Peacock Tales

Volume 19, Number 2 · April 2009

A New Tax Collector Cometh

On July 2, 2008 Governor Edward G. Rendell signed Act 32 of 2008, which amends the Local Tax Enabling Act (Act 511) to consolidate the collection of Earned Income Tax under a countywide system. While Act 32 does not become effective until January 1, 2012, it so revolutionizes Pennsylvania practice that an early alert is in order, especially since certain action needs to be taken by September 15, 2009.

Act 32 decreases the number of tax collectors from nearly 560 to 69. Each county in Pennsylvania will have a single Tax Collection District, except Allegheny County, which will consist of four Districts. The City of Pittsburgh will have its own District and the rest of Allegheny County will be divided into three essentially equal Districts. Philadelphia County is exempt from Act 32 because it is controlled by a separate law, the Sterling Act.

Under the current tax collection system, collecting authorities collect nearly $1.9 billion in annual revenue for more than 2,900 taxing jurisdictions. Pennsylvania has more taxing jurisdictions levying a local income tax than all other states combined. It is estimated that municipalities lose out on more than $230 million annually as a result of this inefficient system.

The new Act provides employers with the ability to remit taxes for all employees to one District regardless of where its employees are employed, or where they reside. Businesses with multiple locations within the Commonwealth will be permitted to remit to the county where they are headquartered, rather than to each of the local collectors, as is the case under the current law. Employers that choose this option will be required to remit withholdings and employee wage tax information electronically on a monthly basis in order to accelerate the transfer of tax revenues.

Under the new Act employers will be required to withhold taxes from all employees, regardless of their residence. They are also required to remit all withholdings to the District within 30 days of the end of each quarter, unless they exercise the option of remitting to multiple Districts.

The new tax collection system for each District will be organized under a Tax Collection Committee, which will be the governing body for each District. Committee membership will be composed of one voting delegate from the governing body of each municipality and school district within the county that levies the tax. Each taxing jurisdiction that imposes the tax shall appoint one voting delegate and one or more alternate delegates, who serve at the pleasure of the appointing body. The committee is responsible for the appointment of a tax officer to provide for the collection of the taxes in each District. Voting and alternate members of the committee must be appointed by September 15, 2009. Bylaws must be adopted by each committee by April 15, 2010. Each committee must appoint a Tax Officer by September 15, 2010. The Tax Officer can be a political subdivision, a public employee, a tax bureau, or county or private agency which administers and collects taxes for one or more Districts.

Local tax collectors, governments and school districts generally agree that there was a need to reform the local tax collection process, but some disagree with the Commonwealth on the reforms imposed by Act 32. Act 32 may be viewed as another state mandate without adequate funding to reimburse the Committee for startup costs. Furthermore, the lengthy payment turn-around time and new collection system phase-in may negatively impact revenue flows. Some complain that the voting rights in each district are not weighted based upon the overall revenue of each participating political subdivision.

For additional information, links to Act 32 frequently asked questions, timetables, maps of collection district boundaries, school district boundaries, municipal boundaries and a list of the collection districts, go to the Commonwealth of Pennsylvania's website at www.newpa.com.