Wednesday, November 22, 2006

PA tax relief take an anti-gas pill

It's that bad... the property tax study commissions mandated to be appointed by local school districts were designed to make recommendations concerning what type of tax would be instituted to dollar for dollar ? reduce local property taxes.

The issue is not uncomplicated:

Act 72 Complicates an Already Complicated System – Local Taxation and Tax Collection

revenues from slot machines for local property tax relief in Pennsylvania. However, this new law impacts more than homeowners’ tax bills. IssuesPA investigated the impact on local tax collection.

(April 2005) Act 72 authorizes using receipts from slot machines to pay for local tax relief in communities throughout Pennsylvania. Yet in addition to the headline-making issues of property tax relief and the back-end referendum, Act 72 could further complicate Pennsylvania's fragmented tax system, making it even more difficult and costly to collect local taxes.

Three key factors make tax collection difficult: multiple tax rates, multiple tax collectors, and multiple tax bases. The dilemma begins with the collection of state and local income taxes. Currently, businesses must collect and remit local earned income taxes to local tax collectors and the state income tax to state government. The state income tax is the easy part - one taxing authority, one rate, one tax base. However, in Pennsylvania, calculating local taxes is much more complicated and often creates added costs for the initial tax collector - employers.

What's the impact on local income taxes?

State law allows local governments, including municipalities and school districts, to use a variety of earned income tax (EIT) rates. Current state law permits most communities to impose a rate up to 1% on residents or non-residents who work within the local government boundaries, and that 1% often - but not always - is shared by the school district and the municipality. Other municipalities and school districts can have higher rates for a number of reasons, such as:

Separately legislated limits in Philadelphia, Pittsburgh, and Scranton;
Special provisions for financially distressed communities;
Municipalities that purchase and preserve open space;
Home rule municipalities; and
School districts that have elected to trade higher earned income taxes for lower property and occupational assessment taxes.
Earned income tax? Personal income tax?

Buried in Act 72, either explicitly or implicitly, are provisions that will add significantly to the number of tax rates. First, rate changes will be numerous. To qualify for gambling dollars, school districts must increase their EIT rate by at least 0.1% - whether or not they levy an EIT currently. School districts could adopt - or may be required by referendum to adopt - a greater EIT rate to provide additional property tax relief. The only limit on that rate is the ceiling for meeting the full homestead exemption.

Act 72 also permits school districts to impose an income tax using the state personal income tax (PIT) base instead of a wage tax base. A PIT would have yet another different rate to raise the same revenue as an EIT - and would tax more kinds of income than the EIT. For districts selecting this option, there will be a PIT rate for the school district and an EIT rate for the municipality.

What's the impact of all these potential new taxes and rates? The potential for thousands of municipal and school district income tax rate combinations across Pennsylvania's communities.

Currently, there are more than 550 earned income tax collectors; 99 school districts use more than one. About 80% collect taxes for only one or two taxing jurisdictions. There's no consistency statewide in who collects the tax: it ranges from individuals collecting for a handful of jurisdictions to contracted private companies collecting under individual contracts or under contract with multiple taxing authorities, consolidating their efforts and spreading collection costs. The result is a lack of consistency. Employers with multiple locations and with employees living in different municipalities may have to deal with hundreds of tax collectors, a situation almost unique to Pennsylvania.

Adopting the provisions of Act 72 won't change the current complicated system. In fact, it's possible yet another tax collector could be involved. Some EIT tax collectors may not be prepared to take on a new local PIT tax.

Further, the current tax base isn't defined consistently across boundaries. The definition of "income" effectively depends on where you live. For example, an employer with employees in different school districts, some of which levy the EIT and others that levy the PIT, would have to decipher different withholding rules for multiple employees...;jsessionid=85FCFD1AD13416B81AA3B275F3BB3E99

a number of the study commissions just throw the ball back in the court of the local school district...

(Note; will have to look into whether the referendum question would contain a choice between earned income tax and personal income tax)(Net the Truth Online)

Uniontown panel: No tax change

Judy Kroeger
Tuesday, November 21, 2006

The tax study commission appointed by Uniontown Area School District recommended no change to the tax structure.
At a school board meeting Monday, commission spokeswoman Dee John told directors the group does not favor increasing the earned income tax to provide property tax relief.

"You would have to raise income taxes by 0.4 percent to provide tax relief, an 80 percent increase," she said. "Households that earn $46,500 or more would pay more in earned income tax than they would save in property tax. Act 1 is tax shifting rather than tax relief."

The earned income tax is 1 percent, with the district receiving half and the municipality of the taxpayer receiving half.

Business Manager Floyd Geho said the district still has to put the question of an increase in earned income tax on the primary ballot in May.

Commission recommends no changes in tax structure
By Angie Oravec, Herald-Standard
The local tax study commission of the Uniontown Area School District recommended no change to the school district's current taxing structure Monday, refusing to suggest an increased earned income or personal income tax.

The commission made the recommendation, as required by the state law called Act 1 or the Pennsylvania Taxpayer Relief Act, after holding eight meetings since September to weigh options outlined by the state...

... Even without the tax study commission recommending a way to offset property taxes, the school board must still by law place a referendum question on the primary election ballot asking voters to approve increasing either the earned income or personal income tax to offset property taxes.

The voters will then accept or reject an increased tax in exchange for the possibility of lower property taxes, depending on a household's situation.

The Brownsville Area and Laurel Highlands school district local tax study commissions also recommended no change to their district's current tax structure...

November 14, 2006 Brownsville tax commission recommends no change
Amanda clegg Herald-Standard

Members of the Brownsville Area School District's tax study commission agreed to recommend no change in the district's tax configuration to the school board in December...

Residents confused about new tax law
By Angie Oravec, Herald-Standard


Howard said the commission did not reach a decision on which recommendation they will present to the school board by Dec. 13 because its work is incomplete at this point.

Under Act 1 or the Pennsylvania Taxpayer Relief Act, local tax study commissions appointed by the 501 school boards across the state are analyzing school district tax structures to determine the most feasible way to offset homeowners' property taxes. The purpose of the commissions is to make a recommendation to their respective school boards.

The majority of commissions across the state are recommending raising the earned income tax, rather than the personal income tax or advising the board to keep the district's existing tax structure, according to the Pennsylvania School Boards Association.

Locally, the trend seems to be either recommending no change or the raising the earned income tax wage earners pay annually. Recommendations are non-binding, meaning the school board could choose a different route than that suggested by their commission.
PA Laws - Part 1-3 Act 72 Homestead Tax Relief Act

Will implement something else

Jeff-Morgan votes to raise earned income taxes
By Rebekah Sungala, Herald-Standard
The Jefferson-Morgan School Board voted Monday to raise earned income taxes by .6 percent after reviewing a recommendation from the district's tax study commission.

The increase will raise the earned income tax to 1.6 percent. However, the school district will receive only receive 1.1 percent of the revenue, with .5 percent of the earned income tax going to the municipality.

April 2005 report (Fumo)

Opted to not participate

Lampeter-Strasburg school district

Does the homeowner or farmstead owner have to apply or forego the so-called property tax relief?

Summary of Referendum/Property Tax Relief Legislation
Major provisions of Act 72 of 2004
Updated Sept. 21, 2004

For your convenience, PSBA presents this detailed summary of Act 72 of 2004, the Homeowners Property Tax Relief Act. This act contains numerous provisions that could have a major effect on how school districts operate. It requires school districts to reduce property taxes using state revenues from gaming allocations and local revenues using newly authorized income taxes. The bill also requires school districts to obtain the approval of its voters for certain increases in taxes for schools and mandates that districts adopt their preliminary budget far earlier than they do currently. For ease of understanding, the provisions of the act are presented in chronological order...

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