Expansion of Pennsylvania Sales Tax on Business Services
The Pennsylvania General Assembly is considering two significantly different bills that are intended to provide property tax relief to homeowners in Pennsylvania.
The first bill - the Scavello Benninghoff proposal - has been passed by the House of Representatives and will greatly expand the sales tax base by imposing the Pennsylvania sales and use tax on a number of services used by businesses while only providing property tax relief to homeowners.
The Scavello Benninghoff proposal expands the sales tax base and increases the personal income tax rate from 3.07 percent to 3.29 percent. The resulting increase in revenue is to be distributed to school districts. The school districts are to use the funds to provide homestead and farmstead exclusions from real estate tax. The effect will be to impose an increase in tax on business while providing real estate tax relief to homeowners and not businesses.
The sales tax would be expanded to be imposed upon:
- Management consulting and public relations services
- Advertising
- Catalogs and direct mail advertising
- Airline catering
- Storage
- Interior office building services
- Detective agency services
- Commercial sports admissions and entertainment
- Memberships and other admissions
Management consulting is defined in an expansive manner to include:
- Management and operating advice
- Market research and polling
- Human resources and employee benefit planning
- Environmental advice and assistance
- Scientific and technical advice
- Security and safety consulting
As written, these services would be taxable even if provided by a related entity or a member of an affiliated group.
Advertising is also defined broadly to include publishing or broadcasting promotional information through any medium including newspaper, television, or radio and possibly the internet.
The sales tax base will also be expanded to include various consumer products and services that are currently exempt from taxation. They include:
- Candy and gum
- Personal hygiene products
- Amusement devices
- Coin-operated food and beverage machines
- Trailer parks and camps
- Cleaning, storage and repair of clothing and shoes
- Dry cleaning
The second bill - the Senate Property Tax Reform Proposal - does not provide for any additional tax on business. Rather, it will provide for property tax relief if voters approve local referenda to increase school district earned income taxes. Additionally, it provides for mandatory backend referendum to impose spending controls for all school districts and permits additional referenda to authorize further property tax reductions.
The Pennsylvania Senate is scheduled to hold hearings on January 4, 2006, on the proposed expansion of the sales tax in the House-passed legislation.
The governor and the legislative leaders - in a number of public statements - have commented that the final package could include either an expanded Sales Tax package or an increase in the current sales tax rate.
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