By Christine Dixon, Assistant Research Specialist
AT THE
TABLE
What the Earned Income Tax collection
transition means for your borough
24 Pennsylvania Borough News MAY 2009
A
ct 32 of 2008 will reduce
the 560 Earned Income
Tax (EIT) collection
entities across the
Commonwealth to 69
collection entities – roughly, but
not precisely, one per county. Act
32 was a controversial issue among
PSAB member boroughs, with
many in support of the change and
many strongly opposed. However,
the debate is over now, as the bill
has become law and will be in full
effect by January 2012. During the
next two and one-half years, there COMMUNITY VOTE If your borough levies an EIT, you may appoint a voting delegate to
will be important tasks for local the TCC; otherwise, it is recommended that you appoint a non-voting delegate.
governments to complete.
By way of a brief background, was 68 pages long. There are bound municipalities, the TCD is ordinarily
Act 32 is the result of a study to be a few people in Pennsylvania coterminous with county boundaries.
initiated in 2004 by the Department who have read and understood the School districts that overlap county
of Community and Economic whole thing. In an effort to catch up boundaries will be included in
Development (DCED). The study with them, I began with the alphabet the TCD where the majority of its
found a complex system that soup: population lives. If a municipality is
collected nearly $2 billion in taxes for DCED. The Department of in more than one school district that
2,900 taxing jurisdictions. The study Community and Economic is in more than one TCD, it will be
also found that inefficiencies in the Development. The state agency that divided into portions that follow the
system led to a loss of as much as initiated the study of the earned TCD of the school districts.
$237 million in revenue that should income tax collection system in Philadelphia County is not
have gone to political subdivisions. Pennsylvania, and suggested the included in Act 511, and therefore
Theoretically, consolidation will changes that were introduced in the is not included in Act 32. Allegheny
result in a streamlined system that General Assembly as Senate Bill 1063, County will be served by four TCDs.
will reduce administrative costs which ultimately became Act 32. Lancaster County is exempt from
and transfer revenues to the taxing EIT. The Earned Income Tax, Act 32 because it already has a
jurisdictions in a more timely and a.k.a. the wage tax, or the net profit consolidated county wide system in
efficient manner. Auditing and tax. This is an Act 511 tax (the Local place. Taxing jurisdictions in all other
oversight requirements in Act Tax Enabling Act), which authorizes counties will follow Act 32. There are
32 should provide accountability boroughs to levy a one percent tax a few cases in the Commonwealth
and financial safeguards for the on the wages, salaries, commissions, where a municipality is located in
system. Also, Act 32 is supposed net profits or other compensation of more than one school district, and
to create a friendlier environment borough residents and businesses. those school districts are in more
for employers, who will no longer Note that if your school district also than one TCD, i.e. two counties.
be reporting to multiple collection levies the EIT, the revenue raised by In these cases, the municipality
organizations. Of course, the jury is the one percent tax will be shared will be served by two TCDs, with
still out on how far Act 32 will go in with the school district. the portions of the municipality
improving the EIT collection system. TCC. Tax Collection Committee. following the school district wherein
This article will attempt to do two The governing body of the Tax it belongs. As far as I know, this will
things – explain what Act 32 does Collection District (TCD). The TCC affect several townships, but only
and explain what actions will be will be composed of voting and two boroughs: Rieglesville in Bucks
required of borough governments. non-voting delegates from the County (and Northampton County
What Act 32 of 2008 Does municipalities and school districts in TCD) and West Brownsville in Fayette
Let’s start by saying that the bill the TCD. County (and Washington County
which was signed into law as Act 32 TCD. Tax Collection District. For TCD).
MAY 2009 www.boroughs.org 25
to the public, minutes and other
documents are public records
and individual delegates will be
required to file a Financial Interest
Statement each year. Note that
Act 32 includes exemptions from
a conflict of interest for delegates
who are employed by an existing tax
collection entity that may be under
consideration for appointment as
the tax officer. Delegates who are
members of a governing body of a
political subdivision that participates
in an existing tax bureau that may be
under consideration for appointment
as tax officer are also exempt.
At the first meeting of the TCC, the
chair of the county commissioners
(or the county CEO in home rule
counties) will serve as chair. Delegates
will elect a chair, a vice chair – both of
whom must be voting delegates—and
a secretary, who need not be a voting
delegate. Also at this first meeting,
delegate votes will be weighted.
Weight will be calculated by DCED
based on 50 percent EIT revenues and
50 percent population of the taxing
jurisdiction each delegate represents.
The purpose of the weighting is to
ensure a fair voting system based on
each taxing jurisdiction’s revenue
interest. However, after the first
meeting, the TCC can opt to switch to
a different method of voting, such as
one vote per delegate.
WEIGHTING THE VOTE To provide equity in the TCC, the votes will be weighted based
on population and EIT income. TCCs will be responsible for the
appointment and oversight of the
DCED has already embarked appoint a non-voting delegate. In tax officer, as well as setting the tax
upon its study of the existing EIT such a case, it will be a good idea officer’s bond. TCCs will have the
collection methods across the state. to make this appointment, so your authority to create a tax bureau,
By the end of this year, it will provide borough is informed should you hire a director and staff and set
every borough with a copy of its levy an EIT in the future, or should their compensation. TCCs will retain
findings. DCED will also furnish TCCs the opportunity arise for the TCD’s legal counsel and auditors and may
with sample bylaws and procedures, tax officer to collect non-EIT taxes. acquire or lease property for the
sample RFPs for selection of a TCD (Act 32 gives the TCC the option of purpose of housing and running the
tax officer and other supporting collecting other taxes in the future.) tax bureau. They will be authorized
information. TCC delegates vote on committee to enter into joint tax collection
TCCs are composed of appointed actions and ultimately select the arrangements with other TCCs.
delegates from each taxing district tax officer (collector) for the TCD. TCCs will arrange for tax officers to
within the TCD. If your borough Note that TCCs will be subject to be audited at least once annually.
levies an EIT, yours will be a voting the Open Records Act, the Sunshine The audits must be copied to every
delegate. If your borough does not Act and the Ethics Act. This means political subdivision within the TCD,
levy EIT, you have the option to that meetings of the TCCs are open and DCED is permitted to use data
26 Pennsylvania Borough News MAY 2009
from the reports for its purposes. Act 32 Timetable
The annual budget of the TCD will 9/15/09 Deadline for political subdivisions to appoint delegates to TCC.
be paid by the taxing jurisdictions (If your borough levies EIT, delegate is a voting delegate. If your
within it, prorated according to their borough does not levy the EIT, you may appoint a nonvoting
shares of EIT revenue. Note that if delegate.) By this date, all political subdivisions will be notified of
a TCC fails to appoint a tax officer first TCD meeting.
by September 15, 2010, one will be 11/15/09 First meeting of all TCDs must take place prior to this date. At
appointed by the County Court of this meeting TCD officers will be elected.
Common Pleas. 12/31/09 DCED study on current EIT collection methods due to TCDs.
Tax officers will be required 4/15/10 Each TCC must have by-laws in place.
to complete a training course 6/1/10 Each TCC establishes an appeals board of at least three delegates.
provided by DCED and participate 7/1/10 DCED calculates the weighted vote of each delegate (50 percent
in annual continuing education EIT revenue and 50 percent population per political subdivision)
courses thereafter. Tax officers will and will recalculate each July 1 thereafter.
have certain powers and duties, 9/15/10 Each TCC appoints the tax officer for its TCD and notifies DCED of
including, of course, the collection same. Tax officer becomes EIT collector of record for the TCD for
and distribution of EIT revenues. fiscal year beginning 1/1/12.
They will be authorized to invest EIT 11/1/10 Political subdivisions decide if current tax collector will collect
revenues in investment instruments EIT or new TCD tax officer collects. This option applies only to
approved by the TCC and distribute 2011 EIT.
income from such investments as 1/1/12 EIT collection by TCD tax officer begins for all political
authorized by the TCC. Tax officers subdivisions. (B)
will make monthly reports on
EIT collected, investment income 30 days to determine if the dispute of this year, you must appoint your
generated, penalties collected and qualifies for mandatory mediation. delegate to the TCC. If your borough
any other costs, receipts, collections, Mediation will then begin and must levies an EIT, this will be a voting
expenditures and distributions for be completed within 30 days, unless delegate (and an alternate delegate).
and to each political subdivision all parties agree to an extension. If you do not levy the EIT, you have
served, as well as any distribution If settlement is reached, it will be the option to appoint a non-voting
made to other TCCs. binding. The mediation process is delegate, and PSAB recommends
Each TCC has until June 1, 2010 to exempt from the Open Records Law, that you do this. Prior to November
set up an appeals board, which will but the settlement agreement is a 15 of this year, you will attend the
consist of at least three delegates. public record. Mediation costs will be first meeting of your TCC to elect
Appeals boards can be created shared by all parties to the dispute. officers, decide on voting methods
jointly with another TCC. Taxpayers Act 32 contains volumes of and other procedural details, such
and employers, as well as taxing additional information about fines as those previously highlighted. By
jurisdictions, will be able to appeal and penalties; how to remove tax April 15, 2010, each TCC is to have
decisions of the tax officer regarding officers once appointed; how to the by-laws for its TCD in place, and
assessments, collection, refund, withdraw from a TCC once your by September 15, 2010, the TCC will
withholding or distribution of taxes. borough has joined, and so on. But have appointed the tax officer for
Act 32 requires mediation for the that might best be held for a future, the TCD. You will want to be a part
resolution of disputes that involve a follow-up article. For now, it might be of this decision making process, as
difference in tax revenues of more more productive to focus on how to this tax officer will become your EIT
than ten percent from one year to set the thing up before we learn how tax collector of record as of January
the next. (Disputes over amounts less to take it apart, which leads us to 1, 2012. One more decision: by
than ten percent may go to voluntary part two of this article. November 1, 2010, if your borough
mediation.) When there is such a What Your Borough Needs to Do levies the EIT, you will have to decide
dispute, the taxing jurisdiction must This section will contain some if your current EIT tax collector will
provide notice to DCED and the TCC repetition of items in the preceding collect the EIT for fiscal year 2011,
of intent to pursue mediation. Next, section, which are again repeated or whether you will have the tax
the taxing jurisdiction, DCED and the in the timeline sidebar to this collected by the tax officer of the
tax officer submit a brief statement article. The intent is to inform PSAB TCD. By January 1, 2012, collection of
of the issues to the mediator, within members of what actions they need the EIT by the tax officer of your TCD
20 days of the notice. DCED then has to take, and when. By September 15 will be mandatory. (B)
MAY 2009 www.boroughs.org 27