March 25, 2026 · FINANCE · 5,326 words · 29 speakers · 93 segments
Thank you. Thank you.
Good morning. Welcome to a voting meeting of the House Finance Committee. I'd like to start by having our Senior Committee Legislative Assistant call the roll.
Chairman Samuelson. Here.
Rep Abney. Vote by designation.
Sapita Freytis. Fleming.
Vote by designation. Gallagher.
Gungauer. Vote by designation.
Harris. Vote by designation.
Kajewski. Vote by designation.
Mazzocco. Rab and vote by designation
Scott vote by designation
Vincant vote by designation
Waxman
Webster
Chairman Greiner here
Devanzo vote by designation
Fritz
Gatos
Jones vote by designation
Kephart vote by designation
Kutz here
Mako vote by designation
Rossi here
Rincavige vote by designation
Stamba here
Stender
all members accounted for and I'd like to announce for the record we have a brand new member Representative Mazocco from the 42nd District out in Allegheny County has joined our finance committee and we welcome you Representative Mazzocco. On the agenda today we have one resolution to be voted and then we have discussion of three bills. So let me start by making a motion to call up.
All right. Gotcha.
And we have a couple of time constraints, so we are going to start with the discussion of two of the bills. On the agenda, I have House Bill 2300, sponsored by Representative Cepeda Freitas, mandating software for real-time remittance of sales and use tax for businesses that have certain past due taxes. taxes, House Bill 2305, sponsored by Representative Waxman, for temporary sales and use tax exemptions. House Bill 1805, which we'll talk about later in the meeting, freezing penalties and fines and fees for past due taxes on sales tax. And we have a resolution on Financial Literacy Month. But let's start with House Bill 2300 and House Bill 2305. and the Department of Revenue is here to offer input on those two bills. We have Allison Morgan, Executive Deputy Secretary. We have Mark Mirabito, Special Advisor to the Deputy Secretary for Compliance and Collections. And we also have Ryan Froman, Chair of the Board of Appeals. So I'd like to just call on the Department of Revenue to give some input. but I also want to call on Representative Waxman, who I know has a statement about House Bill 2305.
Thank you very much, Chair. Just that, you know, we need to really do what we can to make it easier for smaller nonprofits to be able to form and incorporate, and just glad to offer this bill to try to make things a little bit easier for folks. Thank you.
And Representative Cepeda Freitas and I are sponsoring House Bill 2300, and we wanted to build upon a pilot program that the Department of Revenue has used to address collection of some of the past due taxes and making sure that businesses don't fall in that situation in the future. So we're excited to hear about these two proposals. But I want to call on Department of Revenue, and also for the record, Representative Greg Scott is here. So let's start with House Bill 2300. 2300, I'll call on Deputy Secretary Morgan.
Thank you. Good morning, and thank you for the opportunity for us to speak with you today. As you mentioned, the goal of this program that would result from this legislation is to help delinquent taxpayers to come into compliance with their tax obligations and to stay in compliance. It is based upon the successful pilot that you mentioned. That was a program that the department ran and, again, is limited to taxpayers that are not meeting their filing and or payment obligations currently for a sales tax. With that I wanted to turn it over to Mark Morabido to provide some more details about the program the pilot program as well as the plan for this legislation Thank you And I want to note for the record the presence of Representative Kephart Mr Morabito Thank you The proposal would authorize the department to require certain delinquent taxpayers to
use a sales tax service provider to remit and file sales tax. The taxpayer would have to have a delinquency of at least $5,000 that's secured by a lien or have three consecutive non-filed periods. The taxpayer would be required to use the service for the later of 12 months or six months after resolving the delinquency. The department would cover the cost for the first 12 months, and then after that, the taxpayer would be responsible for the cost. The sales tax service provider's software seamlessly integrates into most point-of-sale systems that taxpayers use today. The service provider software keeps track of the sales tax, files it for them before the deadline, and then on a daily basis sweeps the taxpayer's bank account, holds the funds in trust, and then remits those funds to us at the time the return is filed. As mentioned, we conducted a pilot on this idea. We partnered with a vendor that currently files thousands of sales tax returns every month, not just with the Commonwealth of Pennsylvania, but for other states across the country. The cost of the program was a little less than $50,000, and we had two groups of taxpayers. The first group of taxpayers were delinquent taxpayers that requested a deferred payment plan. And we utilized deferred payment plan taxpayers because we were told by council's office that a deferred payment plan is a contract and we can insert terms into the contract. And so that's how we were able to conduct the pilot. The second group was also taxpayers that requested a pilot, but this was our control group because we wanted to compare those who had to use the service versus those who weren't required to use the service but still requested a deferred payment plan. the first group the group that was required to use the the service was required to use it for 12 months and we paid for that service we started with 29 taxpayers in that group and we ended with 23 and those six that fell off were because they were either closing their business or they were selling their business. And we had 12 taxpayers in the control group. What we found was that those that were required to utilize the service at a higher rate of payment per month, and they did not have any non-filed returns, which is very important because chasing non-filed returns is one of the most difficult things that we have to do in the collections world. We viewed the pilot as a success, especially since 17 of the 23 taxpayers at the end of the program opted to continue to use the service at their cost. Most taxpayers want to comply with their tax obligations. Now, there are a few bad actors, and we have to deal with them as such. But most taxpayers that become delinquent are not trying to cheat the Commonwealth. They may become delinquent because of economic hardships. They may be a terrific chef. They might be a terrific mechanic. But those skills don't necessarily translate into filing taxes and keeping track of your sales tax obligations. In many cases, it's a lack of understanding or an underestimation of what it takes to file and remit sales taxes every month. We view this proposal as a voluntary compliance initiative. In the delinquent collections environment, we have this idea of a collections continuum. and on one end of the continuum are inexpensive ways to help taxpayers stay in compliance, and those would be outreach and education, informing taxpayers of what their obligations are. And then you move to telephone calls, notices, and then as you continue to move up, things become more expensive, bank levies, wage garnishments, and then you get to the end of the continuum with things like audits and criminal tax investigations. Those are very expensive for us to utilize. It's far more effective for us to support voluntary compliance than it is to utilize those more expensive tools, more aggressive tools to have taxpayers comply. And our goal is to always encourage voluntary compliance, and that's really what this proposal is about. We also think that it's a forward-looking proposal because in the future, and that future is probably 10, 15, 20 years down the road, the way sales taxes are administered is probably going to change, and it's going to look a lot like our proposal to date. We're seeing this happen in Europe with the VAT, the value-added tax. Many of the countries in Europe require real-time remitting of the VAT returns. So we think this would put us ahead of the curve whenever down the road, be it 15, 20 years from now, when real-time filing and written becomes the standard or the norm in this country. Thank you.
Thank you. And I wanted to open it up to questions. I know Representative Fritz has a question.
I have one first. How many businesses would fall? I know the bill that we're proposing would say that you would require folks who are $5,000 behind to be part of this program. How many businesses would fit in that category, being more than $5,000 behind on the sales tax?
We think when we're fully operational, it would be about 3,000 taxpayers.
About? 3,000 taxpayers. 3,000. And just off the top of your head, how many would be under 5,000? Is there an estimate of how many businesses might be a couple hundred behind or a couple thousand behind?
I don't have that off the top of my head. I'm sorry. But 3,000 would fit in this category.
Representative Fritz.
Thank you, Mr. Chairman. Thank you, friends, for the testimony. So this seems like it's a new concept, new program. And my curiosity is this. Are there other states using this program? Are we mirroring other states' policy?
To the best of my knowledge, there are no other states that have this type of requirement. However, as I said, there are thousands of taxpayers that use third-party service providers today to remit their taxes for them.
Okay, thank you. That was my only question.
Chair Greiner.
I just had several questions. I'll start with mine being from Lancaster County with the Amish. We had the telephile issue. We've had that. How's that going to affect them or impact them? It's like you said, most of the Amish I know, most people, they want to remit their tax. They know not paying trust fund taxes can get you in a lot of trouble. It's just one of those things. I was wondering how is that going to work for maybe them?
Correct. So the way the legislation is written is that the department may require, not has to.
Okay.
And so there would be certain exceptions. So, for example, if we had a natural disaster somewhere and a group of taxpayers became noncompliant because of that, we wouldn't require the service in that event. Well, and like the Amish, you're getting more, many more, many are computer savvy, but we still tell you, there's a lot of even infighting inside the Amish community about technology and what have you. Some do not like, some still do not like to use that.
I was curious. So how many, getting back, and I apologize, I was asking Rob something while you answered that question. How many businesses does this affect right now?
We think when we're fully operational, it would be up to about 3,000 taxpayers.
Wow. That many, though, are behind here in the Commonwealth. Getting back to the timetable, so I just wanted to confirm it's for a year. Like if somebody – let's say this bill passes and somebody's delinquent right now. How long – and you're incurring the cost for the first year. Is that correct?
Correct. Correct.
Do they only have to – is it how long – because most people don't want to feel like they – that's the other thing. We don't want to feel like we have to. They might – like you said, they might like it. They might actually say this works out great. But other people like to say, hey, we like to control – you know, I'm a CPA. I want to control my own checkbook. You know, how long do they have to be part of it before they no longer – and what happens if they fall? What happens if it happens a second time?
Right. So it's the later of 12 months or six months after the delinquency is cured. So if you, if you, if we were to require a taxpayer to use the service and then they paid the next day we would still require them to use it for a year If a taxpayer goes on a deferred payment plan for a year they would still need to be on the service for 18 months total because that would be six months after the delinquency was cured
How much is the cost to the department or to the Commonwealth? Like, what are our costs going to
be? Yeah. So at 3,000 taxpayers, we estimate it would cost about $2 million. But to put that number into context, if those 3,000 taxpayers average $5,000 per month in sales tax, that's $180 million of sales tax per year that we would be securing through this program. That equals about 1.1% of that sale. The cost would be about 1.1% of that sales tax revenue. You compare that to sending out a field agent, and our field agents do good work, but for every $100 that they bring in, let's say, costs us about $20 to $22. So it's a much more cost-effective way to keep somebody in compliance.
Yeah, understood. Like I said, a lot of small questions. What happens if I go to a retailer? Personally, I'm sure this has happened. I shouldn't say this, but I'm sure it's happened to me and others where they incorrectly charge me sales tax and they should not be charging me sales tax just because they do it. What happens in this case where it gets remitted and then it's like, hey, I all of a sudden do my research and find out you guys shouldn't have been charging me sales tax on that whatever it might be. You know, there could be an ag product. Or I'll use an example where a fire company paid sales tax and said, oh, you know, I had my exemption certificate. You know, I shouldn't have had to pay sales tax on that whatever. How does that get rectified after it's already been submitted?
That's not something I can answer because the software is going to remit what the POS calculates.
But then that's a problem if they want to correct it. I'm just saying for the business, then really they made a whoops. They want to correct their whoops. They want to make it right for the customer. And then I guess they get a refund back from the Commonwealth.
That would be a question for my colleague Ryan. He's the Board of Appeals chairman.
Anyway, just like I said, nothing, nothing. I mean, I get why we'd want to do it. I mean, I'm not – I'm just trying to think. Like I said, I got the Amish. I got just a little – I just know nothing's perfect, you know, just kind of the way it is. And I just was curious. Thank you.
Thank you, Chair Greiner. And I do note that the legislation says the state would pick up the cost for the first 12 months. After that, it would be the small business who would be required to pay. The monthly fee is about $58, $60, something like that?
We've seen fees around $50.
$50. The prime sponsor represents Cepeda Freitas.
Thank you, Chairman. And I want to thank the Department of Revenue for working on this legislation with us. Obviously, I'm a former small business owner, and I relate and identify with everything that you expressed in terms of falling behind. And I discovered this software on my own in 2019, and it was costing me about 50 bucks a month. And it was like the best thing ever. And just to put things into perspective, right, yeah, I had a restaurant. I close it, unfortunately, to do this, to be committed to this work full time. Nonetheless, so when you go and you purchase a plate of food, right, the software, right, you charge the customer. So the software will take the 6% on that plate of food and it puts it to the side, right? And then it will file your returns. It will pay for your returns. And usually they pay them before the due date. And so you get like a 1% discount. so it kind of like relieves you off of that burden and responsibility because as small business owners we're consumed with the day-to-day and it's really hard to sometimes manage right and furthermore i want to say that in speaking with a lot of small you know just representing a small business community speaking to a lot of like colleagues in that space you know a lot of times small business owners are paying anywhere from 100 to 250 for an accountant to come do their sales taxes which is like ludicrous to me. And in some cases, I found with some of the small businesses that they're trusting the accountant. The accountant is making the payment. The payment is not submitted on time. And now they're stuck owing because they didn't realize that because now they're getting interest and penalties, which is why we'll get into other conversation later about my other bill. But nonetheless, I think it's a phenomenal program. It will provide a lot of relief and compliance for a lot of the small business owners. And obviously they will need a point of sale system that's compatible. But nonetheless, it's going to be beneficial. So thank you.
Thank you. And I appreciate the point about in the future with this filing timely returns, the business would be eligible for the state's 1% vendor discount, which would save them some money going forward. I know Representative Stender has a question.
Yes, thank you, Chairman. And thank you for the information. So just so I'm crystal clear, if you're in this program, you're in it for 18 months, 12 months you guys pay the bill. The following six months, the employer or the business pays the bill, and they're only stuck with one software company. There's not a list of approved vendors.
We would issue an RFP, RFQ, however the proper vehicle would be, and we would anticipate pre-qualifying a list of vendors that they could pick from.
So they'll be able to use from that list then? Correct.
And then if there's implementation issues, would you guys have support for that for the business? We would. Yes, we would help. It's a pretty seamless process for these vendors to integrate into the point-of-sales software system.
I was on a pension board before, and we were told that that would – that same thing. I heard that same story before, and that proved not to be true. And that's why I ask is even I think in your testimony earlier you said most of the implementation worked seamlessly, not all of this implementation.
We didn't – during the pilot we ran into no issues with the vendor software going on to the taxpayer's point of sale system.
But you only used one vendor. Correct. Correct.
So the change would be we're going to move from one vendor to a list of approved vendors.
Correct. Okay. Thank you.
Thank you, Representative Stender. And that was my last question, too, making sure that we have an RFP going forward so that there's choices for the small businesses across the state. Does any other member of the committee have a question on House Bill 2300? Thank you for that discussion. And I know the next bill that we're going to talk about is House Bill 2305, sponsored by Representative Waxman. and I'd like to call on Ryan Froman from the Department of Revenue.
I'll try and – are we good? Okay. That is awful close. Hello, I'm Ryan Froman. I'm chair of the Pennsylvania Board of Appeals. Thank you for the opportunity to speak briefly about House Bill 2305 and answer any questions you may have on this topic. As stated in the co-sponsorship memo for House Bill 2305, This bill establishes a conditional sales and use tax exemption for newly formed charities. New charities face a number of challenges when they first begin operations, and this legislation aims to make Pennsylvania a more welcoming place for these organizations as they begin to pursue their important missions. For more than 100 years, it has been the policy of this Commonwealth to foster institutions of purely public charity by exempting them from taxation. We do this because institutions of purely public charity contribute to the common good and also reduce the burden on government. However, to understand the legislation in front of you, it's important that I put in a little context that specific term that I just mentioned, institution of purely public charity. That terminology comes directly from the Pennsylvania Constitution, specifically Article 8, Section 2, which grants the legislature power to enact laws that exempt institutions of purely public charity from taxation. And through legislation such as Act 55 of 1997 and through case law in the Pennsylvania courts, the Commonwealth has defined what entities would qualify for the exemption for sales tax that we're discussing in this legislation. Amongst the points I want to emphasize particularly today is I want to clarify that federal definitions used for tax exemption status differ greatly from the exemptions embedded in the Pennsylvania Constitution and Pennsylvania statutes. statutes. That's to say, qualifying as a 501c3 does not mean that you qualify as an institution of purely public charity, which would entitle you to a sales tax exemption. And in fairness, the federal government has no business with Pennsylvania's sales tax, and so no ability to regulate it. So it makes sense that Pennsylvania has the authority to make its own rules for exemptions from sales tax. The requirements specifically are embedded in a five-prong test commonly called the HUP test. It's named after the court case where it originated, and that five-prong test was later implemented into statute through Act 55. This five-prong test can be particularly daunting for new young startup charities to satisfy, and perhaps the most challenging prong of that test is to prove that they've donated or rendered gratuitously a substantial portion of their services. And I'm going to talk about this particularly a little bit because this raises sort of a chicken and egg problem with this prong of the test Picture for as an example a startup charity who has as their mission to serve children suffering from chronic illness They may need to purchase vehicles equipment supplies all before they're able to start donating their services. But currently, and under the current statutes, they are not eligible to receive the exemption from state sales tax until after they've proved they've already rendered those services. So again, we're getting into this chicken and egg notion that they have to render the services to qualify for those services. Frequently, this new type of charity wouldn't even have the financial statements available yet to document these expenses until after their first operating year. The current result in these situations is the new charity has to incur the unexpected expense of sales tax on all their initial purchases until such time in the future as they can meet this prong and all five prongs of the test. So to try and address this situation, for entities that demonstrate that they are on a path towards meeting all five prongs of the test to become an institution of purely public charity, House Bill 2305 provides an option for new charities to obtain a conditional exemption for the first two years of their operation. In doing so, the legislation recognizes and supports the amazing services and awesome impact delivered to the beneficiaries of these organizations. The legislation also does recognize that there's always the possibility of a bad actor trying to take advantage of any type of exemption. And therefore, the legislation also has a provision allowing for a clawback of sales tax if we encounter any abusive scenarios. This is a may, not a shall provision. But it basically, with regard to new legislation, or with this legislation, it contemplates a much more friendly, trust-but-verify approach towards startup charities. So as I transition to any questions you may have, I hope you will strongly consider supporting House Bill 2305 and its valuable goal to make Pennsylvania a more welcoming place for these important charitable institutions. I welcome any questions.
Thank you. I have one quick question. I know Chair Greiner has a question.
How many charities are formed in Pennsylvania every year? And I presume that every single one would be eligible for this temporary approval.
So in terms of entities right now that are currently holding a purely public charity status, they're a little over 26,000, and the department received over 3,100 applications for that status. There's some nuance in those numbers. I want to say those are a little bit broad-based in terms of because that embeds – the applications also embed some renewals in there. But I can certainly effort to parse those numbers in a little bit more detail if that would be helpful.
But the temporary exemption would be eligible to all –
All new charities.
All new charities that are forming.
Going through that process.
Yes.
Chair Greiner.
You asked my question, Mr. Chairman. And that's what I was wondering, whether there was an assessment of the applications or whether it was automatic. And then, as I think you mentioned at the end of your testimony, if there's bad actors, and we know there will be probably, then I guess you can reverse that. Or how do you collect the sales tax on those bad actors that they really aren't a purely public charity? How's that going to work?
So I think there's going to be sort of two categories, and I'll speak about this in my experience. from an appeals perspective a little bit, there are certainly a number, and part of the reason I highlighted in here this notion of the distinction between the federal tax-exempt status and the state constitutional standard is that there are a lot of taxpayers who are kind of confused. One of the prongs is they cannot have a purely private profit motive. So some entities may have just set themselves up incorrectly where it's designed to, unfortunately, the paperwork would have funds distributed out to individuals if the entity ever dissolves. And that can be a problem that failing the private profit motive. We don't want an entity raising funds and then distributing them out to individuals. So there's certainly an education and outreach and trying to have taxpayers understand what this distinction is to get the sales tax exemption. That being said, if there are periodic bad actors who are seeking to exploit something, trying to avoid sales tax and do that. There are both avenues within the department, either being desk reviews or full field audits that the department can pursue to then allow and execute this provision for a clawback that would allow us to go back and attempt to claw that back. The nice thing is if they've applied for this, they've told us who they are, where they are, how to contact them. And so it's not as if they're necessarily mysterious entities. So that clawback provision does allow the department some flexibility to use appropriate techniques to try and resolve any situations that hopefully don't arise but could arise with a bad actor.
Thank you.
We have brilliant minds think together. I like that.
I did not steal your question.
Brilliant minds think. Any other questions for members of the committee on House Bill 2305? I'd like to thank the department. Thank you, Deputy Secretary Morgan. Thank you, Ryan. Thank you, Mark, for being here. If any of the members have questions about these two bills in the coming weeks, please reach out to Chair Greiner or myself or the Department of Revenue as we examine these bills further. And thank you for your attendance today. We have a resolution to vote on, and I want to call up. The chair calls up House Resolution 408, printers number 2807. It's sponsored by Representative Carol Hill Evans from York County. And our Senior Executive Director, Mark Foreman, will read a summary of the resolution on Financial Literacy Month. This resolution designates April 2026 as Financial Literacy Month in Pennsylvania. Thank you. Are there any committee questions on Resolution 408? Are there any negative votes on Resolution 408? The resolution, and I want to thank the chair, Carol Hill Evans. We're just about to vote on your bill, but I'll hold off if you'd like to address the committee. We were all set for a unanimous vote, but I'm just – tell you what, any – no objections? Chair, Carol Hill-Evans.
Thank you, Chair, and thank you, Finance Committee. I appreciate your patience. Thank you to the Finance Committee for considering House Resolution 408 to designate the month of April 2026 as Financial Literacy Month here in the Commonwealth of Pennsylvania. This isn't a symbolic designation. It is actually a call to action. For too many years in a row, the number of Americans living paycheck to paycheck has been rising steadily and increasing numbers of adults report having no retirement savings. This can't persist and the solution begins in our schools and in our communities. My resolution encourages schools to integrate financial education into their curricula and urges community organizations to expand their outreach efforts to our adult neighbors struggling to make ends meet. Through bipartisan cooperation, we can find ways to give every citizen the opportunity to gain the knowledge they need to make informed financial decisions. Act 35 of 2023 is a great example of how we found the cooperation and action we continue to need. It goes into effect in September for the 2026-2027 school year, requiring all public high schools to provide students with a financial literacy course that they must take as a condition of graduation. Financial security should not be a privilege. It should be an achievable goal for all. I'm proud to offer this resolution for your vote to help ensure that framework is in place for Pennsylvanians. As lawmakers, we all play a role in strengthening the Commonwealth's financial future. And with that, I would appreciate and respectfully ask for a positive vote on House Resolution 4-0. Thank you, Chair. Thank you, Chair. Thank you, Committee.
Thank you, Chair Hill-Evans. And I was just about to say, if there were any negative votes, Seeing none, House Resolution 408 passes unanimously. Thank you. I had listed on the agenda House Bill 1805 sponsored by Representative Cepeda Freitas, and I have to apologize. There's several committee meetings going on in the Capitol this morning and a couple of other scheduled events, and I know Representative Cepeda Freitas could not be here right now. So I think what we'll do is we will address that at an upcoming meeting so that the prime sponsor, Representative Cepeda Freitas, has a chance to be here. Is there any other questions or any other business before the committee? Seeing none, this meeting of the House Finance Committee is adjourned. Thank you.