The General Assembly is observing its summer recess, following the passage of the budget on July 7. During this period, however, a number of committees have been conducting public hearings on issues they would like to address in the fall session.

The House Finance Committee held a series of hearings recently in Pittsburgh on tax-related issues, including Governor Rendell’s combined reporting proposal, changes to Pennsylvania’s treatment of Net Operating Losses and changes to the Research & Development Tax Credit Program. The changes to both the NOL and R&D Tax Credit programs will bring these two programs in line with the federal standards. These two proposals are part of the Keystone Manufacturing Initiative (KMI), a larger initiative in the House of Representatives. The KMI is a comprehensive legislative package that would reduce taxes for Corporate Net Income, Capital Stock and Franchise and make modifications to the NOL and R&D Tax Credit programs. These initiatives have all passed the House and are awaiting committee action in the Senate.
 
The Legislature is set to return in mid-September. The Pennsylvania Senate is set to return on Sept. 19 and the House of Representatives on Sept. 26. There are a host of issues that await action when they return, including consideration of KMI and increasing the redevelopment assistance cap for Capital Budget projects. Both Chambers have set ambitious agendas for the Fall session and expect to be in session until mid-December. 

The House Finance Committee held two public hearings recently on tax related issues. The first hearing focused on the Governor’s proposed combined reporting initiative, and day two focused on the Net Operating Loss and R&D Tax Credit programs.
 
Combined Reporting
 
On day one there were two testifiers that presented comments to the committee:
 

• Michael Mazerov, Senior Policy Analyst for the Center on Budget and Priorities (http://www.statewatch.com/www/pa/topnav.htm)
• Katie Klaber, Vice President for the Allegheny Conference on Community Development (http://www.statewatch.com/www/pa/topnav.htm)
   

Mr. Mazerov’s testimony focused on educating the members of the committee on how corporations use Delaware Holding Companies and other mechanisms to avoid or reduce their CNI tax liability in some states.  His presentation gave some examples of how companies structure themselves to take advantage of these “loopholes” to their benefit and an estimate of how much in revenue is lost each year as a result of these practices.  Rep. Levdansky (D Chair of the Committee) lead the questioning following the testimony and his remarks focused on fairness and ensuring that all companies pay their fair share.
 
Other members of the committee asked questions regarding the high tax rates in Pennsylvania and how these tactics help companies locate here and compete with other states. 
 
Chairman Leh talked about the fact that House Leadership is going to hold additional hearings on this issue around the state to gather perspective from other companies on how this will affect them.  The next hearing on this issue is scheduled for September 21 in Philadelphia.
 
 
NOL/R&D Tax Credit Program
 
On the second day of hearings, the Committee received testimony from the following individuals: 
 
Net Operating Loss Carry Forward Panel:

• Gary Dzura, Director of State Taxes for the Bayer Corporation
• Scott Rantovich, Senior Tax Council for Allegheny Technologies Incorporated
• John Dougherty, Director of Transactional Taxes for United States Steel Corporation 
   

Research and Development Tax Credit Panel:

• Steve Zylstra, President and CEO for the Pittsburgh Technology Council
• Ron Billingsley, Manager of Government Relations for Respironics, Inc. 

The NOL hearing focused on how Pennsylvania’s treatment of operating losses differs from the federal government and that traditional manufacturing companies benefit by allowing them to carry these credits forward for a longer period of time. The committee expressed interest in the idea of bringing the NOL program in PA more in line with the federal benefit however, there was some discussion about the impact to the General Fund and the budget by extending the look back period and uncapping the amount of credits that can be used in any one tax year. 
 
Additionally, some committee members asked the panel to consider an alternative approach of eliminating the DCED economic development programs that target businesses (Opportunity Grants/Job Creation Tax Credits, etc) and using that revenue to make the tax structure fairer and to lower rates across the board. Rep. Rod Wilt has introduced legislation that would eliminate these programs and return the revenue to the general fund. 
 
The R&D Tax Credit hearing went extremely well and all testifiers were able to present their comments. The committee then asked the testifiers to summarize what changes they are looking to make to the program.  Essentially the changes are:
 

• Extend the sunset for the program, currently the program is set to expire on December 31, 2005.
• Bring the program in line with the federal R&D Tax credit program.  To accomplish this would require increasing the credit from 10% to 20% in each year.
• Expand the program with more funds that could be used as credits for companies.  The reason for increased funding is that some companies that might not have applied for the credit in the past might now since they are able to sell them.
   

The Committee wanted to know more about this program and the economic impact R&D had on the commonwealth. While there are $30 million in credits that are awarded each year when you calculate that companies are only able to utilize 10% of the change in R&D services, that means that PA companies are increasing their R&D operations here in the Commonwealth by $300 million. 
 
The committee was committed to studying the program further and making changes to help companies that use this program.

Hearing held  in Pittsburgh on August 3rd: Second hearing scheduled for September 21st in Philadelphia

The House Democratic Policy Committee held a public hearing on August 3rd at the University of Pittsburgh to learn more about stem cell research’s impact in Pennsylvania, according to HDPC Chairman Stephen H. Stetler, D-York.

Requested and hosted by state Rep. Dan Frankel, D-Allegheny, the hearing featured testimony by Dr. Calvin Johnson, secretary, state Health Department; Dr. John Gearhart, armstrong professor of medicine, John Hopkins University’s McKusick-Nathans Institute of Genetic Medicine; Dr. Alan Russell, director, University of Pittsburgh’s McGowan Institute for Regenerative Medicine; Rebecca Bagley, deputy secretary for technology investment, state Department of Community and Economic Development; Fritz Bittenbender, president, Pennsylvania Bio; Dr. Ronald Cole-Turner, professor, Pittsburgh Theological Seminary; Ralph Capone, MD, fellow, American College of Physicians; and Julene Fabrizio, president, National Ovarian Cancer Coalition.
 
“As a co-chairman of the House Life Sciences Caucus, I know how important stem cell research is to Pennsylvania,” Stetler said. “With our state’s world-class research institutions, this growing research will become an integral part of our state’s economy while helping to save many lives.”
 
Frankel added, “Stem cell research can be a controversial issue, but it is important to look at it from all angles, which is what our hearing did today. We had experts talk about the science, economic development, ethics and advocacy of stem cell research, so that all sides were heard. The committee learned a great amount today.”
 
Frankel is planning to introduce a proposal that would tax cigars and smokeless tobacco comparable to what cigarettes are taxed now in order to generate $35 million-$65 million a year in a bond issue from which a portion of it would be earmarked for investments in stem cell research.
 
“The Pittsburgh area has an array of companies and educational institutions that engage in stem cell research, so I know firsthand how important the research’s impact is on the region. Southeastern Pennsylvania can have a similar effect,” Frankel said.
 
“Pennsylvania and the Pittsburgh region in particular have a built-in advantage for stem cell research. Other states are moving aggressively to provide financial incentives to acquire researchers and resources that we already have,” Frankel said. “As a result, I will continue to be active on this issue and work hard to bring significant investment to stem cell research in Pennsylvania.”

Second Hearing Scheduled

State Rep. Babette Josephs, D-Phila., will host members of the House Democratic Policy Committee for a public hearing on stem cell research later this month.

Josephs' hearing will be held at 10 a.m. Wednesday, Sept. 21 in the University of Pennsylvania's Biomedical Research Building Auditorium, first floor, 421 Curie Blvd.

“Stem cell research is an emerging and important field for many reasons," Josephs said. "Not only does it hold the promise of a cure for many diseases, it can mean more jobs for the Commonwealth. If we want Pennsylvania to be part of the high technology and research fields, we must consider stem cell research as part of the equation.”

Josephs said the hearing will include testimony from such individuals as Dr. Arthur Caplan, director of the Center of Bioethics and chairman of Penn's bioethics department; Dr. Stephen Emerson, a professor of medicine and division chief of the hematology-oncology division at Penn; Rebecca Bagley, deputy secretary for technology investment in the Department of Community and Economic Development; and David Smith of Pepper Hamilton LLP.

Prior to the hearing, members of the committee will tour Penn's stem cell research activities.

Josephs has been a prominent figure in advancing the issue of stem cell research in Pennsylvania. She has introduced legislation (H.B. 864) that would authorize the research in the state.

"My intent is to authorize research on stem cells from any source. We have heard the cries about the brain drain occurring in Pennsylvania as talented, bright people leave the state. We should encourage leading U.S. stem cell researchers to remain in or move to Pennsylvania to conduct such research. This could stimulate business expansion, encourage reinvestment and create additional jobs and business opportunities in the state," she said.

Source: House Democratic Policy Committee