Rendell Vetoes PA Non-Qual DC Tax Bill

December 3, 2004 ( - Pennsylvania Governor Edward Rendell has vetoed a bill that would have taxed compensation from a nonqualified deferred compensation plan when it was received - not when it was deferred.

Rendell rejected HB 176, which business lobbyists said would have brought the Keystone State in line with the tax policy of the federal government and every other state, citing concerns that the measure would have cost the state a significant amount of revenue. requires employees to pay personal income tax at the time the compensation is deferred. The state also doesn’t allow pre-tax deferrals into 401(k) plans.

“As long as I am Governor, I intend to enforce a ‘pay as you go’ budget process for Pennsylvania,” Rendell said in his veto message to the General Assembly, which approved the bill November 20. “There will be no significant increases in spending or reductions in revenue without a specific plan to pay for them.”

While state lawmakers may have only meant to change the rules for nonqualified deferred compensation plans, Rendell said he was concerned that language in the bill could allow employers to use the tax approach for all DC plans – a development Rendell said would have cost the state an estimated $220 million a year in lost revenues.

Business community lobbyists weren’t happy with Rendell’s move.

“Under the Department of Revenue’s interpretation, Pennsylvania law is contrary to federal law and the laws of any other state in the nation,” Jim Welty, vice president of legislative and corporate affairs for the Pennsylvania Chamber of Business and Industry, said in a statement . “Not only does our law defeat the purpose of deferred compensation arrangements, which is to provide tax benefits to participants, it serves as a deterrent to attracting and keeping employers in the state, and represents yet another factor that would discourage companies from choosing the Commonwealth as a place in which to do business.”