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December 06, 2007



Good points, lousy legislation. A countywide consolidation practically guarantees commercial collection rather than appointed local entities.

A more efficient solution would have been consolidation on a school distric-wide basis. Of course, all this could have been avoided had the politics of collection been removed, compliance with local law enforced and quarterly distributions been mandatory.

Employers may believe they will benefit however since most use (code based)payroll services, little will change in that regard.

I am personally aware of one small community that relies on "unclaimed funds" as a large part of their budget, receiving and retaining in excess of $2,000,000 since the distribution laws were passed.

Nancy Rhodes EIT Western Beaver, Beaver County

My agreement is with Mary Abbott. A very good commentary and rebuttal. Let's hope our legislatures reconsider and listen to the other side!

Mark Sampoga, Council President, Green Tree Borough

Earned Income Tax Collection in Pennsylvania

Ms. Abbott makes some excellent points about problems with pending House Bill 1550 and Senate Bill 1063. The issues she cites of potential delays in receipt of funds, disenfranchisement of smaller taxing bodies, and elimination of personal, locally administered customer service are just a few of the drawbacks.

Let’s look at this legislation from an employer’s viewpoint. Think about businesses of various sizes: a small restaurant with 10-25 employees; a medium sized manufacturer with 100 employees; and a national company with thousands of workers in Pennsylvania. The restaurant workers live in 4 different municipalities and school districts. The manufacturer’s employees live in 3 different counties, 35 different municipalities and 30 different school districts. The national company has 2300 workers living in 32 counties, 187 municipalities, and 150 school districts.

Each municipality and school district can have a different EIT rate, so the employers need to collect all of this information from each worker & look up the rates on the State’s website and enter them into their payroll system.

Since the small and medium companies are privately owned, they probably have a small administrative staff, if any, with either a manual or off-the-shelf, PC-based payroll package. Can their payroll software be modified? Will they be required to purchase new software or an upgrade to accommodate this plethora of data? Did we mention new hires, employee turnover, or changing residency? What if the company relocates to a new county? Think of all the day-to-day effort required to maintain a database containing this information.

The national concern likely has an IT staff that writes custom code for their payroll system and HR database. They will spend many man-hours writing and de-bugging this in-house software.

The cost for Pennsylvania employers to comply with this proposed legislation will minimally run into tens of thousands of dollars annually. The extra man-hours spent will be completely non-productive and would not add a cent to corporate profitability. Far from being an incentive to locate a business in Pennsylvania, this legislation could have quite the opposite effect.

Currently, there is no requirement for employers to withhold EIT. Paying Earned Income Tax has been, and always will be, the responsibility of the taxpayer. If local taxing bodies are not collecting their fair share of revenue from EIT, it is their duty to investigate why and correct the situation.

Rather than replacing the current system with an entire new bureaucracy, the State needs to make a few minor changes so that local collection of EIT can be more efficient. Two simple steps in this direction would be:
1. Statewide standardized EIT tax forms.
2. Issuance of more timely reports to School Districts and Municipalities so that they can cross-check residents’ income and tax payments. Only School Districts receive this information now, but since the data provided is two years old this is not an effective tool for enforcement purposes.

County-wide consolidation of Earned Income Tax collection does not make sense for Pennsylvania employers. It merely imposes additional overhead costs that lessen their competitiveness. For taxpayers, consolidated collection means reduced customer service. For School Districts and Municipalities, it means more red tape, less control, and potentially delayed income. We urge the state legislature to re-think House Bill 1550 and Senate Bill 1063.

Rosemarie Nonnemacher, Macungie Borough EIT Collector

Some comments made by Brian K. Jensen cry out for rebuttal:

1. "Consider how one Pennsylvania businessman—frustrated by the cumbersome current earned income collection approach— recently admitted, “Our company has multiple sites across the state, and we don’t withhold for any of our employees—even if we are in a location where withholding is required. It’s just too complicated to go through the process.”
This type of attitude is part of the real problem: where withholding is required, why is the tax collector not forcing compliance with the law? What is so difficult about withholding 1% from wages and filing with each site's tax office? If a company is that large, they should have the resources to perform such payroll functions.

The law should be changed so that it is REQUIRED that every municipality collect both resident and non-resident tax withheld. Then the tax would be withheld from every employee and turned over to the collectors for distribution--no more trying to collect money from taxpayers, which is really where the "lost revenue" comes in.

2. "Taxes withheld by employers will reach their respective tax districts at least as fast— or faster—than they currently do. Currently, on average, only 15 percent of residents live and work in the same municipality—a percentage which does not offer significant tax revenue impact. Conversely, 69 percent of residents live and work in the same county. Thus, an earned income tax collection system consolidated by county reduces the number of times tax revenue must change hands".

The proposed law allows employers to withhold the taxes and pay for all their locations through their main site's tax office. That will NOT keep the taxes within the county where people work! For example- every employee of every Turkey Hill Minit Market could have their taxes paid to a tax office half way across the state.

3. "Earned income tax consolidation provides clear solutions. With consolidation, payroll administration burdens will be lighter for employers, and the guesswork surrounding withholding is gone. Standardized tax withholding practices benefit all working Pennsylvanians, and those who currently contend with tedious and sometimes costly quarterly tax payments will find relief from this responsibility".

Standardization of the local tax went out the window when the state legislators began tinkering with the E.I.T. to allow higher rates. What used to be a fairly consistent 1% tax now can vary from one municipality to another. Employers are even more confused, withholding the higher rate imposed where they are located on employees who don't live in that municipality, resulting in more tax refunds being issued by local offices. The guesswork is gone? I don't think so!! Just go to the DCED website and look up a few municipal tax rates. Employers are expected to withhold all those different rates of local tax for their employees. Looking at that site is what is frustrating to employers.

4. "Philadelphia is not included as it already has consolidated earned income tax collection".

Philadelphia does not levy it's tax under the same tax act, and has all kinds of special rules written just for them; nothing in the proposed reforms would apply there, anyway. And, by the way, the Philadelphia tax rate is higher than the state and other local taxes combined!

K Bastian

I agree with E Endresen, it will eventually be a State tax. One other thing that has never been addressed is how many jobs will be lost! Where will others come from for those needing to support families or just themselves! The State cannot afford more unemployment or people on welfare. This entire process has not been thought out properly on many levels and we as the PETIOAC organization have requested and supported uniformity across the state with rules, regs and forms for years, so why now does it seem the State is saying Countywide collection/uniformity is the only solution when we weren't heard before!

E Endresen

Both perspectives are valid and well thought out. The amount of savings is suspect which should be taken with a grain of salt. And the taxpayers should have the option, not the State mandating what will be. Taken to the extreme, we are talking about another State Income tax, not local. I do not believe local taxpayers would be fairly represented by a larger entity.

MaryLouise Bittner

I have long been a proponent of state-wide collection of EIT--by the Dept of Revenue. Although I agree that many of the EIT collectors are professionals, it is a difficult tax to collect by its very nature of being self-reporting.

Requiring that all employers withhold EIT for all employees and remit to the state seems to be the best solution to the issue.

Providing a "county" solution is an interim step that will, I believe, eventually give way to state collection. Why spend time and money setting up that interim step? The issue brings to memory the 911 consolidations that eventually led to the (almost) county-wide 911 system in Allegheny County.

Paul Bauer

I believe the Legislators have merely ignored the small problems with EIT collection, and are just trying to create a new and bigger problem that has nothing but confusion on it. If a new machine breaks down and only needs a few parts, we don't throw it away and buy a new one. There is only two things needed to correct the EIT problem, One, is to have one set of
rules and regulations for all eit offices. Two, one final return for all eit filings across the state. This is a very easy fix.

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