|
Local Tax Reform
|
Text
Text of Act 1 of 2005/6
Text of Act 50
of 1998
Text of Act 24 0f 2001
Text of Act 72 of 2004
PowerPoint & other
Act 24 of 2001
Act 50 of 1998
Tax Fairness: video
Why reform local taxes?
Act 24 of 2001
Act 72 of 2004
Homestead Exclusions
Local Tax Options
Farm taxes
Where can I learn more?
|
If you have questions about Pennsylvania local taxes and local tax reform, contact Tim Kelsey or your local Penn State Cooperative Extension office |
|
Other Links! Penn State Cooperative Extension
|
|
Disclaimer: The Pennsylvania Local Tax Reform website is strictly intended to help you know and understand more about local taxes and the tax options available to jurisdictions in Pennsylvania. The material is general and educational in nature. It is not intended to be legal advice, nor to replace the need for legal advice. If legal advice is what you need, you are encouraged to seek the aid of a competent professional in your area. |
|
Webpage and content developed by Tim Kelsey, Professor of Agricultural Economics, Department of Agricultural Economics and Rural Sociology, Penn State University |
@copyright 2007
Page last updated:
07/31/07
Which Local Taxes Are Available in Pennsylvania?
School districts, counties, and municipalities (cities, boroughs and townships) are not allowed to make up their own taxes; they are only allowed to choose between the taxes authorized for them by the Commonwealth. The number (and usefulness) of the taxes authorized varies across the different jurisdiction types.
Local taxes are authorized for local jurisdictions under several different laws; each jurisdiction has its own legal code that outlines how it operates, how it is governed, and which taxes it can levy. Pennsylvania counties, for example, are subject to the County Code passed by the Commonwealth. Boroughs, similarly, are subject to the Borough Code. The jurisdictional codes typically authorize the real property and occupation tax.
In addition, Act 511 (often referred to as the "Local Tax Enabling Act"), also authorizes a variety of different taxes for municipalities and school districts. These include the earned income tax, amusement tax, mercantile tax, per capita tax, occupation tax, and occupational privilege tax. Many of these Act 511 taxes often are referred to as "nuisance taxes," typically because individually they don't generate much revenue, and yet they are a nuisance to collect (and a nuisance for taxpayers to understand and not confuse).
Most of the Act 511 taxes have to be shared equally between school districts and municipalities if both levy it. For example, the maximum earned income tax rate for school districts and municipalities is 1 percent. If only the local school district levies the earned income tax, the school district can collect the entire 1 percent. If only the municipality levies the earned income tax, the municipality gets to collect the entire 1 percent. But if both the school district and municipality levy the earned income tax, they are required to share the 1 percent-- they each get 1/2 percent.
It is interesting to note that several local taxes are authorized both under the jurisdictional code, and under Act 511, with different tax rates. School districts and municipalities can choose under which law they want to levy the tax, and thus to tax rate cap they are subject. If a borough, for example, levies the occupation tax under the borough code, the maximum tax rate for the occupation tax is 30 mills. If a borough levies the occupation tax under Act 511, the maximum tax rate is $10 (if they choose to levy it as a "flat rate"), or no limit if they choose to levy it as a millage.
School districts have an additional new option, as a result of Act 50 of 1998. School districts adopting the new system receive a higher earned income tax limit in exchange for eliminating nusiance taxes (the occupation, occupational privilege, and per capita taxes), reducing real property taxes through homestead and farmstead exclusions, and local tax referendum whenever future proposed real property tax increases exceed an inflation. The higher earned income tax rate is a full (and dedicated) 1 1/2 percent, compared to the "old" 1 percent (which needed to be shared equally with municipalities).
The local taxes available to different Pennsylvania jurisdictions appears in Table 1. In addition, the state also sets a maximum tax rate for many of these taxes. The combination of which taxes they are allowed to use, and for how much, have major impact on how jurisdictions rely upon the different taxes.
1. Can levy one or the other, but not both simultaneously
Table 1. Major Taxes Available in Pennsylvania, by Jurisdiction
(if blank, they cannot use the tax - for more detailed information, see Appendix A)Tax 3rd - 8th Class
Counties3rd Class Cities Boroughs Townships of 1st Class Townships of 2nd Class School Districts Under Act 511 Under Act 50 of 1998 Real Property X X X X X X X Occupation X1 X X X X X Occupational Privilege X X X X X Per Capita X1 X X X X X Earned Income X X X X X X Realty Transfer X X X X X X Amusement X X X X X 2 Mechanical Devices X X X X X Mercantile X X X X X X Personal Property X
2. Cannot collect more revenue from the Amusement tax than was collected in the year ending 6/30/97