While Commonwealth revenue collections continue to come up short of projection for the current year (General Fund $720 million short of target through March) and it is almost universally acknowledged that pension fund shortfalls will present a major financial problem for the Commonwealth in Fiscal 2011-2012, there seems to be little interest in voting for tax increases in what is an election year for most Pennsylvania legislators.

Sales & Use Tax Expansion On March 23rd, the Pennsylvania House, by a 107-89 vote, adopted a 2010-2011 General Fund budget similar to the Governor’s February budget proposal and sent it to the Senate. This, however, did not include Governor Rendell’s proposal to reduce the sales tax rate from 6% to 4%, but broaden the tax base to produce a net tax increase of more than half a billion dollars. In fact, the House also did not vote on any of the other tax increases and changes proposed by the Governor - including combined reporting of Corporate Net Income Tax, a natural gas severance tax, elimination of the sales tax vendors’ allowance and expansion of tobacco taxes to cover cigars and smokeless tobacco.

At this point, most observers see little likelihood that the Governor’s sales tax proposal will be adopted this year. This has been the case since the Governor’s February budget address. In the Senate where Republicans are in firm control, leaders immediately called the Governor’s sales and use tax proposal “dead on arrival.” The Governor’s sales and use tax proposal would expand the tax base to include nearly all services and eliminate 74 categories of tax exemptions. It would retain consumer exemptions for food, clothing and prescription medicines and business exclusions for manufacturing and processing machinery and equipment. The services to become subject to tax under the Governor’s proposal would include:

- Accounting, auditing and bookkeeping services

- Administrative services

- Advertising, public relations & related services

- Air transportation

- All other professional and technical services

- Architectural, engineering & related services

- Consulting (scientific, environmental & technical)

- Custom computer programming, design and data processing

- Electrical, plumbing, heating & air conditioning maintenance

- Information services

- Legal services

- Transportation services

- Scientific research & development services

- Specialized design services

- Waste management and remediation

- Water and sewage services