Here's what CPAs and firms need to know about some inclusions (and exclusions), and why PICPA’s advocacy work matters more than ever heading into next year.
There were no broad-based tax increases, no major tax reform bill (for the second budget cycle in a row), and the Rainy Day Fund was untouched, as budget negotiators held the line against drawing it down. Education and Human Services continue to dominate the spending plan, which together account for roughly three-quarters of allocations.
A few tax and fiscal code items, however, are worth flagging for your practice:
Philadelphia BIRT decoupling. Philadelphia’s Business Income and Receipts Tax now decouples from state and federal net income calculations for research and experimentation expenditures, qualified production property, and interest deductions. This is retroactive to tax years after Dec. 31, 2024, which means some clients may need amended returns. (See the recent blog by PICPA member James Brower.)
Local sales tax sourcing. Philadelphia and Allegheny County sourcing rules now align with state sales and use tax rules, retroactive to tax years beginning after Dec. 31, 2025. (See the recent blog by PICPA member Mark Balistrieri.)
New tax credits. The Innovate PA 2.0 program allows qualified insurance companies to purchase up to $125 million in insurance premium tax credits, with proceeds funding life science and biotech grants. The manufacturing and investment tax credit cap also increased to $12 million annually.
Here's a fiscal fact that should get every CPA’s attention: Pennsylvania is spending more than it is bringing in, and that gap is projected to widen every year through at least 2031 – from roughly $5 billion next year to nearly $7.7 billion within five years. This year's budget only balanced on paper partly through a cycle roll, delaying $2.6 billion in Medicaid managed care payments rather than cutting them.
This structural gap means everything will be on the table in the next two budget cycles: sales tax on services, combined reporting, taxes on advertising, and passive income. The PICPA is gearing up for this conversation with a new Tax Blueprint Project, an initiative to bring CPA-vetted policy solutions to lawmakers before the debates get messy. You'll hear more from us on this in the coming weeks, and we will want your input.
House Bill 1697 – which was part of the budget negotiations – would have expanded the False Claims Act to state and local tax. This is something every member should understand. If passed, it would open the door for private lawsuits against taxpayers and practitioners over how returns are filed, separate from the normal Department of Revenue resolution process. Only New York and Illinois have anything close to this broad of an application; everywhere else, false claims acts are narrowly focused on Medicaid and health care fraud.
The PICPA pushed back on the Pennsylvania proposal, and the False Claims Act did not make it into this year's budget. That is a win, but it is not over. The proposal had the governor’s backing, House Democrats’ support, a push from the trial bar, and the support of a growing number of Republicans who see it as a way to bring in revenue without raising taxes. It will be back next year, and with a new General Assembly configuration after the November election it could be harder to stop. We need a strong, unified CPA voice in Harrisburg to ensure similar false claims legislation has a carve-out for tax work in place.
The General Assembly returns to session for a brief window before the November election, with the real end-of-session deadline of Nov. 30. The biggest item likely to move is skill game regulation and taxation. A state Supreme Court ruling has given lawmakers until Oct. 13 to bring these machines under the state's gaming law. There's real revenue at stake here – potentially billions annually – and real disagreement over what tax rate applies.
The PICPA is also working to advance Senate Bill 1183, which would raise the threshold for charitable organization registration requirements. It passed the Senate unanimously in June, and with your help we have a small window of opportunity this fall to get the bill on the governor’s desk.
Finally, the Department of Revenue has proposed new sourcing regulations for corporate income tax. The PICPA is reviewing the proposal, and comments are due by Aug. 24.
Every one of these issues – from the False Claims Act to the coming tax reform debate – gets decided by the people we elect. All 203 House seats and 25 Senate seats are on the ballot this year, along with the governor. The landscape after November will shape whether these fights get a fair hearing or get steamrolled.
This is why we're holding our first-ever Advocacy Day this year – a chance for you to see what PICPA advocacy work actually looks like. It’s not just our work with legislators, but also the regulatory and technical advocacy our team handles on members’ behalf every day.
Register for Advocacy Day on Sept. 16, 2026, and be part of the conversation before policy decisions get made.
We can only be as effective as our members allow us to be. Get involved, reach out to your legislators when it is time for action, and register for Advocacy Day today. If you can’t attend this very special PICPA gathering in Harrisburg, please consider contributing to the CPA-PAC to help our efforts this fall and beyond.
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