Pennsylvania Governor Tom Wolf announced his budget to the joint session last week and proposed an increase to the state sales tax rate and an expanded tax base. The increase is intended to partially offset additional education funding and property tax relief.
Under the Governor’s proposal, the state sales tax rate will increase to 6.6% from the current 6.0%. This increase would result in a total sales tax rate of 7.6% in Allegheny County and 8.6% in Philadelphia.
The budget proposal expands the base of transactions subject to sales tax in Pennsylvania by eliminating exemptions. Currently, only enumerated services (those specifically identified by law) are subject to tax, such as repairs to tangible personal property, help supply services or lobbying services. The governor’s budget proposal drastically increases the scope of services subject to tax. A partial listing of the “newly taxable” services would include:
Other professional services
Real estate and broker services
Travel arrangement services
Personal care services
The budget proposal also includes taxing items of tangible personal property currently exempt such as candy and gum, textbooks, newspapers, personal hygiene products and non-prescription drugs. Wolf’s budget does maintain certain exemptions presently in place. The exemptions for food, clothing and prescription drugs are not impacted by the budget proposal. Additionally, the manufacturing exemption remains unchanged, as does the exemption for utilities used by residential customers.
We’re still early in the budget process, and with a Republican-controlled legislature, Governor Wolf’s budget proposal is just that, a proposal. The expansion of the tax base for sales tax has been proposed before in Pennsylvania, as well as in neighboring Ohio, but has yet to garner enough support to become law. Taxpayers should monitor the budget negotiations sure to take place over the coming months for tax reforms that may impact them or their business.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.