NOTICES
INDEPENDENT REGULATORY REVIEW COMMISSION
Notice of Comments Issued
[54 Pa.B. 4586]
[Saturday, August 3, 2024]Section 5(g) of the Regulatory Review Act (71 P.S. § 745.5(g)) provides that the Independent Regulatory Review Commission (Commission) may issue comments within 30 days of the close of the public comment period. The Commission comments are based upon the criteria contained in Section 5.2 of the Regulatory Review Act (71 P.S. § 745.5b).
The Commission has issued comments on the following proposed regulations. The agency must consider these comments in preparing the final-form regulation. The final-form regulation must be submitted within 2 years of the close of the public comment period or it will be deemed withdrawn.
Reg. No. Agency/Title Close of the Public
Comment PeriodIRRC
Comments
Issued130-1 Pennsylvania Health Insurance
Exchange Authority d/b/a Pennie Health Equity Accreditation
54 Pa.B. 2993 (May 25, 2024)06/24/24 07/24/24 15-462 Department of Revenue
Business Income and Nonbusiness Income
54 Pa.B. 2999 (May 25, 2024)06/24/24 07/24/24 15-463 Department of Revenue
Payment Methods for Obligations Due the Commonwealth
54 Pa.B. 2996 (May 25, 2024)06/24/24 07/24/24
Pennsylvania Health Insurance Exchange Authority # 130-1 (IRRC # 3401)
Health Equity Accreditation
July 24, 2024 We submit for your consideration the following comments on the proposed rulemaking published in the May 25, 2024 Pennsylvania Bulletin. Our comments are based on criteria in Section 5.2 of the Regulatory Review Act (RRA) (71 P.S. § 745.5b). Section 5.1(a) of the RRA (71 P.S. § 745.5a(a)) directs the Pennsylvania Health Insurance Exchange Authority (Exchange Authority) to respond to all comments received from us or any other source.
1. Whether the regulation conforms to the intention of the General Assembly in the enactment of the statute upon which the regulation is based; Whether the regulation represents a policy decision of such a substantial nature that it requires legislative review.
This proposal is the first rulemaking promulgated by the Exchange Authority. It is being proposed under the Exchange Authority's rulemaking authority granted to it by the General Assembly under Section 9701 of Act 42 of 2019 (Act 42) (40 Pa.C.S. § 9701), also known as the Health Markets Oversight Act, and their general rulemaking authority of Section 506 of the Administrative Code of 1929 (71 P.S. § 186).
In order to determine if a regulation conforms to the intention of the General Assembly in the enactment of a statute upon which it is based, this Commission is guided by Section 5.2(a) of the RRA. It states, in part, the following: ''In making its determination, the commission shall consider written comments submitted by the committees and current members of the General Assembly, pertinent opinions of Pennsylvania's courts and formal opinions of the Attorney General.'' Representative Bryan Cutler, Republican Leader, and Senator John Disanto, Chair of the Senate Banking and Insurance Committee, have submitted comments opposing this proposed rulemaking.
In his comments, Representative Cutler states that as the author of Act 42, he believes the proposed regulation ''goes beyond the clearly defined purpose and legislative intent of the exchange authority as outlined in 40 Pa.C.S. § 9302(b)(1) and (2).'' He also states that Act 42 was passed unanimously by both chambers of the General Assembly and that the agreed-upon intent of it was to ''. . .create a system that made it easy to purchase plans and easy to sell plans. What the Legislature did not intend was for the future boards to add additional conditions on insurers or consumers, no matter how well intended.''
Senator DiSanto states in his comments that, ''As a general rule, administrative entities such as Pennie should leave social-engineering policy decisions, into which category this clearly falls, to the elected branches of government, unless given clear statutory authorization.''
In light of these comments from current members of the General Assembly, we ask the Exchange Authority two questions. First, what evidence does the Exchange Authority have to show that this type of regulation is what was envisioned by the General Assembly when it granted the Exchange Authority the authority to promulgate regulations? Second, why does the Exchange Authority believe the type of policy set forth by this regulation is within their purview and not a policy decision that should be made by the General Assembly?
2. Need for the regulation.
Representative Cutler questions the need for the rulemaking and how the proposed regulation will lead to the desired outcome of health equity. He points to a lack of data that shows how accreditation of insurers improves health equity issues. Senator DiSanto also questions the need for the rulemaking and poses specific questions related to the information provided by the Exchange Authority in the Regulatory Analysis Form (RAF) submitted with the proposed regulation. His questions relate to terminology, data or evidence to support the rulemaking, and costs. We ask the Exchange Authority to provide more detailed explanations and data in the Preamble and RAF submitted with the final-form regulation that address the concerns of the legislators. We will evaluate the Exchange Authority's response to the concerns of Representative Cutler and Senator DiSanto to determine if the final-form regulation is in the public interest.
3. Fiscal impact.
In the RAF, the Exchange Authority estimates that the rulemaking will impose a cost of approximately $6,000 to $13,080 (plus a $.06 per member fee) for insurers. Members of the regulated community from the insurance industry have submitted comments that question the Exchange Authority's quantification of the fiscal impact of the rulemaking. They believe additional costs associated with dedicating staff to comply with health equity accreditation requirements will be required. Senator Disanto raised a similar concern in his comments. As the Exchange Authority prepares the final-form rulemaking, we ask that it consult with the regulated community to gain a better understanding of fiscal impact the rulemaking could have on the insurance industry. The RAF submitted with the final-form regulation should be amended to reflect the findings of the Exchange Authority.
4. Section 5001.2. Purpose.—Clarity.
This section reads as follows:
The purpose of this chapter is to increase health equity and enhance the cultural competency of healthcare services provided in the Commonwealth by requiring insurers selling qualified plans through the Exchange Authority to be accredited in health equity by a recognized accrediting body. (Emphasis added.)Section 5001.3, relating to definitions, defines the term ''health equity.'' However, the term ''cultural competency'' is not defined. We suggest that the final-form rulemaking define the term ''cultural competency'' to improve the clarity of the regulation.
5. Section 5001.3. Definitions.—Clarity.
Subsection (a) reads as follows, ''The definitions in 40 Pa.C.S. § 9103 (relating to definitions) are incorporated by reference and apply to this chapter.'' Subsection (b) defines four terms; Department, Exchange Authority, Health equity, and Recognized health equity accreditation organization. Since the first two terms are defined in the cited statute, we recommend that they be deleted from the final-form regulation.
The definition of ''health equity'' includes the terms ''gender'' and ''disability.'' A commentator has suggested that the phrase ''gender identity'' be used in lieu of ''gender.'' The commentator also encourages ''Pennsylvania's inclusion of disability as a disparity sensitive characteristic or identity.'' We will review the Exchange Authority's response to these suggestions in our review of the final-form regulation. We note that both terms are also used in § 5001.5(b)(1).
6. Section 5001.4. Achieving health equity accreditation.—Implementation procedures; Clarity.
This section establishes the requirements and timeline to comply with the proposed rulemaking. Commentators representing the insurance industry have identified two issues with this section and how it will be implemented. First, they have suggested that the regulation provide flexibility to insurance companies to align the new health equity accreditation requirement of this rulemaking with their current accreditation schedule and process. They have also suggested that the implementation be phased in over a 24-month period. We ask the Exchange Authority to work with the regulated community on an implementation schedule that is the least burdensome administratively to insurers, while at the same time, meets the goals of the Exchange Authority.
Second, under Subsection (b)(3), they question how an insurer can demonstrate that they made a ''good faith'' effort to attain accreditation. They have suggested that the criteria that will be used to determine if an insurer has met this standard be included in the final-form regulation. Since a regulation has the full force and effect of law and sets a binding norm, we agree that the final-form regulation should set forth the criteria that will be used by the Exchange Authority to make this determination.
7. Section 5001.5. Recognized health equity accreditation organizations.—Implementation procedures; Clarity.
This section establishes the standards that health equity accreditation organizations must meet for the Exchange Authority to recognize them as an organization through which insurers selling plans through the Exchange Authority can obtain accreditation. Subsection (b)(5) requires a health equity accreditation organization to have ''specific parameters'' that the applicant seeking accreditation must have prior to becoming accredited in health equity. To assist applicants in meeting this requirement, and to improve the clarity of the regulation, we suggest that the specific parameters be included in the final-form rulemaking.
8. Section 5001.6. Penalties.—Clarity.
This section reads as follows:
Failure to comply with the provisions of this chapter will subject an insurer offering qualified plans through the Exchange Authority to referral to the Department for enforcement in accordance with 40 Pa.C.S. § 9702 (relating to enforcement) and any other penalty provided by law. (Emphasis added.)The phrase ''and any other penalty provided by law'' is vague. The final-form regulation should either cite the other laws that may be applicable or delete the phrase.
Department of Revenue Regulation # 15-462
(IRRC # 3402)
Business Income and Nonbusiness Income
July 24, 2024 We submit for your consideration the following comments on the proposed rulemaking published in the May 25, 2024 Pennsylvania Bulletin. Our comments are based on criteria in Section 5.2 of the Regulatory Review Act (RRA) (71 P.S. § 745.5b). Section 5.1(a) of the RRA (71 P.S. § 745.5a(a)) directs the Department of Revenue (Department) to respond to all comments received from us or any other source.
1. Whether the agency has the authority to promulgate the regulation; Whether the regulation conforms to the intention of the General Assembly in the enactment of the statute upon which the regulation is based; Implementation procedures.
The Preamble to this proposal states the following:
The purpose of this proposed rulemaking is to add § 153.24a regarding business income and nonbusiness income due to legislative changes and the further development of the unitary business principle of the United States Constitution in case law.We have two concerns related to the criteria cited above. First, Senator Scott Hutchinson, Chairman of the Senate Finance Committee, and Representative Keith Greiner, Minority Chairman of the House Finance Committee, have submitted comments in opposition to the rulemaking. Both legislators believe the proposal is inconsistent with statutes upon which it is based. In his comments, Senator Hutchinson stated, ''For example, the allocable/apportionable income provisions contained in this proposal differ from and are inconsistent with the definition of 'business income' found in Pennsylvania's Corporate Net Income Tax statute, a clear administrative overreach and undermining of the General Assembly's exclusive legislative power.'' Representative Greiner's comments stated, ''I believe that this proposal goes far beyond the department's statutory authority and attempts to give the department powers that allow it to assess business taxes in a manner consistent with combined reporting methodologies, something that has never been authorized by the General Assembly.'' The legislators also believe the proposal is contradictory to longstanding legal precedent and doctrine adopted by the Pennsylvania Supreme Court.
In order to determine if a regulation conforms to the intention of the General Assembly in the enactment of a statute upon which it is based, this Commission is guided by Section 5.2(a) of the RRA. It states, in part, the following: ''In making its determination, the commission shall consider written comments submitted by the committees and current members of the General Assembly, pertinent opinions of Pennsylvania's courts and formal opinions of the Attorney General.''
In light of these comments, we ask the Department to address the concerns raised by the legislators and to explain if the ''legislative changes and the further development of the unitary business principle of the United States Constitution in case law'' change the manner in which the corporate net income tax (CNIT) is imposed.
Second, the Department states in the Preamble that the majority of the proposed language for this regulation mirrors the Model General Allocation and Apportionment Regulations (Model) of the Multistate Tax Commission. It explains this approach has been taken to promote consistent treatment with other states. We believe that consistency of tax rules between states will benefit Pennsylvania- based taxpayers operating in multiple jurisdictions. However, as illustrated below, the verbatim use of language from the Model is problematic because that language deviates from the standards established by the Pennsylvania Code and Bulletin Style Manual.
The proposal contains numerous provisions from the Model that could be described as informative rather than regulatory. Regulations establish binding norms between the regulated community and the governmental agency imposing the regulation. Informative or illustrative language should not be included in a regulation. Two examples of informative provisions are quoted below:
From § 153.24a(c)(4):
The classification of income by the labels occasionally used, such as manufacturing income, compensation for services, sales income, interest, rents, royalties, gains, income derived from accounts receivable, operating income, non-operating income, and the like, is of no aid in determining whether income is business or nonbusiness income.From § 153.24a(e)(2)(i):
A unitary business is characterized by significant flows of value evidenced by factors such as those described in Mobil Oil Corp. v. Vermont, 445 U.S. 425 (1980): functional integration, centralization of management and economies of scale. These factors provide evidence of whether the business activities operate as an integrated whole or exhibit substantial mutual interdependence. Facts suggesting the presence of the previously mentioned factors should be analyzed in combination for their cumulative effect and not in isolation. A particular business operation may be suggestive of one or more of the previously mentioned factors.In addition, the proposal contains 23 examples that provide guidance on whether a business activity generates business income or nonbusiness income. Below is a sampling of such examples:
From § 153.24a(f):
(f) Examples of business income and nonbusiness income. The examples used in these regulations are illustrative only and are limited to the facts they contain.(1) Rents from real and tangible personal property.Example 1: The taxpayer operates a multistate car rental business. The income from car rentals is business income.Example 2: The taxpayer is engaged in the heavy construction business in which it uses equipment such as cranes, tractors, and earth-moving vehicles. The taxpayer makes short-term leases of the equipment when particular pieces of equipment are not needed on any particular project. The rental income is business income.We acknowledge that the regulated community could benefit from the informative and illustrative language included in this proposal. However, we question if this unique type of regulatory language is consistent with the intent of the General Assembly when it granted the Department general rulemaking authority under Part V of the Tax Reform Code of 1971 (72 P.S. § 7408(a)). If the Department believes the information and examples contained in the regulation are needed to assist with the implementation of it and compliance by those subject to CNIT, we suggest that those provisions be deleted from the rulemaking and placed in a policy statement or guidance document that is easily accessible to the regulated community.
2. Compliance with the provisions of the RRA or the regulations of the Commission in promulgating the regulation.
Section 5.2 of the RRA directs this Commission to determine whether a regulation is in the public interest. The Regulatory Analysis Form (RAF) and Preamble submitted with this proposal do not provide sufficient information to determine if the rulemaking is in the public interest. Specifically, we ask the Department to provide additional information for the following sections of the RAF:
• RAF # 12—This section of the RAF asks how the regulation compares to other states and how it will affect Pennsylvania's ability to compete with other states. What states impose a CNIT? Of those states, which ones have adopted or incorporated the Multistate Tax Commission's Model, as this proposed rulemaking does?
• RAF # 19 and # 23—These sections of the RAF relate to the fiscal impact the rulemaking will have on the regulated community. Members of the regulated community and Representative Greiner disagree with the Department's contention that the rulemaking will not have a fiscal impact. They point to pending cases before the Board of Finance and Revenue and the Commonwealth Court that will be impacted by this rulemaking. We ask the Department to quantify the impact this rulemaking could have on those pending cases.
3. Section 153.24a. Business and nonbusiness income.—Possible conflict with statutes.
The Department states in the RAF and Preamble that this proposal clarifies existing law. A major concern of the regulated community is that the proposal does more than that. They believe it changes the way business income will be taxed for CNIT purposes, deviates from Pennsylvania tax law and conflicts with established judicial precedence. The Pennsylvania Institute of Certified Public Accountants submitted a comment stating that the proposal would ''. . .impermissibly reverse the judicially created multiform business/unrelated asset doctrine through administrative action. Only the General Assembly or the courts have the authority to reverse this judicially created doctrine.''
Comments submitted by the regulated community point to specific provisions of this section to illustrate that the rulemaking does more than clarify existing law. Listed below are examples of their concerns:
• The proposal does not account for differences between the definition of ''business income'' in the statute and the definition of ''apportionable income'' in the Model.
• The transactional test of Subsection (b), the functional test of Subsection (c) and the definition of ''trade or business'' found in Subsection (h) would result in the taxation of all transactions of a unitary business, ''whether that particular business or transaction has any connection with the Commonwealth.''
• Subsection (b) and Subsection (c) would impermissibly repeal the multiform business/unrelated assets doctrine.
• The language of Subsection (d), relating to unitary business principle, and Subsection (e), relating to principles for determining the existence of a unitary business, contravenes the separate reporting requirements of the CNIT law by giving the Department the authority to impose mandatory combined reporting.
• The Department lacks the statutory authority to require the disclosures of Subsection (g), relating to consistency and uniformity in reporting, and the additional disclosures and reporting requirements are not needed and will have a fiscal impact.
• The proposal should not conclude that the judicial principles of ''multiformity'' and ''unrelated assets'' are no longer applicable.
A review of these concerns, and those raised by Senator Hutchinson and Representative Greiner, reveals a difference of opinion of what this proposal is intended to do and what it will do. We ask the Department to review all the concerns of the stakeholders and to explain in the Preamble to the final-form regulation why the rulemaking is consistent with the Tax Reform Code and the relevant judicial precedents cited by the stakeholders. In addition, we suggest that the Department convene a meeting of the stakeholders to reach consensus on the best way to incorporate the Model into the Department's regulations while at the same time ensuring that the regulations are consistent with Pennsylvania tax law and judicial precedent.
4. Clarity.
The Model includes provisions related to the treatment of dividends. This proposal does not include similar provisions. A commentator has suggested that the clarity of the proposal would be improved if it included language that addressed the treatment of dividends.
Section 2.11(a) of the Pennsylvania Code and Bulletin Style Manual states definitions should be placed near the beginning of a chapter. The definitions section for this regulation, Subsection (h), is at the end of the chapter. To be consistent with the Pennsylvania Code and Bulletin Style Manual, we suggest the definitions for this rulemaking be moved to the beginning of the chapter.
Department of Revenue Regulation # 15-463
(IRRC # 3403)
Payment Methods for Obligations Due the Commonwealth
July 24, 2024 We submit for your consideration the following comments on the proposed rulemaking published in the May 25, 2024 Pennsylvania Bulletin. Our comments are based on criteria in Section 5.2 of the Regulatory Review Act (71 P.S. § 745.5b). Section 5.1(a) of the Regulatory Review Act (71 P.S. § 745.5a(a)) directs the Department of Revenue (Department) to respond to all comments received from us or any other source.
1. Section 5.12. Definitions.—Clarity.
EFT—electronic funds transfer
This definition lists four types of EFTs the Department will accept. The types are: automated clearing house debit or credit; debit or credit card; Fedwire or other wire transfer, but only with approval of the Department (Fedwire); and other EFT as designated in Department instructions or publications (other EFT). The definition states that virtual currency is not considered an EFT.
We have two concerns with the definition. First, the language regarding Fedwire is vague. Would a person seeking to pay an obligation via Fedwire need Departmental approval to do so, or is the requirement for Departmental approval only applicable to other types of wire transfers? In addition, the requirement to obtain Department approval is substantive. Section 2.11(e) of the Pennsylvania Code and Bulletin Style Manual states that substantive provisions may not be included in a definition. Therefore, the provision requiring Department approval should be moved to another section of the regulation. The final-form regulation should also be amended to set forth the process a person can use to obtain the required Departmental approval.
Second, the language regarding ''other EFT'' is not appropriate regulatory language because it would allow the Department to establish a requirement outside of the regulatory review process. Regulations establish a binding norm for the regulated community and have the full force and effect of law. The Department should either delete the reference to other wire transfers from the final-form regulation or specifically state what other types of wire transfers are acceptable.
Treasury—This term is not used in any section of the proposed regulation and should be deleted from the final-form regulation.
2. Section 5.13. Payments in general.—Clarity.
Subsection (a) states the following, ''A person shall remit payment of an obligation due the Commonwealth at the location the Department shall designate in Department instructions or publications.'' (Emphasis added.) The existing regulation that is being deleted through this rulemaking process used the term ''taxpayer'' instead of ''person.'' What is the reason for this change? It is our understanding that the term ''person'' includes individuals and various types of businesses and organizations with tax obligations. Therefore, we ask the Department to define the term ''person'' in § 5.12 of the final-form regulation. We note that ''person'' is used in other sections of this regulation.
3. Section 5.14. Payments required to be paid by EFT.—Clarity.
Subsection (a) states, in part, that ''. . .a payment of $1,000 or more toward an obligation due the Commonwealth must be remitted to the Department'' by EFT or a certified or cashier's check. Subsections (b) and (c) provide exceptions to Subsection (a). We have three concerns with this section of the regulation. First, the title of this section references payments required to be paid by EFT. However, Subsection (a) allows for payment by certified or cashier's check. We suggest that the Department amend the title of this section to reflect that option. In addition, the Preamble submitted with the final-form regulation should be amended to reflect that EFT payments include certified or cashier's checks.
Second, Section 5.3(f) of the existing regulation lists the specific types of taxes that are subject to EFT requirements. As noted above, the existing EFT regulations are being deleted and replaced through this rulemaking process. This proposed regulation does not list the types of taxes or obligations that will be subject to EFT requirements. We note that the Regulatory Analysis Form and Preamble submitted with this rulemaking list the taxes that are currently subject to EFT requirements and new tax obligations that will be subject to EFT requirements. To improve the clarity of the regulation and to assist the regulated community with its compliance obligations, we suggest that the final-form regulation be amended to include all the taxes or financial obligations that must be remitted through EFT.
Third, if a person has a financial obligation to a Commonwealth agency other than the Department of $1,000 or more, must the payment be remitted to the Department? If not, Subsection (a) should be clarified to specify how those obligations should be paid, or, as suggested above, the specific obligations should be listed in the final-form regulation.
Third, the intent of Subsection (b) is to provide an exception for individual taxpayers. It reads as follows:
TRC section 332.1 payments. The following payments are subject to the electronic payment provisions of section 332.1 of the TRC (72 P.S. § 7332.1) and are not subject to the payment provisions in subsection (a):(1) Form PA-40 (Personal Income Tax Return) and PA-41 (Fiduciary Income Tax Return) tax liability payments, including estimated payments and payments made with the return.(2) Form PA-40 NRC (Nonresident Consolidated Income Tax Return) tax liability payments.(3) Withholding payments required under sections 316.2, 324 and 324.4 of the TRC (72 P.S. §§ 7316.2, 7324 and 7324.4).(4) Other payments made by individuals under sections 301—361 of the TRC (72 P.S. §§ 7301—7361).As currently written, this subsection lacks clarity and would require taxpayers to either be familiar with or have the ability to research the various sections of the Tax Reform Code cited above. We suggest that the Department rewrite this subsection of the regulation in plain language to allow for easier compliance by the regulated community. We have a similar concern with Subsection (c), regarding inheritance tax payments.
4. Section 5.15. Date of receipt of rules.—Reasonableness.
We question the reasonableness of Subsection (b). It reads as follows:
The person with the obligation due the Commonwealth bears the burden of remitting the payment by the due date. The person with the obligation due the Commonwealth is accountable for errors committed by the person, the payor or third parties. These errors are not justification for the abatement of interest or penalty.The Department states in the Preamble that, ''Persons with obligations due the Commonwealth are notified they are responsible for their choice of payment and bear the burden of any late payments associated with their choice, even if the late payment is due to circumstances beyond the person's control.''
Section 5.7 of the existing regulation provides several reasons why penalties on late payments may be abated and provides a six-month grace period for new EFT taxpayers to resolve problems with their payments. What is the Department's reason for not including the provisions of § 5.7 in this regulation?
The Pennsylvania Institute of Certified Public Accountants submitted comments expressing concern with a lack of penalty abatement provisions in the regulation. We ask the Department to work with the regulated community on this issue as it develops the final-form regulation.
GEORGE D. BEDWICK,
Chairperson
[Pa.B. Doc. No. 24-1097. Filed for public inspection August 2, 2024, 9:00 a.m.]
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