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House of Representatives
Session of 2015 - 2016 Regular Session


Posted: June 29, 2015 02:13 PM
From: Representative Seth M. Grove
To: All House members
Subject: Reintroduction of the Optional Property Tax Elimination Act (House Bill 1189)
On March 13, 2015 the House passed House Bill 504 which provided Pennsylvanians with historic property tax reform. Passed with bipartisan support, House Bill 504 reduces on average property taxes by 50%. This is the second time in 3 years the House has passed property tax reform. During consideration of House Bill 504, I had filed House Bill 1189 from last session as an amendment to compliment the property tax relief provided in House Bill 504. In the near future, I plan to reintroduce House Bill 1189 which the House passed 149-46. This legislation works to compliment House Bill 504 and allow school districts the local options to eliminate the property taxes which were reduced by House Bill 504.

The paramount goal of any property tax reform should be moving towards total elimination while ensuring school districts retain local control with the majority of tax dollars stay home.
This legislative proposal has been drafted to provide school districts with more options to reduce property taxes. This legislation will allow a school district to implement an additional earned income tax, mercantile tax or business privilege tax with the additional revenues used solely for the reduction or elimination of school district property taxes. Revenues generated will be used on a dollar-for-dollar basis to reduce the school district millage rate. If revenues are generated to eliminate the property tax (reduce the millage rate to zero), all tax new tax rates that are implemented under this proposal to reach full elimination will be subject to the Act 1 index.

The proposal will be known as the Optional Property Tax Elimination Act. The proposal maintains the paramount goals that should be included in any property tax reform proposal: (1) local control, (2) all monies remain with the school district, and (3) allows for the complete elimination of the school district property tax through local choice. This can all be accomplished by the local school board creating the correct array of taxing options within the school district which best suits the needs of the residents of the school district. No voter referendum is required.

One important part of this proposal is the option of the school district to levy a mercantile tax and/or business privilege tax. This creates a tool for the school board to level the playing field for residential and commercial property owners as both will benefit from the proposal. A mercantile tax is imposed upon dealers or vendors of goods, wares and merchandise while a business privilege tax is imposed upon all trades, occupations and professions that offer any service to the general public. Both taxes are calculated based on total gross receipts. Generally, any business that is subject to a mercantile tax is not subject to a business privilege tax.

Consideration was also given to allow a school district to implement a personal income tax. Currently, no taxing jurisdiction, besides the state, collects a personal income tax. With no administration or collection process currently in place at the local level there would be an additional burden on the school district to develop such a process. Furthermore, the personal income tax is a less stable tax regarding the collection of the unearned income portion (interest, dividends, capital gains, etc.) as it can vary dramatically from year to year.

Should a school district desire to switch to a personal income tax or only provide property tax relief to homeowners, Act 1 of 2006 (the Taxpayer Relief Act) currently provides such tools. Under Act 1, a school district has the authority to convert on a dollar-for-dollar basis its earned income tax to a personal income tax. Furthermore under the provisions of Act 1, a school district has the authority to provide property tax relief to homeowners by increasing the earned income tax to provide additional funds for the homestead exclusion. In order to do any of the above under Act 1, a school district would need to place a referendum on the ballot at any municipal election.

Act 24 of 2001 (the Optional Occupation Tax Elimination Act) provided school districts their first opportunity to levy an additional earned income tax to eliminate another local tax. The occupation tax was authorized under Act 511 and was a tax on residents’ occupations. School districts that chose to use Act 24 were allowed to raise their earned income tax rates in order to generate a dollar-for-dollar swap to eliminate the occupation tax, even if that rate meant they exceeded the 1% cap on earned income tax rates found in Act 511. In order to do this the school district placed a referendum on the ballot. Act 130 of 2008 permanently allowed any municipality or school district that still imposed an occupation tax to place a referendum on the ballot to obtain voter approval to eliminate the occupation tax. Those school districts that chose to have an increased earned income tax rate through the utilization of Act 24 or Act 130 have seen increases in revenues as wages have increased over time. Furthermore, these school districts have not had to rely as heavily on revenues from property taxes.

In summary, the Optional Property Tax Elimination provides school districts with additional tools to eliminate school property tax while retaining control of school district funds. Additional local revenues generated stay home and are used on a dollar-for-dollar basis to reduce or eliminate property taxes. By eliminating the voter referendum requirement, we untie the school district’s hands and give it the tools necessary to provide much needed property tax relief to its residents. A variety of taxes are provided in order for the school district to utilize so it can custom tailor the taxes imposed to best fit its district. The school district has easy access to data showing the number of residential properties, the number of commercial properties and the number of homesteads in its district. This data can be obtained from the county assessment office and the State Tax Equalization Board. With the options that will be available, each school district can maximize its local revenues while considering the impact it will have on homeowners, wage earners and businesses.

If you have any questions please contact Jordan Grant by phone at 717-767-3947 or by email at Jgrant@pahousegop.com.

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Introduced as HB1482