PhillyDeals: Failed tax overhaul aids a bank, opens Pa. budget hole
Banks, their lobbyists, and their friends in Pennsylvania's General Assembly are struggling over who ought to pay the state's bank-shares tax.
Banks, their lobbyists, and their friends in Pennsylvania's General Assembly are struggling over who ought to pay the state's bank-shares tax.
The tussle follows a failed overhaul that Harrisburg sources say has benefited the state's largest bank - Pittsburgh-based PNC Financial Services Group - while leaving an unexpected hole in the state budget.
Slow-growing Pennsylvania is well known as a state that charges higher-than-average business taxes, until you make friends in high places, who can cut you a break.
State officials have been reconfiguring the tax code, which formerly weighed the location of a company's workers, customers, and property. The aim now is to focus more on where a business sells its products.
The idea is that companies based here, employing Pennsylvanians and buying locally made goods and services, will now pay lower taxes - while out-of-state companies that happen to sell stuff to Pennsylvanians will pay more.
So, when Act 52 revised the state's bank-shares levy in 2013, the Republican-led legislature cut the tax rate, while also broadening the tax's targets to include Delaware credit-card banks, Wall Street corporate lenders, and other companies that weren't based here and weren't previously paying.
The legislature's idea was to make the change revenue-neutral, so they couldn't be accused of raising total taxes - or of cutting banks a special break.
The bill did rope in new bank taxpayers. But at the end of last year's tax season, the new arrangement brought in less than projected - just $267 million, $83 million below the expected $350 million.
People familiar with the data tell me an analysis shared by key legislators showed PNC's lower tax bill accounted for most of the shortfall.
PNC spokeswoman Marcey Zweibel told me the bank wouldn't comment on how much it pays in specific state and local taxes.
PNC, whose profit topped $4 billion in 2013, might deserve a hometown break, if you consider its new high-rise Pittsburgh headquarters and the thousands of workers it still employs in the state (after years of relentless cost-cutting). Legislators might be forgiven for wanting to lean more on out-of-state or foreign banks that collect Pennsylvania bank deposits, municipal and corporate finance fees, interest on local credit cards and mortgages, all without hiring here.
But nobody authorized a gaping hole in the state budget - at a time when public schools, prisons, and other key services are laboring under tighter spending plans.
A few months ago, the state Department of Revenue put out a bulletin reviewing the bank-shares tax and suggesting that some banks weren't paying their due. That brought in an additional round of payments, but still left the state way short.
So Mike Turzai (R., Allegheny), the House majority leader, drafted a second tax-code change designed to raise an additional $40 million from the bank-share tax in each of the next two years - by boosting payments from the companies that paid the tax in 2013.
But representatives of the big Wall Street banks, such as Citigroup and JPMorgan Chase & Co., and the big national branch banks - Bank of America and Wells Fargo & Co. - found they would be paying the lion's share of that increase. Some community banks also objected: Why should they pay more when PNC was enjoying a break? So Turzai scrapped that solution.
The result is a $40 million hole in next year's budget, as our elected reps wait to see whether the bankers can cut a deal among themselves.
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