The Pennsylvania General Assembly continues to battle over revenue sources while the state remains without a complete state budget. And when it seems impossible, things actually continue to worsen with the House and Senate scheduled sessions to begin this afternoon. Over the weekend, the idea of a storage tax was discussed and it now seems to be more of a reality than a week ago. And this tax is allegedly to replace a Marcellus Shale production tax. This means the new targets for tax revenue are those who provide and use warehousing services and storage of items (“items” as defined by the proposed language seems to encompass almost anything) as well as anyone in the logistics business. In essence, this tax would impose a 6% sales tax and have broad and expensive impact on almost every business. And the idea appears to be moving quickly through the capitol.
As covered in the media, the Pennsylvania General Assembly approved a budget spending bill without revenue sources at the end of June, and Governor Wolf allowed it to become law without his signature. Since then, lawmakers have fought over how to come-up with the $2.2 billion to pay for it. Recently, the Republican-controlled Senate passed a revenue package that included more than $500 million in new taxes, including an extraction tax on shale gas drillers, new and increased taxes on consumer utilities such as electric, natural gas, telephone and expansion of the sales tax to online retailers. Also, the Senate plan would borrow against the tobacco settlement fund and include revenue from expanded gambling. Governor Wolf supported the Senate plan.
Most recently, the Senate rejected the House GOP’s no-new tax revenue plan that relied heavily on fund transfers and the sale of future tobacco settlement fund payments. Similar to the Senate plan, it included revenue from expanded gambling. Last week, it was expected that a conference committee process would begin soon. This would be the most recent effort to settle the differences and write a new revenue bill. However, the chambers and parties within them have strong positions on what should and should not be included for raising revenue.
The now fast moving issue that arose on Friday night during budget discussions in the Pennsylvania General Assembly involves a Storage Tax. And, as of today, there remains uncertainty as to whether or not the language is written to reflect the intent of the tax. This potential tax has been raised before during this year and in prior years under prior governors, but it was eventually pulled from the table. However, it is now alive again and during a time of critical need for resolution on how to find revenue to support the already passed spending plan. At this juncture, we believe there are a number of legislators opposed to the idea, including many in the south central caucus. However, the idea appears to have enough support that it continued to be discussed through the weekend with potential for momentum beginning on Monday.
If this tax is passed, it will have a significant and expensive impact on many Pennsylvania businesses. The draft language is very concerning because it appears to impact all businesses that provide warehousing and storage space as well as those who pay for storage space and warehousing services in PA. Also significant is that it provides full discretion to the Commonwealth to implement, and, we expect the Department of Revenue to apply it very broadly in order to raise much needed revenue.
Some have argued in the past that a broad storage tax will result in layoffs and storage and distribution businesses closing and selecting other states to establish their business. Others argue that a storage tax would result in consumers being double taxed when they purchase goods at the store and also when distribution centers pass along the storage tax to their consumers. And, this tax would work against any efforts the Commonwealth or municipalities within it make to attract businesses to locate or expand in Pennsylvania because competing states could immediately look at least “6% cheaper” for doing business. For example, it does not seem logical that Amazon, which is looking for a second headquarters in North America, would even consider a proposal from the Commonwealth if this tax is a reality and applicable to their business.
Clearly this will be very detrimental to the warehouses and trucking hubs that line Interstates as well as their clients. In fact, this could affect the national supply chain that some argue already exists in Pennsylvania’s warehouse industry. And, we expect it will also be very bad for business in the energy, gas industries such as refineries, those who are wet gas midstream operators and/or in the business of ordinary storage of gasoline, etc. as well as increase costs for Pennsylvania’s agriculture industry and food distributors.
Please contact us should you wish to discuss in detail. We believe time is of the essence as the General Assembly works on closing the gap between its spending plan and funding sources. We recognize the challenges for the state to find revenue. But we also know our clients and the challenges they already face with increased costs of doing business in PA. McNees Wallace & Nurick’s Government Relations and State and Local Tax practice groups are working to help clients who oppose a storage tax. Please contact us should you have interest in talking with legislators regarding the impact of a storage tax on your business.