CORRECTIVE REPRINT
PRIOR PRINTER'S NO. 1346 PRINTER'S NO. 1357
No. 991 Session of 2003
INTRODUCED BY WAGNER, MUSTO, MELLOW, COSTA AND FERLO,
DECEMBER 24, 2003
REFERRED TO FINANCE, DECEMBER 24, 2003
AN ACT
1 Amending the act of December 31, 1965 (P.L.1257, No.511),
2 entitled "An act empowering cities of the second class,
3 cities of the second class A, cities of the third class,
4 boroughs, towns, townships of the first class, townships of
5 the second class, school districts of the second class,
6 school districts of the third class and school districts of
7 the fourth class including independent school districts, to
8 levy, assess, collect or to provide for the levying,
9 assessment and collection of certain taxes subject to maximum
10 limitations for general revenue purposes; authorizing the
11 establishment of bureaus and the appointment and compensation
12 of officers, agencies and employes to assess and collect such
13 taxes; providing for joint collection of certain taxes,
14 prescribing certain definitions and other provisions for
15 taxes levied and assessed upon earned income, providing for
16 annual audits and for collection of delinquent taxes, and
17 permitting and requiring penalties to be imposed and
18 enforced, including penalties for disclosure of confidential
19 information, providing an appeal from the ordinance or
20 resolution levying such taxes to the court of quarter
21 sessions and to the Supreme Court and Superior Court,"
22 providing for payroll expense tax; and making a related
23 repeal.
24 The General Assembly of the Commonwealth of Pennsylvania
25 hereby enacts as follows:
26 Section 1. The act of December 31, 1965 (P.L.1257, No.511),
27 known as The Local Tax Enabling Act, is amended by adding a
1 section to read:
2 Section 2.2. Payroll Expense Tax.--(a) Cities of the second
3 class which levy, assess and collect a mercantile or business
4 privilege tax on gross receipts or part thereof after November
5 30, 1988, pursuant to section 533(b) of the act of December 13,
6 1988 (P.L.1121, No.145), known as the "Local Tax Reform Act,"
7 shall have the authority to levy, assess and collect an annual
8 payroll expense tax on employers doing business within the city,
9 subject to all of the following conditions:
10 (1) The ordinance levying the tax authorized by this
11 subsection shall simultaneously and permanently repeal the
12 city's existing mercantile and business privilege taxes on gross
13 receipts or part thereof, such repeal to be effective upon the
14 commencement of the first tax year for which the payroll expense
15 tax must be paid. Following such repeal, pursuant to section
16 533(a) of the "Local Tax Reform Act," the city shall not levy,
17 assess or collect or provide for the levying, assessment or
18 collection of a mercantile or business privilege tax on gross
19 receipts or part thereof.
20 (2) The rate of the payroll expense tax shall be set by
21 ordinance of the city, but may not exceed seventy-five one
22 hundredths percent of the employer's annual payroll expense
23 attributable to the city or the rate at which the aggregate
24 annual payroll expense of all employers that is attributable to
25 the city exceeds the city's total annual revenues from the
26 mercantile or AND business privilege tax as of the effective <--
27 date of this act by fifteen million dollars ($15,000,000),
28 whichever rate is lower. The tax shall not be subject to rate
29 limitations, exemptions or exclusions as otherwise provided by
30 any other ordinance of the city or law of this Commonwealth.
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1 (3) The taxes, additions and penalties collected under the
2 provisions of this section shall be used by the city exclusively
3 for the general revenue purposes of the city.
4 (4) The ordinance levying the tax authorized by this
5 subsection shall provide for its collection. The taxes shall be
6 collected in accordance with all provisions, restrictions,
7 limitations, rights of notice and appeal as are applicable to
8 other taxes imposed for city purposes.
9 (b) (1) Notwithstanding any contrary provision of law of
10 this Commonwealth, including the provisions of this act and the
11 act of March 4, 1971 (P.L.6, No.2), known as the "Tax Reform
12 Code of 1971," every employer shall pay the payroll expense tax
13 if authorized and levied by the city pursuant to subsection (a).
14 (2) Any tax imposed pursuant to subsection (a) shall not
15 apply to any employer unless the employer is doing business
16 within the city. An employer is doing business within a city if
17 the business engages, hires, employs or contracts with one or
18 more individuals as employes, or if one or more individuals earn
19 profits for or relating to the performance of work or rendering
20 of services in whole or in part within the city, and in
21 addition, the employer does at least one of the following:
22 (i) maintains a fixed place of business within the city;
23 (ii) owns or leases real property within the city for
24 purposes of such business;
25 (iii) maintains a stock of tangible personal property in the
26 city for sale in the ordinary course of such business;
27 (iv) conducts continuous solicitation within the city
28 related to such business; or
29 (v) utilizes the streets of the city in connection with the
30 operation of such business other than transportation through the
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1 city.
2 (3) For purposes of computation of the tax imposed pursuant
3 to subsection (a), the payroll expense attributable to the city
4 shall be determined by applying an apportionment factor to total
5 payroll expense based on that portion of payroll expense which
6 the total number of days an employe, partner, member,
7 shareholder or other individual works within the city bears to
8 the total number of days such employe or person works within and
9 outside of the city. The collector shall prescribe regulations
10 providing for use of alternative forms of apportionment of
11 payroll expense in addition to the form prescribed by the
12 preceding sentence.
13 (4) Every tax year in which an employer incurs payroll
14 expense shall be subject to the tax imposed pursuant to
15 subsection (a). Every employer subject to the payment of the tax
16 shall compute the employer's taxable payroll expense using the
17 tax measurement year beginning in the tax base year. Every
18 employer who does not have a tax measurement year ending in the
19 tax year in which the employer first incurs payroll expenses
20 shall file a return and pay any estimated tax due pursuant to
21 paragraph (7), but shall not be required to file a final return
22 until the next tax year. Every employer terminating its
23 activities and no longer incurring payroll expenses during the
24 tax year shall compute the employer's payroll expenses using the
25 period that begins on the beginning date of the tax measurement
26 year ending in the tax year and ends on the date payroll expense
27 is no longer incurred. The collector shall prescribe regulations
28 to ensure that every employer with a change in tax measurement
29 year, including an employer that may have multiple tax
30 measurement years within a tax year, shall pay the tax imposed
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1 by this section for all periods in which payroll expense is
2 incurred.
3 (5) Every employer subject to the tax imposed pursuant to
4 subsection (a) shall file an annual return at such time and in
5 such manner as provided for by ordinance. Such provisions may
6 permit reasonable extensions of time for filing returns,
7 provided an estimated return is filed on or before the due date
8 and is filed in the manner and paid in the amount prescribed by
9 the collector.
10 (6) Every employer subject to the tax imposed pursuant to
11 subsection (a) shall file a return upon a form as required by
12 the collector. Every employer making a return shall certify the
13 correctness thereof.
14 (7) An employer subject to the tax imposed pursuant to
15 subsection (a) shall make quarterly estimated tax payments in
16 such manner as provided by regulations prescribed by the
17 collector either in equal quarterly installments based upon the
18 prior year's tax liability or in quarterly installments based on
19 the amount of payroll expenses arising in such quarter, and upon
20 making the return shall pay the amount of tax shown as due to
21 the collector less any estimated tax payments paid for the tax
22 year.
23 (8) In addition to any other additions, penalties or
24 enforcement proceedings provided for by ordinance of the city or
25 law of this Commonwealth for the collection and enforcement of
26 taxes:
27 (i) Any employer who wilfully makes any false or untrue
28 statement on the employer's return commits a misdemeanor of the
29 second degree and shall, upon conviction, be sentenced to pay a
30 fine of not more than two thousand dollars ($2,000) or to
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1 imprisonment for not more than two years, or both.
2 (ii) Any employer who wilfully fails or refuses to file a
3 return required by this section commits a misdemeanor of the
4 third degree and shall, upon conviction, be sentenced to pay a
5 fine of not more than one thousand dollars ($1,000) or to
6 imprisonment for not more than one year, or both.
7 (iii) Any person who wilfully fails or refuses to appear
8 before the collector in person with the employer's books,
9 records or accounts for examination when required under the
10 provisions of this section or of an ordinance to do so, or who
11 wilfully refuses to permit inspection of the books, records or
12 accounts of any employer in the person's custody or control when
13 the right to make such inspection by the collector is requested,
14 commits a misdemeanor and shall, upon conviction, be sentenced
15 to pay a fine of not more than five hundred dollars ($500) or to
16 imprisonment for not more than six months, or both.
17 (c) As used in this section, the following words and phrases
18 shall have the meanings given to them in this subsection:
19 "City" means a city of the second class as defined in the act
20 of June 25, 1895 (P.L.275, No.188), entitled "An act dividing
21 the cities of this State into three classes with respect to
22 their population, and designating the mode of ascertaining and
23 changing the classification thereof in accordance therewith."
24 "Collector" means the receiver of taxes in a city.
25 "Compensation" means the salaries, wages, commissions,
26 bonuses and incentive payments, whether based on profits or
27 otherwise, fees, tips and similar remuneration and profits for
28 services rendered, whether directly or through an agent and
29 whether in cash or in property. The term shall not mean or
30 include:
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1 (1) periodic payments for sickness and disability other than
2 regular wages received during a period of sickness or
3 disability;
4 (2) disability, retirement or other payments arising under
5 workmen's compensation acts, occupational disease acts and
6 similar legislation by any government;
7 (3) payments commonly recognized as old age or retirement
8 benefits paid to persons retired from service after reaching a
9 specific age or after a stated period of employment;
10 (4) payments commonly known as public assistance, or
11 unemployment compensation payments by any governmental agency;
12 (5) payments to reimburse actual expenses;
13 (6) payments made by employers or labor unions, including
14 payments made pursuant to a cafeteria plan qualifying under
15 section 125 of the Internal Revenue Code of 1986 (Public Law 99-
16 514, 26 U.S.C. § 125), for employe benefit programs covering
17 hospitalization, sickness, disability or death, supplemental
18 unemployment benefits or strike benefits, provided that the
19 program does not discriminate in favor of highly compensated
20 individuals as to eligibility to participate, payments or
21 program benefits;
22 (7) any compensation received by United States servicemen
23 serving in a combat zone;
24 (8) payments received by a foster parent for in-home care of
25 foster children from an agency of the Commonwealth or a
26 political subdivision thereof or an organization exempt from
27 Federal tax under section 501(c)(3) of the Internal Revenue Code
28 of 1986 that is licensed by the Commonwealth or a political
29 subdivision thereof as a placement agency;
30 (9) payments made by employers or labor unions for employe
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1 benefit programs covering Social Security or retirement; or
2 (10) personal use of an employer's owned or leased property
3 or of employer-provided services.
4 "Employer" means any individual, sole proprietor,
5 partnership, limited partnership, association, foundation,
6 corporation, S corporation, estate or trust. The term includes a
7 financial employer, a manufacturer, a regulated employer and
8 other for-profit entities that are exempt from a mercantile or
9 business privilege tax on gross receipts or part thereof imposed
10 by a city immediately prior to the tax imposed pursuant to
11 subsection (a). Whenever used in any provision of this section
12 that prescribes or imposes a penalty, the term, as applied to
13 associations, shall mean the partners or members thereof, and as
14 applied to corporations, the officers thereof, responsible for
15 the reporting and payment of taxes, provided that such
16 individuals shall not be subject to penalties if they discharged
17 their duties with respect to reporting and payment of taxes with
18 reasonable care, prudence and diligence. The term does not
19 include:
20 (1) a nonprofit organization;
21 (2) the Federal Government;
22 (3) the Commonwealth;
23 (4) any political subdivision or any authority created
24 and organized under and pursuant to the law of this
25 Commonwealth;
26 (5) any state other than this Commonwealth;
27 (6) any local government of a state other than this
28 Commonwealth;
29 (7) any authority or governmental entity created and
30 organized by the law of any state other than this
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1 Commonwealth;
2 (8) any government of a nation other than the United
3 States; or
4 (9) any insurance company, association or exchange or
5 any fraternal, benefit or beneficial society of another state
6 for which such other state, by reason of the tax imposed by
7 this act, subjects insurance companies, associations or
8 exchanges or fraternal, benefit or beneficial societies of
9 this Commonwealth to additional or further taxes, fines,
10 penalties or license fees.
11 "Financial employer" means any employer that is not a
12 regulated employer but is: a bank; a private bank or banker; a
13 building and loan association; a savings and loan association; a
14 credit union; a savings bank; a bank and trust company; a trust
15 company; any employer that is a regulated financial services
16 institution; an investment company registered as such with the
17 Federal Securities and Exchange Commission; a holding company; a
18 person registered under the act of December 5, 1972 (P.L.1280,
19 No.284), known as the "Pennsylvania Securities Act of 1972,"
20 including traders; a dealer and broker in money, credits,
21 commercial paper, bonds, notes, securities and stocks and
22 monetary metals; or a factor and commission merchant.
23 "Manufacturer" means a person whose business is the sale of
24 goods, commodities, wares or merchandise of its own manufacture,
25 growth or production, including processors.
26 "Payroll expense" means compensation paid to a person and
27 profits earned by an employer.
28 "Person" means a corporation, partnership, business trust,
29 other association, estate, trust, foundation or natural person.
30 "Profits" means net earnings from self-employment as defined
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1 by section 1402 of the Internal Revenue Code of 1986 (Public Law
2 99-514, 26 U.S.C. § 1402).
3 "Regulated employer" means an employer subject to tax
4 pursuant to Article VII, VIII, IX or XV of the act of March 4,
5 1971 (P.L.6, No.2), known as the "Tax Reform Code of 1971," a
6 public utility operating under the laws, rules and regulations
7 administered by the Pennsylvania Public Utility Commission, all
8 or a portion of the activities of which is to furnish or supply
9 service or services at the rates specified in its tariffs, an
10 employer which is a health maintenance organization as defined
11 in the act of December 29, 1972 (P.L.1701, No.364), known as the
12 "Health Maintenance Organization Act," an employer which is a
13 preferred provider organization as defined in section 630 of the
14 act of May 17, 1921 (P.L.682, No.284), known as "The Insurance
15 Company Law of 1921," and 31 Pa. Code § 152.2 (relating to
16 definitions), or an employer licensed under the act of April 12,
17 1951 (P.L.90, No.21), known as the "Liquor Code."
18 "S corporation" means any person with a valid election in
19 effect under Subchapter S of Chapter 1 of the Internal Revenue
20 Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.).
21 "Tax base year" means the twelve-month period immediately
22 preceding the tax year.
23 "Tax measurement year" means the fiscal or calendar year by
24 which the employer keeps its books and records for Federal tax
25 purposes.
26 "Tax year" means the twelve-month period from January 1 to
27 December 31.
28 Section 2. Section 533(b) of the act of December 13, 1988
29 (P.L.1121, No.145), known as the Local Tax Reform Act, is
30 repealed to the extent it is inconsistent with this act.
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1 Section 3. This act shall take effect immediately.
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