PRINTER'S NO. 1103
No. 1001 Session of 1987
INTRODUCED BY ANGSTADT, PETRONE, NOYE, TIGUE, HERSHEY, DISTLER,
CIVERA, BUNT AND JOHNSON, APRIL 7, 1987
REFERRED TO COMMITTEE ON FINANCE, APRIL 7, 1987
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 granting school districts additional powers to tax the income
23 of individuals; and authorizing an optional taxing district
24 personal income tax equivalent with certain limitations and
25 restrictions.
26 The General Assembly of the Commonwealth of Pennsylvania
27 hereby enacts as follows:
28 Section 1. The title of the act of December 31, 1965
29 (P.L.1257, No.511), known as The Local Tax Enabling Act, is
1 amended to read:
2 AN ACT
3 Empowering cities of the second class, cities of the second
4 class A, cities of the third class, boroughs, towns,
5 townships of the first class, townships of the second class,
6 school districts of the second class, school districts of the
7 third class and school districts of the fourth class
8 including independent school districts, to levy, assess,
9 collect or to provide for the levying, assessment and
10 collection of certain taxes subject to maximum limitations
11 for general revenue purposes; authorizing the establishment
12 of bureaus and the appointment and compensation of officers,
13 agencies and employes to assess and collect such taxes;
14 providing for joint collection of certain taxes, prescribing
15 certain definitions and other provisions for taxes levied and
16 assessed upon earned income, providing for annual audits and
17 for collection of delinquent taxes, and permitting and
18 requiring penalties to be imposed and enforced, including
19 penalties for disclosure of confidential information,
20 providing an appeal from the ordinance or resolution levying
21 such taxes to the court of [quarter sessions] common pleas
22 and to the Supreme Court and Superior Court.
23 Section 2. Section 8 of the act, amended October 11, 1984
24 (P.L.885, No.172), is amended to read:
25 Section 8. Limitations on Rates of Specific Taxes.--(a) No
26 taxes levied under the provisions of this act shall be levied by
27 any political subdivision on the following subjects exceeding
28 the rates specified in this section:
29 (1) Per capita, poll or other similar head taxes, ten
30 dollars ($10).
19870H1001B1103 - 2 -
1 (2) On each dollar of the whole volume of business
2 transacted by wholesale dealers in goods, wares and merchandise,
3 one mill, by retail dealers in goods, wares and merchandise and
4 by proprietors of restaurants or other places where food, drink
5 and refreshments are served, one and one-half mills; except in
6 cities of the second class, where rates shall not exceed one
7 mill on wholesale dealers and two mills on retail dealers and
8 proprietors. No such tax shall be levied on the dollar volume of
9 business transacted by wholesale and retail dealers derived from
10 the resale of goods, wares and merchandise, taken by any dealer
11 as a trade-in or as part payment for other goods, wares and
12 merchandise, except to the extent that the resale price exceeds
13 the trade-in allowance.
14 (3) [On] (i) Except as hereinafter provided, on wages,
15 salaries, commissions and other earned income of individuals,
16 one percent[.] for political subdivisions and for any school
17 district which declines to use the optional income tax
18 provisions in section 13.1.
19 (ii) When a school district utilizes the optional tax
20 provisions of section 13.1, all income of individuals shall be
21 taxable and no rate limitation shall be imposed on any school
22 district which utilizes such optional tax provisions.
23 (4) On retail sales involving the transfer of title or
24 possession of tangible personal property, two percent.
25 (5) On the transfer of real property, one percent.
26 (6) On admissions to places of amusement, athletic events
27 and the like, and on motion picture theaters in cities of the
28 second class, ten percent.
29 (7) Flat rate occupation taxes not using a millage or
30 percentage as a basis, ten dollars ($10).
19870H1001B1103 - 3 -
1 (8) Occupational privilege taxes, ten dollars ($10).
2 (9) On admissions to ski facilities, ten percent. The tax
3 base upon which the tax shall be levied shall not exceed forty
4 percent of the cost of the lift ticket. The lift ticket shall
5 include all costs of admissions to the ski facility.
6 (10) On admissions to golf courses, ten percent. The tax
7 base upon which the tax shall be levied shall not exceed forty
8 percent of the greens fee. The greens fee shall include all
9 costs of admissions to the golf course.
10 (b) Except as otherwise provided in this act and except when
11 a school district imposes the optional income tax set forth in
12 section 13.1, at any time two political subdivisions shall
13 impose any one of the above taxes on the same person, subject,
14 business, transaction or privilege, located within both such
15 political subdivisions, during the same year or part of the same
16 year, under the authority of this act then the tax levied by a
17 political subdivision under the authority of this act shall,
18 during the time such duplication of the tax exists, except as
19 hereinafter otherwise provided, be one-half of the rate, as
20 above limited, and such one-half rate shall become effective by
21 virtue of the requirements of this act from the day such
22 duplication becomes effective without any action on the part of
23 the political subdivision imposing the tax under the authority
24 of this act. When any one of the above taxes has been levied
25 under the provisions of this act by one political subdivision
26 and a subsequent levy is made either for the first time or is
27 revived after a lapse of time by another political subdivision
28 on the same person, subject, business, transaction or privilege
29 at a rate that would make the combined levies exceed the limit
30 allowed by this subdivision, the tax of the second political
19870H1001B1103 - 4 -
1 subdivision shall not become effective until the end of the
2 fiscal year for which the prior tax was levied, unless:
3 (1) Notice indicating its intention to make such levy is
4 given to the first taxing body by the second taxing body as
5 follows: (i) when the notice is given to a school district it
6 shall be given at least forty-five days prior to the last day
7 fixed by law for the levy of its school taxes; (ii) when given
8 to any other political subdivision it shall be prior to the
9 first day of January immediately preceding, or if a last day for
10 the adoption of the budget is fixed by law, at least forty-five
11 days prior to such last day; or
12 (2) Unless the first taxing body shall indicate by
13 appropriate resolution its desire to waive notice requirements
14 in which case the levy of the second taxing body shall become
15 effective on such date as may be agreed upon by the two taxing
16 bodies.
17 (c) It is the intent and purpose of this provision to limit
18 rates of taxes referred to in this section so that the entire
19 burden of one tax on a person, subject, business, transaction or
20 privilege shall not exceed the limitations prescribed in this
21 section: Provided, however, That any two political subdivisions
22 which impose any one of the above taxes, on the same person,
23 subject, business, transaction or privilege during the same year
24 or part of the same year may agree among themselves that,
25 instead of limiting their respective rates to one-half of the
26 maximum rate herein provided, they will impose respectively
27 different rates, the total of which shall not exceed the maximum
28 rate as above permitted.
29 (d) Notwithstanding the provisions of this section, any city
30 of the second class A may enact a tax upon wages, salaries,
19870H1001B1103 - 5 -
1 commissions and other earned income of individuals resident
2 therein, not exceeding one percent, even though a school
3 district levies a similar tax on the same person provided that
4 the aggregate of both taxes does not exceed two percent.
5 Section 3. Sections 10(b), 11 and 12 of the act are amended
6 to read:
7 Section 10. Collection of Taxes.--* * *
8 (b) Single Collector for [Earned] Income Taxes When Certain
9 School Districts Impose Such Taxes.--Whenever a school district
10 of the second, third or fourth class shall be established
11 pursuant to section 296, act of March 10, 1949 (P.L.30), known
12 as the "Public School Code of 1949," added August 8, 1963 (P.L.
13 564), and such school district shall levy, assess and collect or
14 provide for the levying, assessment and collection of [a] any
15 tax upon [earned] income, such school district and all cities,
16 boroughs, towns and townships within its geographical limits
17 which levy, assess and collect or provide for the levying,
18 assessment and collection of [a] any tax upon [earned] income,
19 may on January 1, 1967, or as soon thereafter as the school
20 district shall provide for the levying, assessment and
21 collection of any taxes upon [earned] income, select one person
22 or agency to collect the taxes upon [earned] income imposed by
23 all such political subdivisions. In selecting such person or
24 agency, each political subdivision shall share in the selection
25 upon a basis agreed upon by each political subdivision, or in
26 the absence of any agreement on the basis of voting according to
27 the proportion that the population of each bears to the entire
28 population of the combined collection district, according to the
29 latest official Federal census, and the majority of such votes
30 cast shall determine the person or agency selected to collect
19870H1001B1103 - 6 -
1 the taxes. The provisions of this paragraph shall not prohibit
2 school districts and other political subdivisions which levy,
3 assess and collect or provide for the levying, assessment and
4 collection of any taxes upon [earned] income, under authority of
5 this act, from selecting the same person or agency to collect
6 such tax upon [earned] income in an area larger than the
7 geographical limits of a school district established pursuant to
8 section 296 of the "Public School Code of 1949."
9 Section 11. Audits of [Earned] Income Taxes.--Except in
10 cities of the second class, the governing body of each political
11 subdivision which levies, assesses and collects or provides for
12 the levying, assessment and collection of [a] any tax upon
13 [earned] income, shall provide for not less than one examination
14 each year of the books, accounts and records of the income tax
15 collector, by a certified public accountant, a firm of certified
16 public accountants, a competent independent public accountant,
17 or a firm of independent public accountants appointed by the
18 governing body. Whenever one person or agency is selected to
19 collect [earned] any income taxes for more than one political
20 subdivision, the books, accounts and records of such person or
21 agency shall be examined as provided above in the case of a tax
22 collector for each political subdivision, except that the
23 accountant shall be selected in the manner provided for
24 selection of one person or agency to collect [earned] any income
25 taxes for the school district established under section 296 of
26 the "Public School Code of 1949," and the cities, boroughs,
27 towns and townships within the geographical limits of such
28 school district. The reports of the audit shall be sent to the
29 governing body or bodies of the political subdivision or
30 political subdivisions employing the accountant. No further or
19870H1001B1103 - 7 -
1 additional audit shall be performed by elected or appointed
2 auditors.
3 Section 12. Audits of Taxes Other Than [Earned] Income
4 Taxes.--The books, accounts and records of persons collecting
5 taxes pursuant to this act, other than taxes levied, assessed
6 and collected upon [earned] income, shall be audited, adjusted
7 and settled in the manner prescribed by law for the auditing,
8 adjusting and settling of accounts of persons receiving or
9 expending funds of the political subdivision which has levied,
10 assessed and collected the taxes pursuant to this act, other
11 than taxes levied, assessed and collected upon [earned] income.
12 Section 4. The introductory paragraph, divisions I and II
13 and subdivision B of division III of section 13 of the act,
14 amended October 4, 1978 (P.L.930, No.177), are amended to read:
15 Section 13. [Earned] Income Taxes.--On and after the
16 effective date of this act the remaining provisions of this
17 section shall be included in or construed to be a part of each
18 tax levied and assessed upon [earned] any portion of income by
19 any political subdivision levying and assessing such tax
20 pursuant to this act. The definitions contained in this section
21 shall be exclusive for any tax upon [earned] any portion of
22 income and net profits levied and assessed pursuant to this act,
23 and shall not be altered or changed by any political subdivision
24 levying and assessing such tax.
25 I. Definitions
26 "Association." A partnership, limited partnership, or any
27 other unincorporated group of two or more persons.
28 "Business." An enterprise, activity, profession or any other
29 undertaking of an unincorporated nature conducted for profit or
30 ordinarily conducted for profit whether by a person,
19870H1001B1103 - 8 -
1 partnership, association, or any other entity.
2 "Corporation." A corporation or joint stock association
3 organized under the laws of the United States, the Commonwealth
4 of Pennsylvania, or any other state, territory, foreign country
5 or dependency.
6 "Current year." The calendar year for which the tax is
7 levied.
8 "Domicile." The place where one lives and has his permanent
9 home and to which he has the intention of returning whenever he
10 is absent. Actual residence is not necessarily domicile, for
11 domicile is the fixed place of abode which, in the intention of
12 the taxpayer, is permanent rather than transitory. Domicile is
13 the voluntarily fixed place of habitation of a person, not for a
14 mere special or limited purpose, but with the present intention
15 of making a permanent home, until some event occurs to induce
16 him to adopt some other permanent home. In the case of
17 businesses, or associations, the domicile is that place
18 considered as the center of business affairs and the place where
19 its functions are discharged.
20 "Earned income." Salaries, wages, commissions, bonuses,
21 incentive payments, fees, tips and other compensation received
22 by a person or his personal representative for services
23 rendered, whether directly or through an agent, and whether in
24 cash or in property; not including, however, wages or
25 compensation paid to persons on active military service,
26 periodic payments for sickness and disability other than regular
27 wages received during a period of sickness, disability or
28 retirement or payments arising under workmen's compensation
29 acts, occupational disease acts and similar legislation, or
30 payments commonly recognized as old age benefits, retirement pay
19870H1001B1103 - 9 -
1 or pensions paid to persons retired from service after reaching
2 a specific age or after a stated period of employment or
3 payments commonly known as public assistance, or unemployment
4 compensation payments made by any governmental agency or
5 payments to reimburse expenses or payments made by employers or
6 labor unions for wage and salary supplemental programs,
7 including, but not limited to, programs covering
8 hospitalization, sickness, disability or death, supplemental
9 unemployment benefits, strike benefits, social security and
10 retirement.
11 "Income tax officer or officer." Person, public employe or
12 private agency designated by governing body to collect and
13 administer the tax on [earned] income and net profits.
14 "Employer." A person, partnership, association, corporation,
15 institution, governmental body or unit or agency, or any other
16 entity employing one or more persons for a salary, wage,
17 commission or other compensation.
18 "Net profits." The net income from the operation of a
19 business, profession, or other activity, except corporations,
20 after provision for all costs and expenses incurred in the
21 conduct thereof, determined either on a cash or accrual basis in
22 accordance with the accounting system used in such business,
23 profession, or other activity, but without deduction of taxes
24 based on income.
25 "Nonresident." A person, partnership, association or other
26 entity domiciled outside the taxing district.
27 "Person or individual." A natural person.
28 "Preceding year." The calendar year before the current year.
29 "Resident." A person, partnership, association or other
30 entity domiciled in the taxing district.
19870H1001B1103 - 10 -
1 "Succeeding year." The calendar year following the current
2 year.
3 "Taxpayer." A person, partnership, association, or any other
4 entity, required hereunder to file a return of [earned] any
5 income or net profits, or to pay a tax thereon.
6 II. Imposition of Tax
7 The tax levied under this act shall be applicable to [earned]
8 any portion of income received and to net profits earned in the
9 period beginning January 1, of the current year, and ending
10 December 31, of the current year or for taxpayer fiscal years
11 beginning in the current year, except that taxes imposed for the
12 first time shall become effective from the date specified in the
13 ordinance or resolution, and the tax shall continue in force on
14 a calendar year or taxpayer fiscal year basis, without annual
15 reenactment, unless the rate of the tax is subsequently changed.
16 Changes in rate shall become effective on the date specified in
17 the ordinance.
18 III. Declaration and Payment of Tax
19 * * *
20 B. [Earned] Income.
21 Annual [Earned] Income Tax Return.
22 At the election of the governing body every taxpayer shall,
23 on or before April 15, of the succeeding year, make and file
24 with the officer on a form prescribed or approved by the officer
25 a final return showing the amount of [earned] any portion of
26 income received during the period beginning January 1, of the
27 current year, and ending December 31, of the current year, the
28 total amount of tax due thereon, the amount of tax paid thereon,
29 the amount of tax thereon that has been withheld pursuant to the
30 provisions relating to the collection at source and the balance
19870H1001B1103 - 11 -
1 of tax due. At the time of filing the final return, the taxpayer
2 shall pay the balance of the tax due or shall make demand for
3 refund or credit in the case of overpayment.
4 [Earned] Income Not Subject to Withholding.
5 Every taxpayer who is employed for a salary, wage,
6 commission, or other compensation and who received any [earned]
7 portion of income not subject to the provisions relating to
8 collection at source, shall as the governing body elects:
9 (1) Make and file with the officer on a form prescribed or
10 approved by the officer, an annual return setting forth the
11 aggregate amount of [earned] such income not subject to
12 withholding from him during the period beginning January 1, and
13 ending December 31, of the current year, and such other
14 information as the officer may require, and pay to the officer
15 the amount of tax shown as due thereon on or before April 15, of
16 the succeeding year, or
17 (2) Make and file with the officer on a form prescribed or
18 approved by the officer, a quarterly return on or before April
19 30, of the current year, July 31, of the current year, October
20 31, of the current year, and January 31, of the succeeding year,
21 setting forth the aggregate amount of [earned] income not
22 subject to withholding by him during the three-month periods
23 ending March 31, of the current year, June 30, of the current
24 year, September 30, of the current year, and December 31, of the
25 current year, respectively, and subject to the tax, together
26 with such other information as the officer may require. Every
27 taxpayer making such return shall, at the time of filing
28 thereof, pay to the officer the amount of tax shown as due
29 thereon.
30 * * *
19870H1001B1103 - 12 -
1 Section 5. The act is amended by adding a section to read:
2 Section 13.1 Optional Personal Income Tax Equivalent
3 Authorization for School Districts.--(a) Subject to the
4 limitations set forth in subsection (c), a taxing district, in
5 addition to any other taxes authorized by law, may provide by
6 ordinance or resolution for a real property tax equivalency
7 levied upon the personal income of the residents of its
8 district. The taxing district shall first determine the
9 necessary uniform real property tax levy to meet their budget
10 needs for the fiscal year. The portion of any real property tax
11 necessary to meet this requirement would be satisfied by the
12 equivalent amount of personal income tax levy. Each year the
13 Department of Education for school districts shall calculate the
14 personal income tax equivalent of each mill of real property
15 tax. The departments shall use the assessed value of real
16 property located within each taxing district as certified to the
17 department by the State Tax Equalization Board and the personal
18 income reported of the residents of each taxing district as
19 certified to the departments by the Secretary of Revenue in this
20 calculation.
21 (b) The tax imposed in subsection (a) shall be subject to
22 the provisions of section 13 relating to the collection of,
23 reporting of, withholding of and the payment and penalties for
24 late payments of an earned income tax.
25 (c) Every taxing district which imposes the equivalency tax
26 authorized in subsection (a) shall not impose or collect any
27 real property tax.
28 (d) Whenever a taxing district initially imposes the tax
29 authorized in subsection (a), such taxing district shall retain
30 that tax structure for a period of at least two years.
19870H1001B1103 - 13 -
1 Thereafter, whenever such taxing district desires to change its
2 tax structure by utilizing the options available in this act,
3 such change as the taxing district effects shall be continued
4 for a period of at least six years.
5 (e) Any taxing district which does not choose to impose the
6 tax set forth in subsection (a) shall be limited to imposing any
7 income tax provided in this act only upon the earned income of
8 the residential taxpayer.
9 (f) As used in this section the following words and phrases
10 shall have the meanings given to them in this subsection:
11 "Income." (1) The following classifications shall
12 constitute income for purposes of this section:
13 (i) Compensation. All salaries, wages, commissions, bonuses
14 and incentive payments, whether based on profits or otherwise,
15 fees, tips and similar remuneration received for services
16 rendered, whether directly or through an agent and whether in
17 cash or in property, except income derived from the United
18 States Government for active duty outside the Commonwealth of
19 Pennsylvania as a member of its armed forces.
20 (ii) Net profits. The net income from the operation of a
21 business, profession, or other activity, except corporations,
22 after provision for all costs and expenses incurred in the
23 conduct thereof, determined either on a cash or accrual basis in
24 accordance with accepted accounting principles and practices but
25 without deduction of taxes based on income.
26 (iii) Net gains or income from disposition of property. Net
27 gains or net income, less net losses, derived from the sale,
28 exchange or other disposition of property, including real or
29 personal, whether tangible or intangible as determined in
30 accordance with accepted accounting principles and practices.
19870H1001B1103 - 14 -
1 For the purpose of this act, for the determination of the basis
2 of any property, real and personal, if acquired prior to June 1,
3 1971, the date of acquisition shall be adjusted to June 1, 1971,
4 as if the property had been acquired on that date. If the
5 property was acquired after June 1, 1971, the actual date of
6 acquisition shall be used in determination of the basis. The
7 term "net gains or income" shall not include gains or income
8 derived from obligations which are statutorily free from State
9 or local taxation under any other act of the General Assembly of
10 the Commonwealth of Pennsylvania or under the laws of the United
11 States. The term "sale, exchange or other disposition" shall not
12 include the exchange of stock or securities in a corporation a
13 party to a reorganization in pursuance of a plan of
14 reorganization, solely for stock or securities in such
15 corporation or in another corporation a party to the
16 reorganization and the transfer of property to a corporation by
17 one or more persons solely in exchange for stock or securities
18 in such corporation if immediately after the exchange, such
19 person or persons are in control of the corporation. For
20 purposes of this clause, stock or securities issued for services
21 shall not be considered as issued in return for property.
22 (iv) Net gains or income derived from or in the form of
23 rents, royalties, patents and copyrights.
24 (v) Dividends.
25 (vi) Interest derived from obligations which are not
26 statutorily free from State or local taxation under any other
27 act of the General Assembly of the Commonwealth of Pennsylvania
28 or under the laws of the United States.
29 (vii) Gambling and lottery winnings.
30 (viii) Net gains or income derived through estates or
19870H1001B1103 - 15 -
1 trusts.
2 (2) To the extent that income or gain is subject to tax
3 under one of the classes of income enumerated in this
4 definition, such income or gain shall not be subject to tax
5 under another of such enumerated classes.
6 (3) The term "income" shall not mean or include:
7 (i) periodic payments for sickness and disability other than
8 regular wages received during a period of sickness or
9 disability;
10 (ii) disability, retirement or other payments arising under
11 workmen's compensation acts, occupational disease acts and
12 similar legislation by any government;
13 (iii) payments commonly recognized as old age or retirement
14 benefits paid to persons retired from service after reaching a
15 specific age or after a stated period of employment;
16 (iv) payments commonly known as public assistance, or
17 unemployment compensation payments by any governmental agency;
18 (v) payments to reimburse actual expenses;
19 (vi) payments made by employers or labor unions for programs
20 covering hospitalization, sickness, disability or death,
21 supplemental unemployment benefits, strike benefits, social
22 security and retirement; or
23 (vii) any compensation received by United States servicemen
24 serving in a combat zone.
25 "Taxing district." A school district other than a school
26 district of the first class.
27 Section 6. This act shall apply to the tax year beginning
28 January 1, 1988.
29 Section 7. This act shall take effect immediately.
B23L53RZ/19870H1001B1103 - 16 -