Tax Expenditures

This report, published concurrently with the Governor’s Executive Budget to meet the requirements of Article VI of the Administrative Code of 1929, includes an analysis of indirect expenditures that occur through special treatment within the tax structure. Various tax credits, deductions, exemptions, and exclusions are provided, resulting in reductions in revenue that would otherwise be received by the Commonwealth at current tax rates. Cumulatively, these are referred to in this report as “tax expenditures.”

For the purposes of this document, a “tax expenditure” is defined as a reduction in revenue that would otherwise be collected by the Commonwealth due to an exemption, reduction, deduction, limitation, exclusion, tax deferral, discount, refund, commission, credit, special rate, or special treatment. This definition provides a general framework for determining whether to classify certain items as tax expenditures. To facilitate this classification process, six specific criteria have been adopted to augment the general definition of a tax expenditure:

(1) Reduces state revenues, 
(2) Confers special treatment,
(3) Is included in the defined tax base,
(4) Is not subjected to equivalent alternative taxation,
(5) Can be altered by a change in state law, and
(6) Is not an appropriation.