State Sales Tax

PANO Updates

3/30/10 Update The strategy to generate revenue for the state budget is coming through an expansion of what will have sales tax attached while reducing the sales tax from 6% to 4%.  In all, 74 new items will be taxed if the plan goes through.  Advocates argue that the tax is oppressive and will hit the most vulnerable Pennsylvania residents.  Proponents say that there are few alternatives if the government does not have an appetite to raise property and wage taxes.

8/12/09 Sales Tax Expansion Still a Possibility. Expanding State Sales tax to Services is once again being considered by lawmakers. Expanding State sales tax to services might increase the State’s sales tax revenues, but would impose greater stress on PA Nonprofits and an already fragile economy. An expanded sales tax would encourage individuals and organizations to buy products outside of the state, which would deny border communities of much-needed revenue. To address this threat, PANO is actively working with PennCOST, the coalition against the expansion of sales tax. Together we fought the expansion of sales tax in 2005/6 and again in 2006/7. Sales tax is regressive. Expanding sales tax to services imposes hardship on lower income Pennsylvanians.

Historical Information from 2008 and prior years:

The Tax Plans

Rep. Perzel (HB1951) "Older Pennsylvanian Property Tax Elimination Act". Uses gaming revenue to eliminates property taxes for home owners age 65+ who earn less than $40,000/yr. No expansion of the sales tax base. http://johnperzel.com/?sectionid=268&sectiontree=268&itemid=1122.  Bill text at http://www.legis.state.pa.us/WU01/LI/BI/BH/2007/0/HB1951.HTM. 

Rep. Rohrer (HB1275) "School Property Tax Elimination Act of 2007" eliminates property taxes for everyone but increases the state Income Tax by .5 to 1 % and expands the sales tax base to tax services except core services “Computer, Accounting, Engineer, Legal, and Research.” For the Rohrer bill text go to http://www.legis.state.pa.us/WU01/LI/BI/BH/2007/0/HB1275.HTM.  See Rep. Rohrer’s website http://www.samrohrer.com/?sectionid=75&sectiontree=75.  Or see PA Taxpayer’s Cyber Coalition promoting Rohrer’s bill http://mysite.verizon.net/drbsr/PTCCWeb/solution.htm.

Rep. Levdansky- (HB1600) increases sales tax, and adds a .5% surcharge to property purchases, and a .22% surcharge to Personal Income taxes.  No expansion of the sales tax base.  http://www.legis.state.pa.us/WU01/LI/BI/BH/2007/0/HB1600.HTM.

Sen. Piccola-  (SB1041) calls for broader sales tax base to eliminate school property taxes. Will tax some nonprofit activities previously untaxed. http://www.legis.state.pa.us/WU01/LI/BI/BH/2007/0/SB1041.HTM or on his website at http://www.piccola.org/pages/newsreleases/08-26-2005/948.asp.

Sen. Rhoades-(SB1108) “Property Tax Elimination Act” state-wide referendum would increase the current sales tax rate of 6% to a new rate of 9.19% and the personal income tax would increase from its current rate of 3.07% to a new rate of 4.36%.  (10.19% sales tax in Philadelphia and Pittsburgh) http://www.senatorrhoades.com/press-2007/0907/092607.htm.

Rep. DeWeese (HB1489) raise sales tax .5% (from 6% to 6.5%) to generate $750 million in property tax reductions each year.

1/30/08 House Votes Against Sales Tax Expansion. Yesterday, the Pennsylvania House of Representatives voted NOT to expand the State sales tax base to services and memberships. The Rohrer amendment (A05384) would have taxed memberships, business professional services, accounting and legal services provided to the general public, as well as child care services. By a vote of 47 to 148, Rep. Rohrer’s amendment (similar to HB1275) failed. Rep Levdansky’s sales tax bill (HB1600) which does NOT expand the sales tax base, will now move forward, WITHOUT taxing memberships and services.

Yesterday’s vote was a major victory for nonprofits. Our involvement was pivotal Following months of direct communications with legislators, grassroots and grass-tops advocacy, and collaboration with hundreds of charities and dozens of the finest trade organizations in Harrisburg, yesterday’s vote underscored our message: Charities are important members of the community. We relieve government of burden and improve the quality of life.

A revised sales tax expansion bill may be re-introduce this year, next year, or the year after. When that occurs, PANO, the YMCAs, PennCOST, the Greater Philadelphia Cultural Alliance, and Pennsylvania’s nonprofit community will be waiting.

HB1275 [Rohrer] increases sales tax. http://www.legis.state.pa.us/WU01/LI/BI/BH/2007/0/HB1275.HTM. 

HB1600 [Levdansky] increases sales tax and PIT. Does NOT expand the sales tax base. http://www.legis.state.pa.us/WU01/LI/BI/BH/2007/0/HB1600.HTM. 

11/19/07 Sales Tax bills Introduced; House to Take-up Tax Reform Week of December 3. The long awaited Rohrer bill was introduced in the house on November 14. The Rohrer bill HB1275 would expand the base of sales tax to include services, memberships and most business to business services. Sen. Rhoades also introduced his tax reform bill SB1108 which would raise personal income tax and sales tax in order to reduce property taxes. The House expects to Take-up sales tax and property tax reform during the week of December 3.

PennCOST: The next meeting of PennCOST the sales tax coalition will be held on Monday, November 26 at 10 am at the Pennsylvania Bar Association in Harrisburg. All are welcome.

11/7/07 Legislature May Postpone Sales Tax & Property Tax Reform Until Nov 19. The House Calendar places HB1600 Levdansky’s tax reform bill at Nov 13, but a floor vote on the bill is not expected until the week of November 19 at the earliest.

On October 31, the House Finance Committee approved two separate sales tax bills HB1600 and HB1489. The Levdansky bill HB1600 (PN2351) would provide $1.5 billion of property tax cuts annually by increasing the state sales tax rate to 6.5 percent from 6 percent and increasing the state income tax rate to 3.29 percent from 3.07 percent. The DeWeese bill HB1489 (PN1854) would raise sales tax rates from 6% to 6.5% and provide for $750 million in property tax reductions annually. The Rohrer Plan to expand the sales tax base has not yet been offered as a bill.

PANO the YMCA’s and PennCOST oppose expanding the sales tax base to include business professional services, memberships, health clubs, and previously untaxed items that are not subject to unrelated business income tax. A number of sales tax reform proposals seek to tax currently untaxed or exempt goods and services. But expanding the sales tax base in order to reduce or eliminate school property taxes merely shifts this tax burden onto other less fortunate members of our communities.

TAKE ACTION: Urge your State Representative NOT to expand the sales tax base. http://capwiz.com/pano/issues/alert/?alertid=10468531&type=ST&show_alert=1. 

10/11/07 State House Postpones Sales Tax & Property Tax Reform Debate until the Week of October 29. Citing other legislation needing to be addressed, the State House has postponed until the week of October 29 the date they expect to address sales tax reform. House leadership is still negotiating with Representatives Rohrer, Levdansky, DeWeese, Perzel and other Representatives who have proposed sales tax and property tax reforms. It is expected that at least three bills will be reported out of the House Finance Committee, during that week. There is some concern that the House may take provisions from each bill to assemble one single “Franken-bill”. Others are concerned that last minute amendments will cut-off debate and force through a bill expanding the sales tax base to include memberships or services that charities provide.

What can you do to prevent sales tax expanding to charities?

* Contact your legislator. Ask where they stand on expanding State sales tax.

* Tell them not to tax memberships or business services that charities provide or purchase.

* Tell your legislator that charities’ tax exemptions must be preserved.

Don’t let the Legislature reach a compromise on sales tax by sacrificing charities’ property tax exemptions.

The next meeting of the PA Sales Tax Coalition will be held on Thursday, October 26, 2007, 10:00 am at the Pennsylvania Bar Association in Harrisburg.

10/10/07 State House Expects to Take-up Sales Tax & Property Tax Reform Starting Week of October 22. The State Legislature is expected to take-up both sales tax reform and property tax reform beginning the week of October 22. There will not likely be a single bill, but rather a menu of bills to be considered. Each bill will offer different provisions and alternatives. One plan will be offered by Rep. Sam Rohrer (R-128) in collaboration with the Commonwealth Caucus.

The menu method will allow more than one bill to be adopted and sent to the Senate, not one final bill. The result will be a process lacking transparency or clarity, performed more by committee than by the full legislature.

The charitable community has much at stake in this tax reform initiative. It is incumbent upon the charitable community to follow these proceedings closely, to become involved proactively, and to stand ready if action becomes necessary.

Pennsylvania’s charitable nonprofit community supports reasonable tax reform, but can not support shifting tax burdens onto the working poor or curtailing property tax exemptions that charities rely upon.

The next meeting of the PA Sales Tax Coalition will be held on Thursday, October 11, 11:00 am at the Pennsylvania Bar Association in Harrisburg.
Rohrer’s Sales tax plan 

9/25/07 PANO Joins Sales Tax Coalition to Prevent Sales Tax on Charities. PANO is currently tracking three proposals that may expand state sales tax to goods or services sold by charities. The Piccola bill (SB1041), the Rohrer plan exempting only some core business to business services, and the Levdansky bill (HB1600) proposing a 5% surtax. While there is no specific proposal to tax charities at this time, charities do not have a blanket exemption. In 2005 and 2006, PANO worked with a broad coalition to help defeat, the expansion of state sales tax to charities. That bill was amended in the middle of the night and without warning.

9/12/07 State Legislators Consider Sales Tax Expansion; Could Impact Charities. As the legislature returned from summer recess, proposals for State sales tax expansion could tax certain charitable activities. State Senator Jeff Piccola (R-15) proposed SB1041 to expands the sales tax base to include some nonprofit activities previously untaxed. According to Piccola, “We need a bold overhaul of our tax system in the form of total elimination of our school property taxes and replace them with a fairer, broader sales tax.”
Piccola's press release  

9/12/07 Levdansky Holds Hearing on Bill to Increase State Sales Tax by .5%. The PA House Finance Committee Chairman David Levdansky, (D-39) will hold a hearing at Wednesday, Sept. 12 on legislation to increase State sales and use tax. HB1600 would increase the state Sales and Use Tax and the Personal Income Tax to fund a reduction in school property taxes as early as next year. The hearing will begin at 10 a.m. at the Penn State Greater Allegheny, Student Community Center, Robert and Elizabeth Ostermayer Room, 4000 University Drive, McKeesport. http://www.pahouse.com/pr/039090707.asp. 

Right now, Neither SB1041 nor HB1600 includes language that will subject thousands of charities to State sales tax. However, PANO members who worked with us to help defeat sales tax on charities (SB854 of 2006) will remember that the offensive language taxing certain charitable activities was inserted into that bill late at night without warning. The State Sales Tax debate is expected to heat-up in October. How it impacts the charitable nonprofit sector may be up to us.

9/13/06 Proposed Sales Tax Bill would tax some business-to-business services. State Rep. Sam Rohrer, Chairman of the Commonwealth Caucus plans to introduce a comprehensive property tax sales tax reform bill. This new proposal would eliminate school property taxes by lowering state sales tax to 5%, and broadening the sales tax base to include some services and goods currently exempt. Some essential business-to-business services like accounting, engineering, and legal services, will remain tax exempt under his proposal, others will not. No list of specific goods or services to be exempt under this proposal has been released. PANO will continue to monitor this issue and update our members as it develops.

8/30/06 State Rep to introduce comprehensive property tax and sales tax reform bill. On August 23, PA Rep. Rohrer, Chair of the Commonwealth Caucus, along with other House members, announced their plan to introduce a comprehensive property tax sales tax reform bill. This new proposal would eliminate school property taxes by lowering state sales tax to 5%, and broadening the sales tax base to include some services and good currently exempt. In addition to the original key sales tax exemptions such as doctor visits and prescription medicine, this bill provides sales tax exemptions for such goods as fresh meats and produce, residential utilities, and essential business-to-business services like accounting, engineering, research, computer, and legal services. No list of specific goods or services to be exempt under this proposal has been released. PANO will continue to monitor this issue and update our members as it develops.

2/1/06 Senate Bill 854 Sales Tax Expansion Update. Senate Bill 854, which would expand base of sales tax to include certain activities of nonprofits, is still active and in committee under consideration by the legislature. Smaller amendments have been proposed which would exclude specific items. PANO opposes this bill because it would tax nonprofit activities such as memberships, fundraising programs and professional services. This would create an undue burden on the nonprofit sector at a time when funding is already scarce and government support is increasingly limited. PANO and the YMCA testified on January 4 on behalf of the nonprofit community. Other PANO member organizations have issued statements to the committee for the record.

1/18/06 Second Senate Hearing on Sales Tax Expansion Held Today. The Pennsylvania State Senate held a second hearing today regarding the expansion of sales tax under Senate Bill 854.  PANO and the YMCA testified at the first hearing on January 4 regarding the impact this bill will have to nonprofits.  SB 854, as amended by the House on December 20, 2005, could impose sales tax on membership fees, fundraising activities, as well as consulting services. PANO has actively participated in an effort to raise public awareness for the unintended consequences of this bill.  A second hearing is being held today. PANO has actively participated in an effort to raise public awareness for the unintended consequences of this bill. For more information regarding other testimony and written statements to the Senate Committee go to http://www.pasenategop.com/news/sb854-010405-hearing.htm. 

PANO Testimony January 4, 2006
For other testimony given today, click here.  

To:        Committee on Legislation for the Special Session on Property Taxes.
            Senator Noah W. Wenger, Chairman
            Senator John N. Wozniak, Democrat Chairman
 From:    Joe Geiger, Executive Director, Pennsylvania Association of Nonprofit Organizations (PANO)
 Re:       The sales tax expansion of Senate Bill 854 (PN 1429)
            Charitable exemption and "management consulting services"

Good Morning Chairman Wenger and Chairman Wozniak.  Thank you for the opportunity to testify before this Committee.  My name is Joe Geiger.  I am the Executive Director of Pennsylvania Association of Nonprofit Organizations (PANO).  PANO is the statewide membership organization serving and advancing the charitable nonprofit sector through leadership, advocacy, education and services in order to improve the quality of life in Pennsylvania.  PANO is the 501(c) (3) charitable nonprofit association representing the nonprofit community throughout the Commonwealth since 1984.  PANO was instrumental in facilitating the charity coalition negotiating through Act 55, “the Institutions of Purely public charities Act” in 1997.  

The sales tax expansion of Senate Bill 854 (PN 1429) is of great concern to PANO and to our member organizations.  It is of great concern to the entire community partly because the bill passed so quickly, and is difficult to understand.  The following statement will outline PANO’s concerns with expanding the sales tax base in this manner.   

Procedure:

Before I begin, I would like to acknowledge this Committee for the fair and open manner in which this hearing is being conducted.  On December 20th, 2005, the Pennsylvania House of Representatives passed SB 854 by a narrow margin, but not before adding 7 separate amendments to the bill.  There was not sufficient opportunity to review the amended language. Instead on December 21^st, the charitable community and the community at-large woke up to a surprise.   The complexity of the bill itself adds to the confusion.  As this process moves forward into the coming weeks, I hope that this hearing marks the beginning of a trend toward openness and cooperation.  Only by sharing ideas in an open forum and in the spirit of bipartisanship will tax reform be successful.

Charitable Exclusions: 

PANO is greatly concerned that the expansion of the sales tax to include the activities of the charitable sector under SB 854 contradicts the expressed public policy of the tax exclusions granted to Pennsylvania’s charities in 1997 by Act 55 the “Institutions of Purely Public Charities Act”.   Act 55 expressly grants property tax exemptions to qualified charities to advance specific charitable causes and activities.  Even though the main focus of Act 55 is property tax exemption for charities, Act 55’s policy rationale is equally applicable to the sales tax provision of SB 854.  According to Act 55’s legislative intent, “[b]ecause institutions of purely public charity contribute to the common good or lessen the burden of government, the historic policy of exempting these institutions from taxation should be continued.”   Senate Bill 856 as amended by the House grants only partial exclusions to organizations currently not subject to sales tax.  Expanding the sales tax base in this manner will only serve to increase the tax burden on people trying to access charity services and the administrative costs born by charitable nonprofits and may cause charities to reduce services provided.

“Sale to or use by”:

Under section 1204(10)(I))(A) The sale at retail to or use by any charitable organization will be subject to the sales tax.  The phrase “sale to or use by” fails to exclude a number of activities essential to the functioning of charitable organizations.  These activities are not “sale to or use by” a charity, but rather they are “sale by” a charity.   Under the bill, a sale of goods or services by a charity to an entity that is not a charity will be subject to the applicable sales tax.  PANO is concerned that this will tax charitable fundraising activities, membership dues, program revenues, and consulting services when provided by a charity to an entity that is not a charity.  These programs now subject to the tax represent a substantial portion of PANO’s charitable mission.    

Fundraising sales: 

Senate Bill 854 as amended would tax fundraising sales by a charity where the product sold is now a taxable item.  There is a specific exemption for fundraising sales of food and beverages by Nonprofit Associations which support sports programs.  See section 1204(49).   While the retail sale of food or beverages “at or from” (similar to “by”) schools or churches in the ordinary course of the activities of such organization is excluded from the exclusion (therefore taxable) under section 1204(29)(V).  You may see why this bill is potentially going to be very confusing to figure out what it is really saying.  There is no similar exclusion for charities like the Girls Scouts.  Do the Girl Scouts provide less benefit to the community merely because they do not play sports? Must they “support sports programs” to raise funds by selling sandwiches without having to worry about calculating the sales tax?  Ultimately, this provision is a negative incentive for smaller organizations to participate in small fundraisers.   

Memberships fees: 

PANO opposes expanding the sales tax base to include membership dues paid by entities that are not 501(c)(3) charities to 501(c)(3) charities.  Such memberships are the lifeblood of many membership organizations.  Membership organizations serve the community by sharing information, promoting efficiency, and encouraging economic opportunity.  Membership organizations that are charities often have members who are not 501(c)(3) charities.  Members may be 501(c)(4)’s, (6)’s, corporate sponsors, or individuals.   For smaller organizations operating in this increasingly lean economic climate, membership is often the first place to cut-back.  Maintaining an organization’s active membership base is no longer to be taken for granted.

The unfortunate consequence of taxing membership fees will be higher membership dues, fewer members, and ultimately cuts in services.  

Program Revenue: 

Educational programming is a core service that PANO provides.  Expanding the tax base to include program service revenue would discourage the sharing of information.  PANO frequently hosts workshops and clinic sessions designed to assist charities and those who work with charities to serve their organization more effectively.  Occasionally PANO will host a workshop or seminar in a rural community.  Would this be taxable as a management consulting service if an attendee was not a charity?  Would the registration fee now be taxable as program revenue?   It can be challenging just to register enough people to break even. Taxing such revenue would force higher fees, fewer registrations, and in rural locations more cancelled programs. 

Management consulting services: 

PANO firmly believes that taxing “management consulting services” will have a detrimental effect on the nonprofit community for years to come.   “Providing advice and assistance to… other organizations… in.. the… areas.. [of] (1) Management and operating advice, such as strategic and organizational planning” is a core service of PANO.  While most of the organizations (our members) to whom we provide these services are 501(c)(3) charities, other are not.  Should PANO charge sales tax where we consult to assist a former charity to obtain or regain its 501(c)(3) charitable exemption status?  What about where a professional fundraiser wishes to attend a PANO sponsored educational forum? The nonprofit community is populated with organizations of every type, supporting organizations, for-profit businesses, individuals, funders, consultants, employees and volunteers. This is one hypothetical.  PANO provides a multitude of management consulting services to its members regardless of 501(c) status.

"Management consulting services" are essential to the functioning of smaller nonprofits.  These services are not just provided by large companies or just purchased by large companies.  Many small businesses will be faced the challenge of understanding this bill and their new obligations.  The Department of Revenue will face the daunting task of whacking these businesses if they don’t collect the right amount of tax, and what to do once it is collected.  There are costs associated with such enforcement for both the Department of Revenue and for the charity. This increased administrative burden placed on a comparatively less sophisticated entity will force the charity to divert resources from their core mission to cover increased administrative costs.   Taxing smaller charities in this way will discourage smaller fundraising projects, and increase reliance on fewer sources of income.

Implementation & compliance:

Quarterly reporting of sales tax collected will pose an onerous burden especially on smaller charities.  Section 1217 (D) small taxpayers would permit the Department of Revenue to waive quarterly filling requirements where taxes raised do not exceed $75 per quarter. Unfortunately, this seventy-five dollar ($75) is too low to be practical. 

Other states:

With respect to "similar legislation from other states” my colleagues from the Pennsylvania Insurance Federation and from the Pennsylvania Alliance of YMCAs will address the matter in greater detail.  I would only add that a healthy and dynamic charitable nonprofit community is essential to Pennsylvania’s future.   

Conclusion: 

PANO recognizes the importance of tax reform to Pennsylvania’s future.   However, we have agreed to testify before this Committee because we strongly believe that Senate Bill 854 as amended by the House of Representatives on December 20, 2005, will impose an economic hardship on Pennsylvania’s charitable nonprofit community. 

This expansion of sales tax base to include certain charitable activities is not a solid base for positive tax reform.  Charities had previously received an exemption due the beneficial role they play in our communities.  Appropriate tax reform legislation should not result in tax policies that discourage economic development, and actually harm the very institutions that help a community meet the needs of its least advantaged.  

Taxes are more than just a vehicle for raising revenue.  Taxes demonstrate the values that we as a society hold dear.   Thank you for granting me this opportunity to testify today.  I will be available to answer your question today and in the coming weeks.