full, this year?
ACTING SEC. MEUSER: Yes. Dan
Hassell will address that if you don't mind?
MR. HASSELL: Yes, let me clarify that. For federal purposes, when people are filing federal income tax returns, the bonus depreciation is available to a business regardless of whether they are filing as a corporation or an individual that might be a member of an LLC or something of that nature.
What we have been talking about is, how is that bonus depreciation available on the Pennsylvania tax return?
And as the Secretary said, the bulletin from the department said that the hundred percent bonus would be available to corporations because that's where there is an issue in our law that isn't clear.
But for Pennsylvania personal income tax returns, the income definition is more or less permanently decoupled from federal statutes and, therefore, they have never been able to take bonus depreciation on individual income tax returns for state purposes.
REP. MUSTIO: Okay. So the corporation, regardless of size. So if it is a smaller, two-person corporation, they are still eligible; it is just not the large companies in Pennsylvania?
MR. HASSELL: That is correct.
REP. MUSTIO: All right. Thank you.
CHAIRMIAN ADOLF: Rep. Waters.
REP. WATERS: Thank you, Mr.
Chairman.
Thank you, Mr. Secretary, for -¬
ACTING SEC. MEUSER: Thank you.
REP. WATERS: -- for being here today.
I just want to follow up on something that was asked earlier about equity.
You were addressing that, in terms of, you know, this committee has a lot of legislators, and many of us are looking for a new legislative idea that will be helpful for
Pennsylvanians, and some of the things I believe that maybe could be implemented that would help your department to make sure everyone is paying their fair taxes.
Have you ever-- I know you have been here for a short period of time, but you come with a wealth of knowledge in your background--had a chance to look at the tax structure or the code to see where we could maybe make some adjustments or changes that would be helpful in making sure that equity and fairness is better achieved?
ACTING SEC. MEUSER: Well, it is certainly a good question, and it is certainly something that the Governor will expect our input on.
We really have three action items over at the Department of Revenue right now, and it is people -- improvement and people and training, and so on.
And process. And it is product, the right product. The right tax code can be very, very meaningful for clarity purposes, for efficiency purposes, for effectiveness, for compliant behavior and compliant remittance of taxes. So, it is certainly something that will be top of my mind over the next year and then in the future. Now, one item that we stated we are looking at is the use tax being -- a line item being added on the PA-40 form. That's just one of many that are being discussed right now.
We are certainly open to--and this is where it is so important that we have a very good relationship of give and take with the legislators--certainly interested in your input.
You have got, in many cases, a far better touch with your -- the constituents than some of us. So, we hope to work with you on that to improve our product.
REP. WATERS: Well, we look forward to working with you too.
We would hope that you would be able to improve the product. Especially in this tough economic time that we are going through right now, if you can come up with a way to make sure your department is even more effective in terms of collecting the amount of fair and equitable revenue that it should be receiving. as I know the other members of this committee will too. And thank you, Mr. Secretary.
ACTING SEC. MEUSER: Thank you.
REP. WATERS: Thank you, Mr.
Chairman.
CHAIRMIAN ADOLF: Thank you.
Rep. Gordon Denlinger.
REP. DENLINGER: Thank you, Mr.
Chairman.
And thank you, Mr. Secretary, and all of you for being here. It's been a good discussion.
I would like to shift just briefly to the gross receipts tax, if we may. I kind of key off of something Rep. Waters was pointing to and that's the performance. We use the expression, performance of this revenue stream.
There has been a lot of fluctuations in the gross receipts tax revenues. It's somewhat up and down.
Obviously, falling off here even more recently. However, in the budget projection, a pretty significant increase. completely tied to economic activity? Or are there other things impacting the specific detail of that revenue stream that we need to be aware of?
ACTING SEC. MEUSER: Yes, there are, regarding gross receipts tax.
And, by the way, we are receiving gross receipts tax tomorrow. So, tomorrow is a pretty big day for the Commonwealth. And we will -- Our revised estimates should quickly turn into an actual number.
The gross receipts tax, largely we missed the estimate due to the telephone and telecom industry expanding but expanding with products and services that are not taxable.
The added services that they have, that they offer, such as many that you and I am sure your children have on your phones, are tax-free items within the Commonwealth. So, we are not realizing gains there and, in many ways, I am sure that that's a good thing.
REP. DENLINGER: Can I interrupt you there to ask you a finer point on that?
So we are saying, like land lines, which we know are increasing significantly, those would have the gross receipts tax; but maybe some of the other forms of communication, texting, do not?
ACTING SEC. MEUSER: Anything related to the Internet or anything that's a feed-off of the Internet is tax exempt.
REP. DENLINGER: Okay. I guess just a point of follow up there. If this committee needs to take a look at the performance of that revenue stream with alterations or adjustments, your information, your review of that will be very helpful to all of us.
The capital stock and franchise tax, the Governor signaled they return to the phase-out of that. Do you need anything of a statutory nature from the General Assembly to resume the phase-out?
ACTING SEC. MEUSER: No. The phase-out is, to the best of my knowledge, the phase-out is incorporated in our statute now.
The phase-out was, in fact, discontinued, and we will just continue it by
Governor order. Well, going back to the gross receipts tax, if you could, as you get up to steam and so forth, analyze that with your team and share with all of us what's needed there for the future? I think that would be very beneficial. Thank you.
ACTING SEC. MEUSER: Thank you.
CHAIRMIAN ADOLF: Thank you.
For the members' information that ends the first round of questions, and we will now start the second round. We are going to start with Chairman Mundy.
REP. MUNDY: Thank you, Mr.
Chairman.
Mr. Secretary, I had the opportunity to sit here and read your -- the remarks that you submitted in the beginning.
And I want to commend you for a sentence I see here, and at the bottom of the first page: We need to foster a culture in which all
Pennsylvanians understand that by paying their fair share, they help keep the tax burden reasonable for everyone.
I couldn't agree more. that you will join me, you and the Governor will join me, in your support for closing the
Delaware loophole. Because I believe that if
I were a Pennsylvania taxpaying company, I would be livid that companies can continue to do business and exercise tax avoidance by incorporating in other states and not paying anything to the Commonwealth.
So, I commend that position of tax equity and reasonableness, and I look forward to working with you.
And in that same paragraph, you do refer again to the sales and use tax collection; and I am assuming that you are talking about Internet sales.
And but what I read here is a focus on collecting from individuals who are buying items over the Internet, and I have two questions with regard to that.
How is it fair for our bricks-and-mortar, small retailers in
Pennsylvania to be collecting sales tax from individuals and remitting it, which seems the most fair and equitable way for people to participate in this sales tax? And these Internet sales companies--and I am going to use Amazon.com as an example, who I believe have four distribution centers in Pennsylvania--how do we allow them to avoid collecting the sales tax the same way as other retailers in
Pennsylvania do?
That just simply does not, on a fairness basis, that does not make any sense to me.
And I am wondering, why the focus on collecting from individuals, which seems very cumbersome?
And then my follow-up question to that would be, how do you propose to actually collect from individuals?
It sounds like it is going to be a voluntary thing. You are going to try to educate people that they owe the tax. You are going to make it easy because there is going to be a line item on the tax form.
Come on. Who is going to voluntarily keep track of the sales they -¬ the things they purchase on the Internet all year long and then add it all up and put it on their tax form as individuals? It doesn't seem like a very effective way to collect what's owed.
And so, would you kind of just respond to those two points.
ACTING SEC. MEUSER: Sure.
Chairman, I do want to also just emphasize that the Governor has not made any narrow determinations or plans for anything other than--and just in regards to your initial opening comment--anything other than enforcing the laws that exist today; and ensuring that passive investment companies establish, for no other reason, subsidiaries of companies, for no other reason, other than to avoid paying taxes; and he is interested in empowering the
Department of Revenue to keep that from happening.
And, again, these passive investment companies are perhaps in Delaware, but perhaps in Florida, perhaps in Texas, perhaps in any state that provides a more -¬ or a more favorable tax bracket for that particular company. problems, along with us enforcing in high level and having additional empowerment, that we remove the incentive by creating a more liveable and conducive tax environment within the State of Pennsylvania.
REP. MUNDY: But, Mr. Secretary, you refer to existing law and enforcement of existing law. Well, that's why it is called the Delaware loophole; it's a loophole in current law. So, are you saying that you are looking to close that loophole?
ACTING SEC. MEUSER: I am saying the Governor has not directed us, nor has a policy of looking to narrow his scope to any particular state or, as you are defining, the
Delaware -- the so-called Delaware loophole.
What we are very interested in is ensuring that companies that are deliberately establishing passive investment subsidiaries for the purpose of avoiding, if not evading, paying their fair share of taxes in the
Commonwealth, those companies we plan to root out and work to assure that they are paying their fair share; and they can exist anyplace. on the e-commerce, we are doing a number of things. Again, it is about law enforcement first. And secondly, it is about creating, over time, a more conducive tax environment within the state.
But there are e-commerce companies from any state--now, and I am not going to bring up Amazon or any particular company because there are many of them--but that is selling products that according to our tax code, where sales taxes should be paid by the consumer. We need to do what we have to do to enforce that law and assure that that tax gets paid.
Now, if there is nexus in the state, it is clear that when there is nexus in the state that that -- additionally that sales tax on those items should be paid.
Now, we -- So, we are going to be working on a couple of things. Okay. How do we, from an out-of-state company that does not have a location here, i.e., nexus, how do we assure that they pay their fair share of taxes? the general public on the fact that that tax is, in fact, due; and if they don't pay it, they are not in accordance with the law.
Two, as is happening in many states throughout the country, look to have that company doing that selling, the retailing, provide either education to the purchaser of their product, or to perhaps--and this would require statute--provide tracers of the sales that they are making to the particular individuals.
Now, those are some legislation that is kicking around in other states. I am not stating that's what the Governor is presently interested in pursuing.
We do, in Pennsylvania, have one problem and that is: I believe in 1992, a
Supreme Court ruling--and I will check with my colleagues here--stated that--and it was a
Bloomingdale's case--stated that the fact that they were selling from out of state--and this is case law in the books--that taxes, therefore, because there were not nexus in the state, that that tax therefore would not be due. So, yes, it will require anything beyond what I am referring to - enforcement of the law, cooperation from the retailers, education to consumers. Anything beyond that will require legislation.
REP. MUNDY: And would you supply legislation to change the nexus laws to require these out-of-state sellers to pay taxes in Pennsylvania, to collect sale taxes?
ACTING SEC. MEUSER: Well, again, we have a law enforcement Governor. We have a
Governor who is very deliberate in his actions. He will review the situation in its entirety and make that determination.
REP. MUNDY: So you don't know at this point whether he would support that or not?
ACTING SEC. MEUSER: Right.
REP. MUNDY: Okay. Thank you.
CHAIRMIAN ADOLF: Thank you.
Rep. Pickett.
REP. PICKETT: Thank you, Mr.
Chairman.
This is not my question, Mr.
Secretary. But I can say that many years ago, in my early years of being a business owner, I got an education on use tax when I had a sales tax audit and the gentleman from Revenue very correctly pointed out to me that most of the things I bought from my vendors were for resale and the sales tax was collected then.
But, in fact, some of the things on those invoices, I was going to use in my business, and I owed that tax; so, that education came quick and early to me in business, and I knew I needed to remember that from then on.
But my question is back regarding the Lottery a little bit. My business district is on the New York State border. And often when I am addressing senior citizens groups and they start talking to me about what they won in the New York State Lottery recently, and I say, oh, no, don't go up there and buy those New York State Lottery tickets; the Pennsylvania Lottery tickets come back and help you, our senior citizens. So, I was reminding them: If you are going to buy, buy in Pennsylvania. talks a little about is higher levels of prizes and commissions for our Lottery system, perhaps to increase sales. Have we done that in the past? Is that Gus's job?
My mom is a qualified senior citizen. She is 90, and she thinks Gus is a great salesman.
But does that show that, you know, when we go into those promotions that it actually does, it costs us some money initially, but it creates a further increase in sales and dollars that can be passed down to our senior citizens?
ACTING SEC. MEUSER: Well, a very good question, Representative. One we have had many discussions with about; and again, critically reviewing the situation, as I am sure the legislature does as well.
Our operating -- Or excuse me, our marketing budget for the Lottery is $37 million, all inclusive. That includes the television advertising that you see. That includes trademarking Gus. That includes merchandising, salespersons, handouts. All inclusive for a over $3 billion retail operation.
So, it is a very small expenditure for the sort of advertising and promotion, which our extensive studies, which is all part of that marketing budget, show is necessary.
And I agree with you in many ways.
I came into this looking at: We need to be clever enough to do both, gain the response but also educate the citizens of the
Commonwealth on all of the very good that the
Lottery is the delivering for seniors.
So, we are working on some of that.
We are hoping Gus, along with in the future of gaining responses in the manner that are necessary in order to exceed our 2.7 percent projected growth, over $3 billion next year, could also educate people to completely under
-- to understanding what it is. That the fact that 30 cents on their dollar is going to -¬ directly to helping our out-of-state seniors.
So, we are going to try to do both.
But, yes, the budget is minimal when you compare it to other -- if you look at private sector companies and what their advertising budget is versus that level of sales. REP. PICKETT: Thank you, Mr.
Secretary, Mr. Chairman.
CHAIRMIAN ADOLF: Thank you.
Chairman Markosek.
REP. MARKOSEK: Thank you, Mr.
Chairman.
Just a follow up. I know Rep.
Denlinger brought it up about the gross receipts tax. And you were talking about the cell phones and the taxes that are charged there, or in some of the various activities, some of those are non taxable, if I understood you correctly to say.
Is there -- And I know you are new to the job, but is there any data that you either have or perhaps could find for us based on some of those things that are currently non taxed relative to cell phone use?
And, you know, the one that comes to mind, is the one I am most familiar with, is texting, is that it sounds like to me that's something that there is no tax.
And some of these other activities now, I imagine, you know, as we move forward with the technology, there is going to be more and more every day.
ACTING SEC. MEUSER: Right.
REP. MARKOSEK: The different things that you can do with your electronic devices.
Is there any thought in your department or data that would indicate what kind of revenues would be available if we expanded some of those tax efforts, not only to the things that they currently do but instead of having all of these exceptions?
Because you can do some things for free, other things you have got to pay, which is again going back to the fairness.
Shouldn't it be, you know, fair across the board?
And what kind of revenue are we losing by not looking into that?
ACTING SEC. MEUSER: I am going to ask Dan Hassell to offer. But I will say this: That I believe those, that statute, is federal. But I will leave it to Dan.
MR. HASSELL: Yes, that's correct.
Yeah. is that for a lot of people, what they are adding to their cell phone plans is a data plan.
This happened to me virtually in my family. We traded in some old-fashioned cell phones for smartphones and added a data plan.
I expected the gross receipts tax shown on my bill to go up dramatically because the bill, in total, had gone up, but it did not.
And the reason is that a significant part of that data plan is considered Internet access and, under federal law, it states it cannot impose tax on it.
Your other comment was about texting. As far as I know, texting is a part of the state tax base so that's not really been the problem. I think the primary problem is the growth of Internet access that is taxable under federal law.
REP. MARKOSEK: Okay. Thanks. I would, you know, just urge you, maybe, to keep that in mind. You know, particularly if there is a way that we can separate out texting while driving. You know, it may be an interesting way to curtail that, from a very, very difficult activity that we -- that I know personally I have been involved in legislatively in the last couple of years.
Thank you.
CHAIRJMAN ADOLF: Rep. Denlinger.
REP. DENLINGER: Thank you, Mr.
Chairman.
I want to go back to, I guess, the general area that Rep. Pickett was on, was touching on just a moment ago in the area of the Lottery.
We are now, I guess, five years into the slot machines in Pennsylvania. And I am wondering, can you share with us the impact, geographically, that occurs to the
Lottery in an area where there is a slot machine?
Is there a study that has been done or something that you can illumine us with?
ACTING SEC. MEUSER: Yes, we have been looking at this largely due to, well, our own general understanding and as well as many legislative requests and -- regarding the subject. or about 2.4 percent; 2.3, 2.4 percent. We did an analysis of all 67 counties, and the ten counties that have casinos grew at a -¬ grew but at a level lower than the non-casino counties, so that that is clear.
Now, not all of them. Some of them did grow at the average level. But in general, they grew at about 1.4 percent, where the non-casino counties, overall, it was 2.4.
But the cas -- the non-casino counties grew at
2.7, so they weigh each other out and came up at 2.3. So, we are seeing a minimal impact from the casinos.
Now, I will add that that -- not that -- That impact, if we did, in fact, have that same level of growth of Lottery in the counties with the casinos, that adds up to about 24, $25 million in retail sales so that equates to funding to our seniors to $7 million.
Now, I will add that the slot machines within the ten casinos have contributed $155 million to the PTRR directly to funding for seniors. to, yes, there was an effect, but the impact, that was outweighed by the -- what was realized from the casinos, then it's a favorable situation.
REP. DENLINGER: Is the analysis that you -- Is the analysis that you have done strictly on a county-wide basis, or have you gotten into Zip Codes or any other geographic entity?
ACTING SEC. MEUSER: To the best of my knowledge, we haven't gone much further with it. Although, we are analyzing quite a bit of other economic data, just to be sure; and more on a regional level than necessarily by Zip Code.
But I will turn it over to Drew
Svitko, who is managing the Lottery.
MR. SVITKO: Yes, that's correct, we are looking at it on a county-by-county basis right now.
We haven't broken it down to Zip
Codes. With so many factors, to take each individual market and divide it up into Zip
Codes would make for a challenge analytically.
So, as the Secretary mentioned, we looked at it casino counties and casino counties.
REP. DENLINGER: Just as a follow up, if you could send a copy of that over to the committee, for the last three years, I would appreciate the opportunity to review that data. Thank you.
CHAIRMIAN ADOLF: Thank you.
Rep. Vitali.
REP. VITALI: Thank you, Mr.
Chairman.
And thank you again, Mr. Acting
Secretary, for coming here today.
After I talked about the need for a
Marcellus drilling tax, I think issues were raised by a follow-up question regarding other taxes paid by a drilling company.
I am just going to be clear about a few things. You don't get revenues from any company's gas reserves. There is no property taxes on gas reserves; is that correct?
ACTING SEC. MEUSER: (Nods affirmatively.)
REP. VITALI: Drillers pay no property taxes in Pennsylvania on gas reserves as opposed to other states; is that correct? ACTING SEC. MEUSER: Drillers pay no property tax on gas reserves?
REP. VITALI: The gas reserve — If you are a huge multi-national, let's say Exxon
Mobil, and you have gas reserves in
Pennsylvania, you do not pay property tax on that in Pennsylvania as opposed to paying it in some other states; is that correct?
ACTING SEC. MEUSER: Well, if you own the property where the gas reserves are, then my guess is you would be paying the property tax.
REP. VITALI: You would think, but regrettably not in Pennsylvania.
I am also told that you -- Much of the equipment drillers use are -- and the equipment are exempted from the sales tax under Pennsylvania's manufacturing exemption.
This is the information I have. Is that correct?
The -- That the equipment purchased by these drillers don't pay sales tax on much of the equipment they use; is that correct?
ACTING SEC. MEUSER: Yes,
Representative. We are with you. We want -- Wherever tax is due, we want it to be collected; but I think that law has been in effect for about 170 years in Pennsylvania.
REP. VITALI: It may be time to get those drillers to pay a little bit more.
Now, we talked about these huge drilling companies. You know, like -- The information I have in front of me, produced by the Pennsylvania Budget and Policy Center, it says that 70 percent of the wells in 2009 were owned by companies that incorporated as a partnership or limited liability company that don't pay the corporate tax. They paid a -¬ at the personal income level of 3.07 percent.
And even the companies that pay at that level, sometimes pay no taxes because of all of the various federal production tax credits and depreciation and all of those things. So, you have some companies that don't pay either corporate or state income tax but make tons of money in Pennsylvania. Is that your understanding of things?
ACTING SEC. MEUSER: My understanding is that the gas companies are not unlike other companies in Pennsylvania. Seventy percent of the companies in
Pennsylvania pay the 3.07, 30 percent pay the
CNIT.
My understanding is the gas companies have the same breakdown as industry throughout Pennsylvania.
REP. VITALI: But these gas companies get these federal tax credits and production credits and all of these other things that they can really get their income down much lower; isn't that right?
ACTING SEC. MEUSER: I don't know anything about that, but I do know that any company that was coming in and has already invested $2 billion in the State of
Pennsylvania usually isn't treated as the enemy.
There has been -- The Governor has stated clearly, he is for creating a very high level of quality standard. Outside of that, he is hoping that this business can grow and have meaningful impacts on Pennsylvanians.
REP. VITALI: Let me ask you a question. And again, the material I have, it cites a September Penn State Institute of Research and Trend Report that found that, for every $100 million in severance tax revenues, will create a net gain of between 1,100 and
1,200 jobs. Are you familiar with that study?
And do you agree with those conclusions?
ACTING SEC. MEUSER: I -- What I am familiar with is the level of taxes that the gas companies pay.
And I will add this: Severance tax is somewhat a new thing to the gas industry,
40, 50, 60 years new.
Now, states such as Texas do, in fact, have a 6.5-percent severance tax. Now, on the same note, Texas has 0-percent personal income tax and a 1-percent corporate tax. So, the point is that you have got 30 percent of the gas companies pay 9.9 percent, the others paying 3.07 percent with significant fees in between.
Over a billion dollars, just last year, has gone to royalty payments to farmers, to landowners, to those who feel very fortunate that they can stay on their land.
My role at the Department of
Revenue is not to defend necessarily any industry -¬
REP. VITALI: Um-hum.
ACTING SEC. MEUSER: -- but is to look at things objectively and offer you information based upon that.
REP. VITALI: Now, you talked about, you know, job growth. Again, this statistic I am looking at says that between
2004 and 2008 -- Well, I want to get the question of whether a severance tax would, in fact, depress the industry.
And this, the PA Budget and Policy
Center statistic, says: Between 2004 and
2008, national gas production has grown by an average of 5.4 percent in the 14 largest gas producing states that impose a severance tax.
So, I am trying to reconcile that with the fact that production is growing in these states that chart -- that impose this
Marcellus drilling tax, but the Governor's assertion is that it would hurt job growth.
Now, how can you reconcile that?
ACTING SEC. MEUSER: Well, I quoted the number from West Virginia, and I will clarify that. That is, we have added 600 plus new wells. West Virginia has added somewhere in the neighborhood of 20. It is new to
Pennsylvania.
So, I do think if you go back and look at those states, they did not have severance tax, or they had a moderated -- some sort of impact taxes, or fees, in the early years.
And if you also look at the overall revenues that are coming from the gas companies and the fees, you know, I would encourage asking commissioners from the counties where the Marcellus Shale falls--Bradford, Susquehanna, Tioga, the list goes on--ask them what they think about the -¬ whether or not the gas companies are paying their fair share.
Those counties are booming; as well as Bradford and Susquehanna have the lowest unemployment in the state, by far.
REP. VITALI: Yeah. Well, you have these huge multi-national companies, like
Exxon Mobil, who pay $40 billion for a leasehold interest, and to assert that this is a fledging industry that can't afford that is -- I am having difficulty reconciling that.
And I might suggest you ask, you know, these parents you are going to have send their kids to Penn State and Temple whose appropriation has been slashed by half, or
Basic Ed. and the people that are going to pay the school taxes in districts whose funding has been cut by a billion dollars, whether they think not imposing the severance tax is fair.
Anyway, that concludes my questioning.
CHAIRMIAN ADOLF: Thank you.
Rep. Benninghoff.
REP. BENNINGHOFF: Thank you, Mr.
Chairman.
I actually just want to make a comment that I should have made earlier today, and I apologize.
I want to thank you. You had testified with our committee earlier in this month and perhaps in the last month. At the time, we had some similar grilling, lots of questions, and your responses. back to us regarding Rep. Mundy's and Rep.
Peifer's questions on the accelerated depreciation. Even providing us with a chart with everything listed on there--very helpful information--as well as some of the questions that Representative Peifer had.
I just wanted to personally say, thank you. I know you are not confirmed yet, you have lots of these meetings to do; but I was impressed with the time and the energy you did that, and I wanted to congratulate you.
ACTING SEC. MEUSER: Thank you.
You are welcome.
CHAIRMIAN ADOLF: Thank you.
Rep. Waters.
REP. WATERS: Thank you, Mr.
Chairman.
And thank you again, Mr. Secretary.
Going back to the point of fair taxes and people paying their fair share-- I am sure, and I hear that you absolutely support that, which is good-- I want to ask you: At the Department of Revenue, do you believe that all the businesses in the Commonwealth pay fair taxes, every tax -- every penny that is due? Or is this pretty much, for many people, the honor system?
ACTING SEC. MEUSER: Well, I believe close to 90 percent do. And then again that's not based upon my belief, it's based upon the data and the reports and information that I have gained over the last ten weeks.
REP. WATERS: Okay. I do see reports where people don't, and some of those people have large incomes and they still don't pay their fair share.
But the reason I am asking that is because we are exploring -- or at least it's
-- Yeah, exploring, I would say, the possibility of selling the state stores. Now,
I know that that has been a great source of revenue for Pennsylvania.
And based on what we have in place right now, the state store system base, to my information, maybe you can agree, a hundred percent of the taxes that are -- that of their -- doing their sales?
ACTING SEC. MEUSER: I haven't reviewed it, but I would guess it's a hundred percent as well.
REP. WATERS: So when we are trying to go after what is fair and equitable, and now we are going to maybe possibly sell off the state stores to private vendors or businesses, if that 90 percent, according to your expert, you know, your information is correct, we are standing to lose some revenue based on your estimates; is that correct?
ACTING SEC. MEUSER: Well, it is not a necessarily uniform by industry sector.
And, no, I understand certainly your logic, sir, but I wouldn't extrapolate that to mean that we would be collecting only 90 percent from the new -- possibly new, privately held liquor stores.
REP. WATERS: Well, we might not.
But based on, you know, your expert -- what you said already, it is possible that that could happen.
I am not saying that these new business opportunities are going to be people who would be a part of the 10 percent that don't, but it is possible that they might be some people who might not pay their fair share when we already collected a hundred percent.
So, this appears to be what could become a revenue shortfall compared to where we are right now if the sales remain the same, and then the possibility of lost wages from people who are gainfully employed in the state stores right now could have even a ripple effect.
People who are there now make a pretty decent salary. There is nothing that is, at least according to what they are working on now, that will guarantee that private industry will require people, who operate these stores, would have to pay the same salaries that the people are earning now; so that, they make less, they will pay less in taxes even if they hired everybody. But possibly that they -- that that wouldn't happen.
I mean, do you see this as another potential loss in revenue?
ACTING SEC. MEUSER: Strictly speaking from a revenue standpoint, no, we are not factoring in any such potential loss from the privatization of liquor stores. REP. WATERS: But it's possible, based on what you know and I -- based on what you know and what we have as far as factual information, that 90 percent will; and the
4,500 people working in the state stores, who could be displaced; and --
CHAIRMIAN ADOLF: Okay.
Representative, I -- It is my understanding that the Governor has formed a commission that's going to be looking into the privatization.
This particular budget that we are working on is not based on any selling of any state store revenue.
And the third thing is that the
Liquor Control Board will be coming in front of this committee, I believe. What date?
DR. NOLAN: The 2 9th.
CHAIRMIAN ADOLF: The 2 9th of March.
And I think those questions, I think, are good questions that should be asked of the Liquor
Control Board. So, I am looking forward to the 28th.
DR. NOLAN: The 2 9th. asking those questions.
REP. WATERS: Thank you, Mr.
Chairman.
CHAIRMIAN ADOLF: Okay.
REP. WATERS: And I concur, I am looking forward to that date too.
CHAIRMIAN ADOLF: Okay.
REP. WATERS: But I didn't think it was improper to because he is from the
Revenue. That he would be interested in the fairness, so it would have to be on his radar screen. That's all.
I am not saying that maybe that the
29th might be a more proper setting for it, but I am just trying to help.
CHAIRMAN ADOLF: I am trying to give as much rope as possible to everyone, you know, and because everyone has certain issues that they would like to get on the table and that's one that's definitely on the table.
REP. WATERS: Why thank you, Mr.
Chairman.
CHAIRMIAN ADOLF: Okay.
Secretary. ACTING SEC. MEUSER: Thank you,
Representative.
CHAIRMIAN ADOLF: Okay.
On the Property Tax and Rent Rebate form--while I have an opportunity--for many years, I thought possibly that if this little table that is put on the form for the applicants--and this gets back to
Representative Samuelson's suggestion--that maybe some more folks would be eligible.
This little table has a maximum column there that says up to 35,000, and then it goes all the way down. But those of us that understand the criteria, those senior citizens and those disabled and those certain widows and so forth, you can have much more than $35,000 worth of income.
And I think by putting this table on the front cover gives the wrong impression to folks that if once you have $35,000 worth of income, you are not eligible. And I say that because only 50 percent of your Social
Security is calculated when arriving at that
35,000. administration and so forth to -- if they would consider, each year, taking that chart, for expanding the explanation of how do you arrive at that 35,000 on the front cover, instead of page 13 in fine print.
And, you know, if we want more folks to be -- to fill out the forms that are eligible for it, I think this may be a good first start.
And I don't get an opportunity to come face to face with the Revenue Secretary all the time. Another issue is that I do believe that Pennsylvania is really in need of an amended return, a PA-40 amended return.
The PICPA agrees with that. There is no -- That there is no explanation on the
PA-40, as it is now, other than the check for the -- that you are filing an amended return.
Why you are filing an amended return, there is no explanation regarding what was paid prior and whether there is a refund due and so forth. So, I think the form can be improved.
And I was always told by the
Department of Revenue that the reason why we weren't able to do that is because of the technology that they had over there; it was a computer problem.
And I am hoping with the -- with moving forward with the technology over there that we would be able to have a PA-40 amended return, similar to what the federal government has, where you can go into an explanation of why you are filing this amended return.
So you don't have to comment on that. I just appreciate if you would take interest in that.
Are there any other members that would like to have -- Rep. Costa. Thank you.
REP. COSTA: Thank you, Mr.
Chairman.
And Secretary-designee -¬
ACTING SEC. MEUSER: Thank you.
REP. COSTA: -- I appreciate your patience. I know it's not easy sitting there for this long period of time.
Now, I just want to be clear. When we talked about the 100-percent depreciation, that is a policy issue? We don't have to do that legislative-wise? to -- Due to the determination that it falls within our -- the legalities of our decoupling statute, we were able to provide a bulletin offering guidance that the 100-percent statute as per the federal statute can be followed within the laws of Pennsylvania.
Moving forward, we would encourage a--some legislative clarity for, if this were to-- a hundred percent would be offered by the federal government again.
REP. COSTA: The policy that is set now, does it require that the manufacturer or the equipment that they purchase has to be made in America or in Pennsylvania?
ACTING SEC. MEUSER: No.
REP. COSTA: Would you recommend it, if we do, legislative-wise, that we would make that recommendation? Would that have any impact? Negative impacts, I mean. I am sorry.
ACTING SEC. MEUSER: Well, personally, I love buying made in America, and
I am sure most people do; but I do not believe the Governor would be interested in directing private business where they should be purchasing the goods that they find to be the best value and that can help their companies and their customers best.
REP. COSTA: Well, I mean, I think that we should do everything we can to help businesses grow.
ACTING SEC. MEUSER: Great.
REP. COSTA: And I am for the depreciation, but I also think that they should reinvest in either the United States workers or in Pennsylvania.
ACTING SEC. MEUSER: That would be nice.
REP. COSTA: And we would be able to encourage them to do that.
ACTING SEC. MEUSER: That would be nice.
REP. COSTA: Thank you.
CHAIRMIAN ADOLF: Okay. Any other members have any questions of the Secretary?
I know I saw a colleague of mine from Delaware County raise their hand, and like you, Mr. Secretary, she is new to this procedure and process and so forth. And I would make an exception to her because she is from Delaware County, but I am not going to do that.
And what we do here, and I want make this announcement so every -- all of the members of the General Assembly understand, the questions are going to be asked by the members of the Appropriations Committee and the corresponding chairmen of each standing committee.
If a rank and file member would like to have a question asked, they are to give a member of the Appropriations Committee that question. In this way, we can move on.
Otherwise, we would have 253 members coming before this committee to ask some questions.
So, seeing none, Mr. Secretary, I want to thank you. I thought you did an outstanding job. Being on the job for seven weeks, I thought you were very well prepared.
And I want to wish you the best of luck in your new position.
ACTING SEC. MEUSER: Thank you, Mr.
Chairman, very, very much. And thank you all, members. A reminder to the members, we will be back here sharply at 1:00 for our hearing in front of the Department of Aging. Thank you.
(At 12:15 p.m., the hearing concluded.) C E R T I F I C A T E
I, Roxy C. Cressler, Reporter, Notary
Public, duly commissioned and qualified in and for the County of York, Commonwealth of
Pennsylvania, hereby certify that the foregoing is a true and accurate transcript of my stenotype notes taken by me and subsequently reduced to computer printout under my supervision, and that this copy is a correct record of the same.
This certification does not apply to any reproduction of the same by any means unless under my direct control and/or supervision.
Dated this 7th day of April, 2011.
Roxy C. Cressler - Reporter Notary Public
My commission Expires 5/09/2013