THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY ERICKSON, M. WHITE, FERLO AND YUDICHAK, JUNE 30, 2011

REFERRED TO FINANCE, JUNE 30, 2011  

AN ACT

Providing options, subject to voter approval, for political

subdivisions to impose taxes on earned income and net profits

and personal income for the purpose of reducing real property

taxes; authorizing a county sales and use tax; and providing

for disbursement of sales tax revenues.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

CHAPTER 1

GENERAL PROVISIONS

Section 101.  Short title.

This act shall be known and may be cited as the Local Tax

Choice Act.

Section 102.  Definitions.

The following words and phrases when used in this act shall

have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Department."  The Department of Revenue of the Commonwealth.

"Earned income."  As defined in section 501 of the act of

December 31, 1965 (P.L.1257, No.511), known as The Local Tax

Enabling Act.

"Election officials."  The county board of elections of a

county.

"Governing body."  Any city council, borough council,

incorporated town council, board of county commissioners or a

home rule successor in function, board of township

commissioners, board of township supervisors, governing council

of a home rule municipality or optional plan municipality, or

governing council of a similar general purpose unit of

government which may be created by statute after the effective

date of this section.

"Homestead."  As defined in 53 Pa.C.S. § 8401 (relating to

definitions).

"Homestead property."  As defined in 53 Pa.C.S. § 8401 

(relating to definitions).

"Income tax."  A tax on earned income and net profits or a

tax on personal income imposed pursuant to this act.

"Local Tax Enabling Act."  The act of December 31, 1965

(P.L.1257, No.511), known as The Local Tax Enabling Act.

"Net profits."  As defined in section 501 of the act of

December 31, 1965 (P.L.1257, No.511), known as The Local Tax

Enabling Act.

"Per capita market value."  The total market value of all

real property divided by population as determined by the most

recent decennial census.

"Personal income."  Income enumerated in section 303 of the

act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code

of 1971, as returned to and ascertained by the Department of

Revenue, subject, however, to any correction for fraud, evasion

or error as finally determined by the department or a court of

competent jurisdiction.

"Political subdivision."  Any city, county, borough,

incorporated town or township.

"Resident individual."  An individual who is domiciled in a

political subdivision.

"Statewide average weekly wage."  That amount determined

annually for each calendar year by the Department of Labor and

Industry under section 105.1 of the act of June 2, 1915

(P.L.736, No.338), known as the Workers' Compensation Act.

"Tax Reform Code."  The act of March 4, 1971 (P.L.6, No.2),

known as the Tax Reform Code of 1971.

"Weighted tax revenues."  Total tax revenues from all sources

of a municipality divided by the ratio of its per capita market

value to the per capita market value of its county.

CHAPTER 3

TAX AUTHORIZATION

Section 301.  General tax authorization.

(a)  General rule.--Subject to section 303, a political

subdivision may by resolution levy, assess and collect or

provide for the levying, assessment and collection of the earned

income and net profits tax or the personal income tax. A

political subdivision may levy either an earned income and net

profits tax or a personal income tax, but under no circumstance

may a political subdivision levy both the earned income and net

profits tax and a personal income tax.

(b)  Exclusions.--No political subdivision that levies an

earned income and net profits tax or a personal income tax may

levy, assess or collect any of the following:

(1)  A tax based upon a flat rate or on a millage rate on

an assessed valuation of a particular trade, occupation or

profession, commonly known as an occupation tax.

(2)  A tax at a set or flat rate upon persons employed

within the taxing district, commonly known as an occupational

privilege tax.

(3)  A per capita, poll, residence or similar head tax.

(4)  Except for taxes permitted under 53 Pa.C.S. §

8402(b), (c), (d), (e) and (f) (relating to scope and

limitations), any other tax authorized or permitted under the

Local Tax Enabling Act.

(c)  Delinquent taxes.--The provisions of subsection (b)

shall not apply to collection of delinquent taxes.

Section 302.  Continuity of tax.

The earned income and net profits tax or the personal income

tax levied under this act shall continue in force on a fiscal

year basis without annual reenactment unless the rate of tax is

increased or the tax is subsequently repealed.

Section 303.  Adoption of referendum.

(a)  Submission.--The governing body of all political

subdivisions shall submit the referendum question to the

electors of these political subdivisions at the primary election

of 2012.

(b)  Referendum question.--

(1)  The referendum question must state the initial rate

of the proposed earned income and net profits tax or personal

income tax, the reason for the tax and the amount of proposed

budgeted revenue growth, if any, in the first fiscal year

following adoption of the referendum, expressed as a percent

increase over the prior year's budgeted revenue. Any increase

in budgeted revenue between the first fiscal year following

adoption of the referendum and the prior year's budgeted

revenue shall not exceed the annual percent change in the

Statewide average weekly wage. The question shall be in clear

language that is readily understandable by a layperson. For

purpose of illustration, a referendum question may be framed

as follows:

Do you favor the imposition of an earned income and net

profits tax or a personal income tax of X% to be used to

replace (names of local taxes to be repealed), reduce

real property taxes by X% by and provide for a one-time

revenue increase of X% over the preceding fiscal year?

(2)  A nonlegal interpretative statement must accompany

the question in accordance with section 201.1 of the act of

June 3, 1937 (P.L.1333, No.320), known as the Pennsylvania

Election Code, that includes the following: the initial rate

of the earned income and net profits tax or personal income

tax and the maximum allowable rate of the earned income and

net profits tax or personal income tax imposed under this

act; the estimated revenues to be derived from the initial

rate of the earned income and net profits or personal income

tax imposed under this act; the amount of proposed revenue

growth, if any, in the first fiscal year following adoption

of the referendum; the estimated reduction in real property

taxes and the elimination of certain existing taxes under

this act; the identification of the existing taxes to be

eliminated under this act; the method to be used to reduce

real property taxes; the class or classes of real property

for which real property taxes would be reduced; and the

estimated amount of real property tax reduction by class,

expressed as an average percent reduction by class.

Section 304.  Taxes authorized.

(a)  General rule.--A political subdivision may levy, assess

and collect a tax authorized under either subsection (b) or (c),

but may not levy, assess and collect both taxes.

(b)  Earned income and net profits tax.--A political

subdivision shall have the power to levy, assess and collect a

tax on earned income and net profits up to a maximum rate of

1.5%. The tax may be levied by a political subdivision at a rate

of 1%, 1.25% or 1.5%.

(c)  Personal income tax.--A political subdivision may levy,

assess and collect a tax on personal income up to a maximum rate

of 1.5%. The tax may be levied by the political subdivision at a

rate of 1%, 1.25% or 1.5%.

Section 305.  Collections.

(a)  General rule.--A political subdivision imposing a tax

under section 304 shall designate the tax officer who is

appointed under section 506 of the Local Tax Enabling Act, or

otherwise by law, as the collector of the earned income and net

profits tax and may designate that tax officer as the collector

of the personal income tax. In the performance of the tax

collection duties, the designated tax officer shall have the

same powers, rights, responsibilities and duties for the

collection of the taxes that may be imposed under the Local Tax

Enabling Act or as otherwise provided by law.

(b)  Collection of personal income tax by Commonwealth.--

(1)  A political subdivision imposing a tax upon personal

income may enter into an agreement with the department for

the collection of that personal income tax by the department

in conjunction with the collection of any tax on personal

income imposed by the Commonwealth under the Tax Reform Code.

(2)  The agreement may not include any provisions

regarding enforcement. The agreement and any renewal shall be

executed at least six months prior to the date for the

collection of the tax; shall have a duration of at least

three years; and, after expiration, shall not be reinstituted

for a period of three years. The agreement authorized by this

subsection shall contain a provision appointing the

department as the tax officer within the meaning of this act.

(3)  The department, by regulation, shall establish the

procedures for collecting the tax and paying the full amount

collected to the political subdivision.

Section 306.  Credits.

(a)  General rule.--The provisions of section 317 of the

Local Tax Enabling Act shall be used to determine any credits

under the provisions of this chapter for any taxes imposed under

section 304.

(b)  State tax credit.--

(1)  This section only applies to a taxpayer who is a

resident of this Commonwealth and not a resident of a city of

the first class but who is subject to the tax on salaries,

wages, commissions or other compensation imposed by a city of

the first class under the authority of the act of August 5,

1932 (Sp.Sess., P.L.45, No.45), referred to as the Sterling

Act.

(2)  For tax years beginning in the first year in which a

political subdivision adopts a tax authorized by section 304

and each tax year thereafter, payment of a tax on salaries,

wages, commissions or other compensation as set forth in

paragraph (1) shall be credited to the political subdivision

of the taxpayer's residence at an amount no greater than the

tax on salaries, wages, commissions or other compensation as

set forth in paragraph (1) imposed by the political

subdivision in which the taxpayer resides.

(3)  An amount equal to the aggregate amount of the tax

credited under paragraph (2) shall be paid by the

Commonwealth to the political subdivision of residence of

each taxpayer under paragraph (1) for the purpose of funding

homestead exclusions. The department shall prescribe

procedures to calculate the amount due to each political

subdivision qualifying under this paragraph and shall publish

the procedures in the Pennsylvania Bulletin.

Section 307.  Exemptions.

A political subdivision that imposes an authorized tax under

this act may exempt from the payment of that tax any person

whose total income from all sources is less than $7,500.

Section 308.  Regulations.

(a)  General rule.--Taxes imposed under section 304(b) shall

be subject to regulations adopted under Chapter 5 of the Local

Tax Enabling Act. A political subdivision may adopt regulations

for the processing of claims for credits or exemptions under

sections 306 and 307.

(b)  Personal income tax.--Regulations promulgated by the

department for personal income tax shall apply to any personal

income tax imposed by a political subdivision pursuant to this

act.

Section 309.  Disposition of earned income and net profits tax

revenue or personal income tax revenue.

The disposition of revenue from any tax imposed under this

act or an increase in the rate of any tax imposed by political

subdivisions under the authority of this act shall occur in the

following manner:

(1)  For the fiscal year of implementation of a newly

imposed income tax, all tax revenue received by a political

subdivision shall be used first to offset any lost revenue to

the political subdivision from the taxes prohibited under

section 301(b) in an amount equal to the revenue collected

from the prohibited taxes in section 301(b) in the preceding

fiscal year; second, to provide for an increase in budgeted

revenues over the preceding fiscal year in accordance with

the amount specified in the referendum question approved by

the voters under section 303; and third, to reduce the

political subdivision real property tax in the following

order:

(i)  By means of an exclusion for homestead property

pursuant to 53 Pa.C.S. § 8583 (relating to exclusion for

homestead property).

(ii)  By means of a reduction in the millage rate

after the limit on the exclusion for homestead property

has been reached under 53 Pa.C.S. § 8586 (relating to

limitations).

(2)  For the fiscal year of implementation of an increase

in the rate of the existing tax imposed under this act, all

revenue received by a political subdivision directly

attributable to the increased rate shall be used to reduce

the political subdivision real property tax in the following

order:

(i)  By means of an exclusion for homestead property

pursuant to 53 Pa.C.S. § 8583.

(ii)  By means of a reduction in the millage rate

after the limit on the exclusion for homestead property

has been reached under 53 Pa.C.S. § 8586.

CHAPTER 5

COUNTY SALES AND USE TAX

Section 501.  Construction.

The tax imposed by the governing body under this chapter

shall be in addition to any tax imposed by the Commonwealth

under Article II of the Tax Reform Code. Except for the

differing situs provisions under section 503, the provisions of

Article II of the Tax Reform Code shall apply to the tax.

Section 502.  Imposition.

(a)  Sales.--The governing body may levy and assess upon each

separate sale at retail of tangible personal property or

services, as defined in Article II of the Tax Reform Code,

within the boundaries of the county, a tax on the purchase

price. The tax shall be collected by the vendor from the

purchaser and shall be paid over to the Commonwealth as provided

in this chapter.

(b)  Use.--In any county within which the tax authorized in

subsection (a) is imposed, there shall be levied, assessed and

collected upon the use, within the county, of tangible personal

property purchased at retail and on services purchased at

retail, as defined in Article II of the Tax Reform Code, a tax

on the purchase price. The tax shall be paid over to the

Commonwealth by the person who makes the use. The use tax

imposed under this chapter shall not be paid over to the

Commonwealth by any person who has paid the tax imposed under

subsection (a) or has paid the tax imposed by this subsection to

the vendor with respect to the use.

(c)  Occupancy.--In any county within which a tax authorized

by subsection (a) is imposed, there shall be levied, assessed

and collected an excise tax on the rent upon every occupancy of

a room or rooms in a hotel in the county. The tax shall be

collected by the operator or owner from the occupant and paid

over to the Commonwealth.

(d)  Rate and uniformity.--

(1)  The tax authorized by subsections (a), (b) and (c)

shall be imposed at a rate of 1%.

(2)  The tax imposed by subsections (a), (b) and (c)

shall be uniform.

(e)  Computation.--The tax imposed under this section shall

be computed in the manner set forth in section 503(e)(2) of the

act of June 5, 1991 (P.L.9, No.6), known as the Pennsylvania

Intergovernmental Cooperation Authority Act for Cities of the

First Class.

Section 503.  Situs.

The situs of sales at retail or uses, including leases, of

motor vehicles, aircraft, motorcraft and utility services shall

be determined in the manner specified by section 504 of the act

of June 5, 1991 (P.L.9, No.6), known as the Pennsylvania

Intergovernmental Cooperation Authority Act for Cities of the

First Class.

Section 504.  Licenses.

A license for the collection of the tax imposed by this

chapter shall be issued in the same manner as is provided for in

section 505 of the act of June 5, 1991 (P.L.9, No.6), known as

the Pennsylvania Intergovernmental Cooperation Authority Act for

Cities of the First Class. Licensees shall be entitled to the

same discount as provided in section 227 of the Tax Reform Code.

Section 505.  Rules and regulations; collection costs.

(a)  Regulations.--Rules and regulations shall be applicable

to the taxes imposed under section 502 in the same manner as is

provided for in section 506(1) and (2) of the act of June 5,

1991 (P.L.9, No.6), known as the Pennsylvania Intergovernmental

Cooperation Authority Act for Cities of the First Class.

(b)  Administrative costs.--The department, to cover its

costs of administration, shall be entitled to retain a sum equal

to 1% of the revenues collected under this chapter for

administrative costs. When the annual operating budget for the

department is submitted to the General Assembly, the department

shall also submit to the chairman and minority chairman of the

Appropriations Committee of the Senate and to the chairman and

minority chairman of the Appropriations Committee of the House

of Representatives the actual sums retained for costs of

collection in the preceding fiscal year, together with all

supporting details.

Section 506.  Procedure and administration.

(a)  Ordinance.--Any county desiring to impose the tax

authorized by section 502 shall give at least 60 days' written

notice to every municipality and school district located in the

county of its intent to impose the tax and shall adopt an

ordinance after the expiration of 60 days after the date of the

notice. The notice and an ordinance shall state the tax rate and

refer to this chapter. The ordinance shall authorize the

imposition of all taxes provided for in section 502. Prior to

adopting an ordinance imposing the tax authorized by section

502, the governing body of the county shall give public notice

of its intent to adopt the ordinance in the manner provided by

section 306 of the Local Tax Enabling Act and shall conduct at

least one public hearing regarding the proposed adoption of the

ordinance.

(b)  Notification to department.--A certified copy of the

county ordinance shall be delivered to the department by

September 1 of the year prior to the effective date of the

ordinance. The county ordinance shall become effective on the

January 1 following at least four months after the date of

enactment of the county ordinance.

(c)  Delivery of repeal ordinance.--A certified copy of a

repeal ordinance shall be delivered to the department at least

120 days prior to the effective date of the repeal.

Section 507.  County sales and use tax funds.

There is hereby created for each county levying the tax under

section 502 the (proper name) County Sales and Use Tax Fund. The

State Treasurer shall be custodian of the funds which shall be

subject to the provisions of law applicable to funds listed in

section 302 of the act of April 9, 1929 (P.L.343, No.176), known

as The Fiscal Code. Taxes imposed under section 502 shall be

received by the department and paid to the State Treasurer and,

along with interest and penalties, less any collection costs

allowed under this chapter and any refunds and credits paid,

shall be credited to the funds not less frequently than every

two weeks. During any period prior to the credit of money to the

funds, interest earned on money received by the department and

paid to the State Treasurer under this chapter shall be

deposited into the respective funds. All money in each fund,

including, but not limited to, money credited to the funds under

this section, prior year encumbrances and the interest earned

thereon, shall not lapse or be transferred to any other fund,

but shall remain in that fund. Pending their disbursement, money

received on behalf of or deposited into each fund shall be

invested or reinvested as is other money in the custody of the

State Treasurer in the manner provided by law. All earnings

received from the investment or reinvestment of the money shall

be credited to the respective funds.

Section 508.  Disbursements.

(a)  General rule.--On or before the tenth day of every

month, the State Treasurer shall make the disbursements on

behalf of the county imposing the tax out of the money which is,

as of the last day of the previous month, contained in the

respective county sales and use tax fund.

(b)  Disbursement to counties.--

(1)  The State Treasurer shall disburse to a county

imposing the tax authorized under section 502 an amount of

money equal to 50% of the tax collected in that county and

remitted to the department and deposited in the respective

county sales and use tax fund.

(2)  An amount of money equal to the remaining 50% of the

tax collected in that county shall be allocated to all of the

municipalities and school districts within that county as

follows:

(i)  Twenty-five percent shall be allocated to all

municipalities within the county. Each municipality shall

be allocated a portion as computed under section 510(a).

(ii)  Twenty-five percent shall be allocated to all

school districts within the county. Each school district

shall be allocated a portion as computed under section

510(b).

(3)  The State Treasurer shall disburse to a county, in

addition to its share under paragraph (1), an amount of money

equal to the allocations to nonqualified municipalities and

school districts within the county.

(4)  The county shall deposit the revenue from the

respective county sales and use tax fund into the county

general fund for disposition as provided under section

511(a).

(c)  Disbursement to municipalities.--The State Treasurer

shall, at the same time, disburse to the qualified

municipalities an amount of money equal to their allocations

under subsection (b)(2)(i). Each municipality's portion shall be

deposited in the municipal general fund for disposition as

provided in section 511(b).

(d)  Disbursement to school districts.--The State Treasurer

shall, at the same time, disburse to the qualified school

districts an amount of money equal to their allocations under

subsection (b)(2)(ii). Each school district's portion shall be

deposited in the school district's general fund for disposition

as provided in section 511(b).

(e)  Penalty.--If disbursements are not made on or before the

tenth day of each month, a 5% penalty shall be added thereto

plus an additional 1% late charge per month delayed.

Section 509.  Adoption of municipal resolutions and school

district petitions.

(a)  General rule.--No municipality shall be entitled to a

disbursement under section 508(c) and no school district may

receive a disbursement under section 508(d) unless one of the

following applies:

(1)  Prior to enactment of the county ordinance, it

adopts a municipal resolution or a school district petition

containing the statement:

We strongly urge the county to enact a county sales and

use tax and intend to accept disbursements of the sales

and use taxes collected.

Any municipality which does not enact an ordinance and a

school district which does not enact a petition in compliance

with this paragraph may not receive any distribution from

funds collected during the first 24 months immediately

following the initial date of imposition of the tax.

(2)  Prior to October 1 of any year after the enactment

of the county resolution, it adopts a municipal resolution or

a school district petition containing the statement:

We support the enactment by the county of the county

sales and use tax and strongly urge its continuation and

intend to accept disbursements of the sales and use taxes

collected.

(b)  Delivery.--A certified copy of the municipal resolution

or the school district petition shall be delivered to the county

commissioners on or before the enactment of the county

resolution or October 15 of any year thereafter, as the case may

be.

Section 510.  Allocations and qualifications.

(a)  Allocations to municipalities.--The State Treasurer

shall compute allocations to municipalities in the following

manner:

(1)  Fifty percent of the money allocated to

municipalities shall be pursuant to a format in which the

total allocation to municipalities multiplied by the ratio of

weighted tax revenues of the municipality divided by the sum

of the weighted tax revenues of all municipalities located in

the county.

(2)  Fifty percent of the money allocated to

municipalities shall be returned to the municipality of

origin of the sales tax revenue.

(b)  Allocations to school districts.--Each school district

shall be allocated a portion of the total allocation to school

districts which is equal to the total allocation to school

districts multiplied by the ratio of average daily membership of

the school district divided by the sum of the average daily

membership of all school districts in the county.

(c)  Qualifications.--Municipalities and school districts

qualified to receive disbursements under section 508(c) or (d)

are municipalities and school districts located within the

county, which:

(1)  Adopt in a timely fashion the ordinance or petition

required under section 509.

(2)  Adopt the necessary ordinances or, in the case of

school districts, take the legally necessary action and

impose the taxes authorized under this chapter.

(d)  Calculation of weighted tax revenues.--Calculations of

weighted tax revenues shall be made by the Department of

Community and Economic Development or any successor agency and

certified to the State Treasurer based upon information reported

to the Department of Community and Economic Development or any

successor agency, subject to review, verification and approval

by the Department of Community and Economic Development or any

successor agency.

Section 511.  Sales tax revenues.

(a)  Counties.--One hundred percent of any additional

revenues received by a county from the sales and use tax shall

be used to offset the revenues lost as a result of the

prohibition against imposition of the taxes enumerated in

section 301(b) and then to reduce the county real property tax

by means of a homestead exclusion.

(b)  Municipalities and school districts.--One hundred

percent of any additional revenues shall be used to offset the

revenues lost as a result of the prohibition against imposition

of the taxes enumerated in section 301(b) and then to reduce

real property tax by means of a homestead exclusion.

CHAPTER 11

MISCELLANEOUS PROVISIONS

Section 1101.  Effective date.

This act shall take effect in 60 days.