Tax Practitioners and Finance VPs should keep an eye out this week for significant activity coming out of the Pennsylvania legislature that will align the PA tax structure with that of the feds—in some areas.
The House Finance Committee will vote on June 19 on SB 1056, which will align PA bonus depreciation with the feds for property placed in service after September 27, 2017.
The recently enacted Federal Tax Cuts and Jobs Act makes major changes to corporate income taxes, one of which is that C-corporations will be able to deduct 100% of the cost of their capital investments (e.g. plant and equipment) immediately, for the next five years. The federal 100% bonus depreciation rule applies through 2022 and then will be phased down over the succeeding five years. In response to the new federal bonus depreciation rules, the Pennsylvania Department of Revenue issued Corporation Tax Bulletin 2017-02. The bulletin interprets certain sections of Pennsylvania tax law as requiring the amount of a 100% deduction under federal rules to be added back to Pennsylvania taxable income and provides no additional mechanism for cost recovery with respect to the qualified property until it is either sold or disposed of in some other manner. The bulletin not only “decouples” Pennsylvania from the federal rules, but it denies businesses the ability to claim depreciation deductions indefinitely. By disallowing this important deduction indefinitely, Pennsylvania would be unique among states and would create a business climate that discourages investment and spawns economic contraction rather than opportunity and expansion.
The House Finance Committee will vote on June 20 on HB 2303, which would permit the executor or administrator of a decedent’s estate to elect to file a combined annual income tax return for an estate and revocable trust during the period the estate is open. Under federal law, the estate of a decedent who dies with a revocable trust in place can elect to file a single annual income tax return (Form 1041) that reports income earned by both entities (the estate and trust). Pennsylvania does not permit this practice so that a decedent’s estate and revocable trust are required to file separate income tax returns (Form PA 41) to report income earned by each during the year.