Income tax bill signed into law
Pennsylvania Gov. Ed Rendell recently signed a law spelling out a more efficient earned income tax collection system that could yield more than $200 million for municipalities across the state. Under the law, signed in early July, Pennsylvania’s number of earned income tax collectors will be reduced from 560 to 69, which roughly matches the number of counties, but is not a function of county government.
In Greene and Fayette counties, local tax collectors do not currently collect the tax, although in neighboring Washington and Westmoreland counties, local tax collectors assume that role.
“This fixes what is now probably, the most complex and confusing local taxing environment in the nation, with more local earned income tax collectors (560) and more local taxing jurisdictions (nearly 2,900) than all other states combined,” Rendell said upon signing the legislation.
According to the Pennsylvania Economy League, the state’s fractured and inefficient system left about $237 million uncollected each year, which would be enough to hire 3,000 more teachers and 3,000 more police officers or lower property taxes.
Marigrace Butela, tax collector for Dunbar Township, said the legislation won’t affect the elected tax collectors in Fayette County because none collect the tax, but added in other counties, such as Westmoreland County, they do.
Tax agencies collect the tax in Fayette and Greene counties.
According to a breakdown of lost earned income tax revenue based on 2004 data compiled by the Pennsylvania Economy League of Southwestern Pennsylvania, Greene County lost $525,906; Fayette County lost $2,551,632; Washington County lost $5,603,984 and Westmoreland County lost $13,575,692.
The legislation was a direct result of a 2004 report published by the Department of Community and Economic Development (DCED), which documented the fragmentation, complexity and inefficiency of the earned income collection system.
In addition, the legislation is designed to include numerous improvements. They include:
n Establishing uniform withholding, remittance and distribution requirements.
* Requiring that employers withhold all local income taxes imposed on the compensation of their employees and remit those taxes to only one collector, even if an employer operates in multiple counties.
n Instituting a continually updated, comprehensive tax register, maximum twice-yearly rate changes, a uniform definition of taxable income and a system of appeals.
n Strengthening reporting requirements so that each tax dollar is tracked from the time it is withheld until it is received by the appropriate taxing jurisdiction.
n Requiring that the state issue one set of rules and regulations that apply to all collectors, taxpayers and employers.
n Requiring that DCED develop uniform forms, notices, reports, returns, schedules, and codes for school districts, municipalities, and tax collection districts.
n Requiring that tax collectors keep a record of all public monies received and distributed, and submit monthly reports to each taxing jurisdiction and the tax collection district that must be reconciled with other records in an annual audit.
n Providing for more accountability, transparency, oversight and enforcement.
Each county will establish a committee, with input from every municipality and school district, within the next year to determine what agency should collect earned income tax.
The new tax-collection process must be implemented by 2012 to allow the contracts with current collectors to expire.
Rendell said Philadelphia has its own system and is not required to abide by the new law, and Allegheny County will be broken into four collection sectors.
Rendell anticipates the uniform approach could generate $237 million more in local taxes with more efficient means to collect from delinquent accounts.
Steve Weitzman, press secretary for the state Department of Community and Economic Development, said that statewide there is a lack of standardization from the employee to the employer to the tax collector, and the new proposal would be more efficient and have more attention to detail.
DCED officials said the department would develop a procedure that must be followed by the agencies in each county.
People who are self-employed must continue to send the tax in quarterly or face a surcharge if they send it in a lump sum.