LGA Lyceum

Reassessments & Your Taxes: Common Myths Debunked

Paul Lalley, Esq., Campbell, Durrant, Beatty, Palombo & Miller, P.C., explains some little known provisions of the law in this blog.

There certainly has been much publicity surrounding Allegheny County’s court-ordered property reassessments and, with that, controversy generated by public fears that property reassessments automatically equate to higher tax bills for everyone. One popular sentiment that has been expressed in various mediums is that local elected officials will be able to automatically increase taxes based on the new assessment figures.

Well, it’s time to put that myth to rest.

Municipalities in Allegheny County are governed by 2005 amendments to the Second Class County Code that set forth a very specific process that municipalities must follow when setting the millage in the first year post-assessment (for those interested, it is 16 P.S. Section 4980.2). Essentially, the law is written to specifically prohibit “hidden” tax increases by a municipality immediately following a reassessment.

Here’s how it works:

First, the municipality must set the millage based on the reassessed property values at a rate that yields the same tax revenue as the municipality received in the year prior to the reassessment.  This is commonly referred to as “equalizing” the millage.  In setting the equalized millage, however, the municipality is allowed to exclude the assessed value of newly constructed buildings and the increased valuations based on new improvements made to existing structures.  The municipality is also allowed to factor in the experience of prior years’ assessment appeals (typically, reductions in assessments due to appeals) over a five-year average when setting the equalized millage. 

So, for example, if this five-year averaging shows a 5% decrease in assessed values due to appeals, the municipality may set the equalized millage by assuming that there will be a 5% drop in values as a result of appeals from the certified reassessed values that the municipality receives from the County. 

However…

Once the municipality has set the equalized millage using this formula, the municipality is permitted to increase that equalized millage by up to 5%.  In order to do so, however, it must have a “separate and specific vote” to increase that equalized millage up to 5% to get the final millage. 

Citizens should keep in mind that The Sunshine Act, as well as other laws pertaining to public meetings and records, still apply in this case – meaning that meetings or discussions about this topic are as open as the meetings and discussions your community had in preparing its 2012 budget.

If the municipality has “good cause” why it needs to increase the equalized millage by more than 5%, it may file a petition to obtain court approval to do so.  But again, this would happen only through a publicly-filed petition and proceedings in open court, with a judge deciding whether the municipality, in fact, has “good case” to set a final millage that is more than 5% higher than the equalized millage. This is an open and public process.

For municipalities in counties other than Allegheny (or Philadelphia), the Consolidated County Assessment Law (53 Pa.C.S. section 8823) contains a similar procedure.  The main difference with the Consolidated County Assessment Law procedure is that after equalizing the millage, the municipality is allowed to have a “separate and specific vote” to increase the equalized millage up to 10% (not the 5% limit for Allegheny County) to get a final post-reassessment millage.  Also, the municipality is not permitted to use a five-year averaging experience of assessment appeals when determining the equalized millage. 

The rules for school districts – regardless of whether they are in Allegheny or another county – are different.  School districts are subject to the anti-windfall provision of Act 1 (Again for those interested, 53 P.S. section 6926.327).  School districts must also equalize millage for the first year post-reassessment, but they are not allowed to factor in any prior experience of assessment appeals.  They then are permitted to increase the equalized millage up to the limit of their prior year’s Act 1 percentage “index” (which is an inflation-based number that is calculated for each school district each year by the Pennsylvania Department of Education).

One major difference between school districts and municipalities is that there is no requirement that this increase be by a “separate and specific” vote of the school board. In other words, a school board can do all of this in one resolution.  If a school board intends to seek any increase of the equalized millage above the Act 1 index, then it must follow Act 1’s procedures to do so, which means seeking either Department of Education approval or voter approval at a referendum.       

There has been much public confusion (at least in Allegheny County) about the reassessment process, but one point should be clear to all:  there is no “windfall” to municipalities or hidden tax increases in a reassessment year.  Any tax increase in a reassessment year must be through the same open, public process that applies to municipal budget adoption and tax levies in a non-reassessment year.

 

Register for the FREE Third Thursdays Roundtable on this topic:
Thursday, February 16, 2012
11 AM - 1 PM
CCAC Adminitration Building
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Submitted by:

Paul Lalley, Esq.
Campbell, Durrant, Beatty, Palombo & Miller, P.C.

 

Where We Are: Status of Implementation of Act 32 Consolidated Earned Income Tax Collection

GOVERNOR’S CENTER FOR LOCAL GOVERNMENT SERVICES RESPONSIBILITIES

 

Submitted by Michael Foreman, Local Government Policy Specialist

Department of Community & Economic Development

Governor's Center for Local Government Services 

 

Act 32 of 2008 amended Act 511 of 1965, the Local Tax Enabling Act which authorized municipalities and school districts to levy a local earned income tax. Act 32 of 2008 establishes the collection and administration of the local earned income tax on a countywide level by establishing 69 tax collection districts of which Allegheny County is divided into four. The Act also sets forth strengthened administrative, accountability and enforcement provisions.

Act 32 identifies the Department of Community and Economic Development (DCED) as the lead State agency through the Governor’s Center for Local Government Services (Center) to work with political subdivisions to provide technical assistance to implement provisions of the law as they transition into the new collection system which is to be fully implemented by January 1, 2012.

 

Following enactment of Act 32 in July 2008 the Center formed an internal Implementation Committee made up of Center management and staff and assisted by the DCED Legal Office to strategize transition and implementation issues and to fulfill the Department’s responsibilities under the Act. The Center is directly engaged in ongoing outreach efforts to communicate information to government officials and the public on transition and implementation provisions. A continuously updated list of frequently asked questions, timetable of key implementation deadlines and other general information on Act 32 is now being maintained on the DCED website (www.newpa.com).

 

Informational sessions are being conducted by Center staff with elected and appointed officials of political subdivisions throughout the Commonwealth. A comprehensive training program is planned for this spring at locations around the Commonwealth.  Responses to inquiries are being provided by Center staff through our toll free number (1-888-223-6837).

 

The Center has established an Earned Income Tax Collection System Advisory Committee made up of stakeholder organizations (i.e., legislative caucus, municipal and school associations, non-profit organizations representing business community) who were involved in the process leading to the enactment of the new law. The Advisory Committee will continue to provide input and feedback to the Center on its various responsibilities concerning phases of transition and implementation efforts over the next few years.

DCED has certain responsibilities to meet under Act 32 as part of the ongoing transition and implementation process. Several are being undertaken simultaneously.

 

The Governor’s Center published a list of each of the 69 tax collection districts on January 28, 2009 in the Pennsylvania Bulletin. This list and an accompanying map are currently available on the DCED website.

 

As called for in the Act, the Center is undertaking a study of existing earned income tax collection best practices with particular attention to current tax bureaus for the purpose of identifying, collecting and comparing those practices, methods, structures, bylaws, budgets, policies/procedures, regulations, software/information technology, forms, codes, agreements, request for proposals, governance alternatives to promote the greatest likelihood of effectiveness, cost efficiency, loss prevention and intergovernmental cooperation.

 

No later than December 31, 2009, the Center is required to provide each tax collection district with a best practices report of the findings and recommendations including sample bylaws, procedures, regulations, forms, agreements, requests for proposals for the selection of tax officers, request for proposals for the procurement of software systems and other appropriate samples.

 

By September 15, 2009 each municipality and school district that currently imposes an earned income tax is to appoint a representative to serve on the tax collection committee. The Committee is to be convened by the Chair of the County Commissioners or County Executive depending on the form of government. The Center will develop a sample template for the first meeting of the tax collection district for county officials to use to facilitate the selection process of the chair, vice-chair and secretary of the tax collection committee which is to occur no later than November 15, 2009.  

The Center is required to calculate and release the weighted vote to each tax collection committee by September 1, 2009. The weighted vote is used for the first meeting. For subsequent meetings the weighted vote is used unless the bylaws provide otherwise.      

 

The Center is responsible for the development of an audit format for the annual audit required each year by a CPA conducted on behalf of the tax collection committee of the tax officer. The audit report is required to include specific elements and is to be filed not only with the tax collection committee but also all of the political subdivisions of the tax collection district by September 1 of each year.

 

The Center is responsible for the development of mandatory training and education for tax officers on an annual basis. The Center is required to adopt regulations, guidelines and procedures to establish the qualifications and requirements a tax officer must meet prior to appointment and must meet for continuing appointment. A tax collection committee may establish additional qualifications and requirements a tax officer must meet prior to being appointed and must meet for continuing appointment.

 

The Center is responsible for prescribing political subdivision and tax collection district codes for use by employers and tax officers.

 

Tax collection committees will have the responsibility of sending notice of the first meeting to the Center by September 15, 2009; notifying the Center of appointment of the tax officer within 10 days of September 15, 2010; and notifying the Center of whether the new tax officer will collect 2011 taxes by December 1, 2010.

 

While there is no specific funding program enacted through Act 32, DCED has agreed to prioritize funding under its Shared Municipal Services Program to assist with start-up costs. GCLGS will continue to provide technical assistance to local officials and the tax collection committees and will be fully engaged throughout the entire transition process.

 

Contact the Center at 1-888-223-6837 for technical assistance. Please check our website www.newpa.com periodically for additional resources and updated information.

 

Act 32 FAQs

 

Act 32 Timetable

 

 

Michael S. Foreman
Local Government Policy Specialist
Department of Community & Economic Development

Governor's Center for Local Government Services

1403A State Office Building
300 Liberty Avenue
Pittsburgh, PA 15222-1210
Phone: (412) 565-5199

Fax: (412) 565-7983
www.newPA.com

 

 

 

 

 

A Rare Opportunity to Reduce Real Estate Tax Collection Costs: The Time to Act is Approaching

 

Submitted by:

Gerald Cross

Pennsylvania Economy League

Central PA Division

570-824-3559

pelcent@epix.net

 

During the next few months, counties, municipalities, and school districts in Pennsylvania have a once-in-four-years opportunity to bring about savings in their real estate tax collection costs. Prior to February 15, 2009, local governing bodies can change the methods and rates of com­pensation for elected tax col­lectors, and these methods and rates will become effective for those tax collectors elected to four-year terms of office beginning in January 2010. It is time for local officials and taxpayers to begin to do their homework so that they can make the best use of this rare cost-saving opportunity.

 

           Prior analyses by the Pennsylvania Economy League (PEL) of real estate tax collection costs in more than 500 jurisdictions identified millions of dollars in potential annual savings. Jurisdic­tions were advised to shift from the traditional commission form of compensa­tion to the more appropriate salary or “per bill” payments and/or to lower their rates of compensation.

 

          These recommendations were made in part because PEL found major deficiencies in compensating tax collectors on a commission basis. Unlike salaries or “per bill” compensation, commissions are not directly related to work loads; instead, they are based on the value of the taxables and on the tax rate.

 

          An increase in the assessed valuation of a property or in the millage rate produces increased commissions, but the workload remains unchanged. Also, large tax bills generate large commissions, yet they are no more expensive to handle than small ones. PEL also found that not only are salary and “per bill” compensation more logical and more in keeping with the work performed, but these approaches tend to be less costly as well.

 

          Periodic surveys designed to document the actions of public offi­cials in a ten-county area in response to PEL’s analyses of the cost-saving opportunity revealed hundreds of thousands of dollars in continuing annual cost reduc­tions, as well as unspeci­fied savings in terms of future cost avoid­ance. The latter resulted from placing caps on compensa­tion or by freezing com­pensation at current levels in conjunction with a shift from commission-based compensation to salary or “per bill” payments.

 

           In response to PEL’s series of analyses, one county (which at one time was compensating its tax collectors on a “sliding scale” based on the number of tax bills processed ranging from $2.25 per bill down to $1.75 per bill) reduced its per bill compensation rates by 50 cents or by between 22 and 29 percent. As an example of cooperative collection, Lycoming County School Districts collect their real estate taxes under a bank lock box system that allows local tax collections to “deputize” the bank to collect school district real estate taxes.

 

          In spite of documentation suggesting the poten­tial for sav­ings, many jurisdictions failed to make any changes; in some cases the jurisdictions which failed to act were among those with the greatest potential for reducing compensation costs.

 

           Act 169 of 1998 should also prove helpful to officials in reviewing their municipal tax collector compensation. It requires that tax collectors regularly file reports with the taxing jurisdictions they serve detailing the taxes collected using standard forms provided by the state and that the tax collector’s accounts be audited annually by the duly authorized auditors of the taxing district—the elected auditors, the controller, or an independent appointed auditor.

 

Local officials can directly influ­ence the cost of real estate tax collection only by modifying the method and/or rate of compensa­tion of their tax collectors, and these officials must be prepared to act if savings are to be realized. Final action in setting the methods and rates of compensation must be taken prior to February 15, 2009.

 

This PEL News and Views notice allows local officials more than eight months to prepare to take appro­pri­ate action. PEL has long recommended the elimination of elective tax collectors and treasurers and, as an alternative, the countywide cen­tralization of the real estate tax collec­tion function. This would undoubt­edly result in a more cost­-effective approach to the collection of real estate taxes, but it would require action by Pennsyl­vania’s General Assembly. PEL continues to encourage the state legisla­ture to make changes in Pennsylvania’s tax collection laws to allow for more modern and less costly real estate tax collec­tion methods.

 

The past series of reports on tax collection costs and the opportunities for savings is an example of what PEL is all about. The full series of the 2004 PEL Tax Collection Compensation Reports can be viewed at our Website: www.pelcentral.org/Tax Collection/

Earned Income Tax Collection in Pennsylvania

Recently, the Local Government Academy conducted the 2007 Taxation Update Program, where one of the topics was PA Senate Bill 1063 and its House companion, Bill 1550. The PA Senate Finance Committee has unanimously approved the bill, which consolidates the local collection of earned income tax revenue across the state. Currently, tax collection is conducted by 560 collectors, and the bill reduces this number to 66, or one per county. This excludes Philadelphia, which has previously consolidated tax collection.

Below are two opinions on this bill by Brian K. Jensen, Program Manager, Pennsylvania Economy League of Southwestern Pennsylvania, and Mary L. Abbot, President of Pennsylvania’s Earned Income Tax Officers, Administrators, and Collectors (PEITOAC) and Tax Office Manager of Mount Lebanon, PA. Read these opinions and post your responses!

 

Submitted by:
Brian K. Jensen, Ph.D.
Program Manager
Pennsylvania Economy League of Southwestern Pennsylvania
Phone: (412) 281-4703 ext. 3134
E-mail: bjensen@alleghenyconference.org

    It’s human nature to make life easier by consolidating and streamlining processes. Consider our personal choices. We welcome one-stop online bill payment opportunities. And we applaud customer service when one representative can efficiently handle all of our needs without having to pass the call to six other representatives. In business and retail administration, consolidation is considered a good approach when efficiencies are enhanced and dollars are saved. Back-office operations—payroll, purchasing, benefits administration—are often managed with a shared services approach, particularly when multiple branches or locations are involved. Wasted effort is reduced and economies of scale save money. Savings can provide for additional hiring and better benefits for employees and strengthen the businesses’ competitiveness. Consolidation’s benefits are obvious.

    Even in matters of tax collection, the benefits of consolidation and streamlining are apparent: having Pennsylvania’s personal income tax withheld from our wages and salaries. If SB 1063 is passed, Pennsylvanians will have the chance to appreciate the same streamlined efficiency in the collection of school district and municipal earned income taxes.

    The Pennsylvania Economy League of Southwestern Pennsylvania concludes that businesses and citizens of Pennsylvania will benefit dramatically from the recovery of $237 million in earned income tax revenue that falls through the cracks every year. Such a significant amount of lost annual revenue—money that, if recovered, could result in more teachers in classrooms and police on the streets, or could go towards reduction of other local taxes—merits attention and careful consideration of why consolidation of earned income tax collection can be a win for Pennsylvania employers, taxpayers and local taxing jurisdictions.

   

If Pennsylvania adopts a consolidated approach to earned income tax collection, tax collection won’t shift from a municipal function to a county function. Pennsylvania’s 560 earned income tax collectors will be streamlined to 66 collectors. This number corresponds with the number of Pennsylvania counties to be affected by the change (Philadelphia is not included as it already has consolidated earned income tax collection). While tax districts would generally align with county boundaries, earned income tax collection will not be a county government function. The process for choosing tax collectors will be a function of tax district committees comprising municipal and school district representatives.

    The lack of a complete and coherent paper trail, at this time, contributes to taxes failing to arrive at their intended destinations. Consolidation and standardization will reduce the loss of revenue for countless municipalities and school districts—revenue that is rightly theirs. 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.”  Consolidation will make it easier for employers to do the right thing consistently.

   

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.    

  Successes already in place underscore that a state-wide earned income tax consolidation has benefit and demonstrates that it can succeed. Consolidated tax collection is operating efficiently on a county-wide basis in ten Pennsylvania counties. In another 26 counties, consolidation is on its way to becoming a reality.

   

Beyond regulated control of tax money moving more speedily back to municipalities and school districts that depend on it, the greater community that is the Commonwealth will become more attractive to business developers. Consider again our consumer habits. We gravitate toward products or services that are current and cutting edge, not those that are cumbersome or obsolete. We don’t select dial-up over DSL, and we listen to our music on iPods, not LPs. Recognizing our personal penchants for efficiency, speed and dependability, it’s easy to understand why businesses seeking to relocate to or expand in Pennsylvania would prefer a consolidated earned income tax collection system to the current fragmented approach.    

    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.

   

Every municipality and school district across Pennsylvania deserves its complete and fair share of earned income tax revenue—dependably distributed. For the common good, the time has come for earned income tax consolidation across the Commonwealth.

Submitted by:
Mary L. Abbott
PEITOAC President      
Mt. Lebanon, Pa. Tax Office Manager
Phone: (412) 343-3745
E-mail: mabbott@mtlebanon.org

    The Pennsylvania Earned Income Tax Officers Collectors and Administrators Association, PEITOAC, opposes both House Bill 1550 and its companion bill Senate Bill 1063. While both of these bills have provisions in common with House Bill 1458 which consolidates offices at the school district level, these two bills would consolidate taxing districts at the county level. Our organization opposes county wide consolidation for many reasons.

    Existing tax collection bureaus that represent entire counties or a large portion of any one county were formed by the voluntary participation of each municipality or school district involved. Districts within those bureaus have the right to exercise other collection options if the bureau does not meet their needs or expectations. HB 1550 and SB 1063 are both bills of no return and give local districts no options other than the countywide bureau.

    Countywide tax collection committees would be formed and each taxing district within a county would have a delegate on the committee. In Allegheny County the tax collection committee would have over 170 delegates. Mandating countywide collection bureaus will create another layer of bureaucracy and further the distance between taxpayers and their municipalities and school districts.

    We believe that taxes withheld by employers would be delayed reaching the proper districts since employers would be given the option of remitting taxes for all employees to one taxing district regardless of where the employees might be employed or reside. These tax dollars would then have to be forwarded to the proper county bureau and then on to the proper district.

    Smaller, less affluent districts would be left with little or no input into the operation of a countywide bureau. Voting in each district would be weighted by either percentage of collections or by percentage of total population in the county. These districts depend upon this tax revenue for providing local services yet they will effectively be disenfranchised by these bills.

    While the DCED may be committed to assisting with startup costs as well as with technical assistance, there is no guarantee that adequate state funding will be available to properly establish effective and efficient county bureaus that will meet the needs of member districts. Without these funds municipalities and school districts may have to budget for these startup costs while at the same time paying to maintain their current collection systems.

    For these and other reasons we strongly urge support of House Bill 1458 which would effect positive change in the collection of the local earned income tax while keeping control of these funds in the communities who rely on them to provide the services upon which we have all come to depend.

    We agree and have long advocated many of the uniformity issues addressed in HB 1550, SB 1063 and HB 1458. Uniform rules and regulations along with standardized forms are items PEITOAC has promoted for many years. Strict penalties for tax collectors who do not follow those rules and regulations have also been a goal of our organization.     

    Pennsylvania’s Earned Income Tax collectors are professionals dedicated to the collection of local earned income taxes with both pride and integrity. Our organization would welcome the opportunity to work with the Pennsylvania legislature in the spirit of commitment, cooperation and compromise to effect meaningful changes while maintaining local control over tax collections.

Update:

Pennsylvania Governor Ed Rendell has signed Senate Bill 1063, which will consolidate earned income tax collection in Pennsylvania. Consolidation will be phased in starting in 2010 and should be completed in 2012. To read some articles and opinions on the passing of the bill, click on the links below:

http://www.post-gazette.com/pg/08185/894492-53.stm

http://www.psats.org/news_eit_legislation.html

http://www.legis.state.pa.us/cfdocs/billinfo/bill_history.cfm?syear=2007&sind=0&body=S&type=B&bn=1063

http://www.pittsburghlive.com/x/pittsburghtrib/news/mostread/s_575566.html