PA Budget - Minor Tax & Escheat Impacts

by McNees Wallace & Nurick LLC
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On June 30th, the Pennsylvania House and Senate adopted a budget for FY 2014-15 which requires no major tax increases.  The Governor signed the budget and accompanying Fiscal Code bill on July 10th, after making several line items vetoes.  Many observers had expected a new natural gas severance tax and possibly other tax increases to close a substantial revenue gap.  However, facing demands from the Governor for further state pension cuts before agreeing to any significant tax increases, the General Assembly opted to fine-tune expenditures and close the funding gap largely with one-time fixes.  The Governor's line-item vetoes included substantial cuts to operating funds for the General Assembly, apparently intended to somehow persuade legislators to adopt further pension cuts for future state employees.  We'll leave the potential success or failure of this strategy to the popular press and will focus on matters of direct interest to the state and local tax community.

Notably, this budget preserves the phase-out of the Capital Stock and Franchise Tax, as of December 31, 2015.  In addition, the sales tax vendor discount, which partially compensates vendors for the cost of collecting the complicated tax, has again been preserved.

The General Assembly closed the FY 2014-15 revenue gap by:

  • Assuming General Fund revenues will increase by 3.51% in FY 2014-15 ($880 million)
  • Shortening the holding period for some unclaimed property ($150 million) (see below)
  • Revenue from additional Oil & Gas leases on state lands ($95 million)
  • Various fund transfers ($247 million)
  • Philadelphia Casino License Fee ($75 million)
  • Additional Delinquent Tax Collections ($40 million)

To facilitate the enhancement of delinquent tax collections, the Enhanced Revenue Collections Account (ERCA) program in the Department of Revenue has been extended through 2019-20 and the annual appropriation for the program has been increased from $15 million to $25 million.

Abandoned & Unclaimed Property Changes

A one-time revenue "bump" will be realized by shortening the holding period - to 3 years from 5 years - for certain types of unclaimed property, including:

Property held by Financial Institutions

  • Deposits (including interest thereon)
  • Sums payable on checks
  • Personal Property removed from safe deposit boxes due to nonpayment of box rental charges

Property held by Insurers

  • Moneys held or owing under annuity contracts or life insurance policies
  • Moneys held or owing under insurance policies other than life insurance

Property held by Utilities

  • Customer advances, tolls, deposits, or collateral security, and other property due to or demandable by owners

Property held by other Businesses

  • Gift certificates or cards without expiration dates but with service fees
  • Undelivered stock certificates
  • Dividends, profits, distributions, payments or distributive shares of principal
  • Principal or interest due on bonds or debentures
  • Sums or certificates of participating rights due by cooperatives to patrons
  • Note:  Gift certificates or cards with expiration dates but no service fees will become reportable upon the later of 2 years from the expiration date or 5 years after the card was issued or funds were last loaded (in the case of store gift cards or general use prepaid cards)

Property held by Fiduciaries

  • All property held in a fiduciary capacity for the benefit of another person
  • IRA's and retirement plans for self-employed individuals which are not subject to a mandatory distribution requirement.

Property held by Courts, Public Officers & Public Agencies

  • All property held for the owner (with certain exceptions)
  • Restitution

Miscellaneous Property held for or owing to another

  • All property not otherwise provided for, admitted in writing and adjudicated to be due, which is held or owing in the ordinary course of the holder's business.

In most cases, the holding period does not commence until after the last activity on an account or the last "indication of interest in property."  The last "indication of interest in property" means:

[A]ny contact, communication or transaction, related to property, from the owner, or involving some affirmative action by the owner, which is documented in a contemporaneous record prepared by or on behalf of the holder or in the possession of the holder ….

This includes electronic contacts and transactions, as well as verbal contacts and transactions.

The holding period provision for IRA's and individual retirement plans does not kick in until after the owner has reached 70.5 years of age.

Unclaimed Property Finder Registration.  Individuals, other than attorneys and non-attorney representatives compensated on a non-contingent basis, will be required to register with the State Treasurer, retain certain records and make reports if they engage in locating and recovering abandoned or unclaimed property for a fee.

Audits.  The State Treasurer's auditing powers have been clarified with respect to abandoned and unclaimed property.  The treasurer may assess the costs of examination against the holder.  Where adequate records are lacking, "reasonable estimates" may be made.  Contract auditors may be hired to conduct examinations on behalf of the Treasurer.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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