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Tax Highlights of Pennsylvania's 2016-2017 Proposed Budget

Thomas M. Frascella
Thomas M. Frascella Director, Tax Strategies, State & Local Tax Group Leader

If there is one thing that Pennsylvania Governor Tom Wolf and the state’s legislative leaders can agree upon, it is the fact that no one wants to experience another budget season like the one Pennsylvania had for the 2015-2016 fiscal year.

To keep that from happening, Governor Wolf has presented his 2016-2017 budget to the General Assembly more than two months before a new budget is due. Although his proposed tax increases are more modest than the budget he introduced last year, the Assembly would still prefer to reach a balanced budget by trimming state government.

The major tax changes contained in the proposed budget are as follows:

  • An increase in the Pennsylvania personal income tax rate from 3.07 percent to 3.4 percent. The rate increase would be retroactive to January 1, 2016 and is projected to raise approximately $555 million for the period from January 1, 2016 through June 30, 2016. The projected revenue for the 2016 -2017 fiscal year is $1.3 billion.
  • There is currently no proposed sales tax rate increase. However, the proposal includes a more modest expansion of the base to include movie tickets and basic television. This expansion would be effective as of April 1, 2016. The measure would raise approximately $66 million from April 1, 2016 to June 30, 2016 and approximately $415 million for fiscal year 2016-2017.
  • A proposed severance tax of 6.5 percent on the value of natural gas extracted through “unconventional” means, such as fracking. The effective date of the tax would be July 1, 2016 and would generate approximately $218 million for the 2016-2017 fiscal year.
  • The bank shares tax would increase from 0.89 percent to 0.99 percent. This increase would be effective as of January 1, 2016 and would generate approximately $37 million in fiscal year 2015-2016. Revenue projections for fiscal year 2016-2017 are approximately $39 million.
  • A proposed insurance premiums tax surcharge of 0.5 percent on property, casualty, and fire premiums. The change would be effective as of January 1, 2016 and would generate additional revenue for the period from January 1, 2016 through June 30, 2016 of approximately $80 million. Projected revenue for the 2016-2017 fiscal year is approximately $100 million.
  • The cigarette tax would be increased from $1.60 per pack to $2.60 per pack. The increase would be effective as of May 1, 2016. Revenue expected from the increase between May 1, 2016 and June 30, 2016 is approximately $122 million, while the revenue generated from this measure for the 2016-2017 fiscal year would be approximately $468 million.
  • A provision for a 40 percent tax on wholesale tobacco products such as cigars, smokeless tobacco, and e-cigarettes. This tax would be effective as of May 1, 2016. An additional 40 percent tax is proposed on the sale of loose tobacco, effective July 1, 2016. Expected revenue from these taxes is estimated at $136 million for fiscal year 2016-2017.

Whether this budget will have an easier time getting through the General Assembly than the 2015-2016 budget is anyone’s guess. It is important to note that neither side has moved away from its original positions staked out during the 2015-2016 budget impasse.

As noted earlier, Governor Wolf supports a balanced budget through tax increases, while the General Assembly would prefer a trimmer government as the means to balancing the budget. Therefore, it is unlikely that the General Assembly will pass the budget as presented by Governor Wolf. However, key provisions that preempted an early passage of the 2015-2016 budget, such as sweeping pension reform, expansion of the sales tax base, and historical increases to the rate, are not contained in this budget, which could make this version easier for lawmakers to accept.

We will continue to keep you informed on the progress of the budget and the final enacted tax changes for fiscal year 2016-2017.

Contact Kreischer Miller's State and Local Tax Group if you have any questions. 

Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.

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Thomas M. Frascella

Thomas M. Frascella

Director, Tax Strategies, State & Local Tax Group Leader

State and Local Tax Services Specialist

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