Earned income tax collection reforms continue
By Patrick Cloonan
Published: Monday, Feb. 22, 2010
You hear it often at school board, township board and municipal council meetings: Act 32.
It is shorthand for a complicated process written into a law called Act 32 of 2008, which continues to reform earned income tax collection from something 500 entities do now to a centralized effort that will be done by 2012 in 69 districts across Pennsylvania.
"We hope we will have a system where we can collect and redistribute the collections in a timely fashion," McKeesport city Administrator Dennis Pittman said. "That is absolutely critical to cities like McKeesport."
And to smaller entities, as some officials noted at a recent Twin Rivers Council of Governments meeting in Elizabeth Township.
As envisioned, Act 32 is supposed to save municipalities and school districts millions of dollars in lost revenue.
"There is no method to the madness in how we currently collect earned income taxes in Pennsylvania," state House Finance Chairman David Levdansky, D-Forward Township, said. "Each jurisdiction has different practices and reporting methods that businesses must conform to."
Levdansky referred to a study done by the Pennsylvania Economy League that found $237 million worth of wage taxes go uncollected usually until "some poor constituent gets a letter" from the agency that does delinquent tax collections saying "you owe us the tax plus penalties, interest and collection fees."
By Jan. 12, 2012, collections are to be centralized into 69 districts, with 65 covering, essentially, 65 Pennsylvania counties though many may be able to do it for 2011.
"Under this legislation, all employers will be required to collect wage taxes from all their employees and forward it to one central collection entity," Levdansky said. "That wage tax collection entity then takes it and remits it to the proper school district and municipality."
Usually, it will be a private collection firm, one perhaps of the numerous companies now in operation in and around the Mon-Yough area; Levdansky said each collection district should put out requests for proposals from those firms.
"Use competition that is out there as a way to get the best price, to put the best system into place at the lowest costs," Levdansky said. "The costs should be lower for each municipality."
Pittman said that is the plan in the Allegheny Southeast District where he is helping to choose a solicitor and to write the bylaws.
However, Levdansky noted, "there are some school districts and municipalities in some counties that already have formed a nonprofit cooperative and they've been collecting their wage taxes on a consolidated basis."
Levdansky was a witness in the summer of 2008 when Gov. Ed Rendell signed Senate Bill 1063 into law as Act 32.
"The excessive number of tax collectors also comes with high administrative costs, which increase tax rates," Levdansky said. "That makes Pennsylvania an unfriendly place to do business and attract jobs."
"No one will be able to pay their own (EIT) unless they are self-employed," Pittman said. "They'll still have to send it to this (central entity)."
Philadelphia is not covered by the Act 32 process while Allegheny County is split into four districts, one for Pittsburgh and three for the suburbs using the major rivers as boundaries.
"No school district goes over a river," Levdansky noted.
Two of the Allegheny districts affect Mon-Yough communities.
Allegheny Southeast extends from the southern shore of the Allegheny to the eastern shore of the Monongahela. Locally it includes McKeesport Area, Elizabeth Forward, East Allegheny and South Allegheny school districts.
Allegheny Southwest extends from the shores of the Monongahela and Ohio to the Beaver and Washington county lines. Locally, it includes Clairton City, Duquesne City, Steel Valley, West Jefferson Hills and West Mifflin Area districts.
Allegheny North covers the area between the Allegheny, the Ohio and the Butler County line.
One district covers most of Westmoreland County, including the Norwin district.
In Monroeville Thursday night, many of this area's municipal and school officials will choose a solicitor from a group of three finalists for the Allegheny Southeast District. A committee headed by Pittman recently interviewed eight applicants.
"All 45 members will participate in the interview (Thursday) and make the selection that night," Pittman said.
That selection isn't exactly a one-man, one-vote process. A weighted process is used, with votes distributed to each municipality and each school district, then in turn giving more of a vote if a municipality or district had collected more earned income tax revenue.
That solicitor will help the Allegheny Southeast district complete bylaws required in Act 32 by April 15, then set up the process by which a tax collector will be chosen no later than Sept. 15.
"I think I'm up to my neck in this for at least the next couple months," Pittman said. He also is on the bylaw committee in his district.
In Allegheny Southeast, Pittman said, bylaws are "already in draft form." That draft will be submitted to members Thursday in Monroeville for each member municipality and school district to review.
The state Department of Community and Economic Development has a timetable of what is expected of the 69 tax collection districts through the rest of this year.
Appeals boards will have to be appointed by June 1. Tax collectors must be chosen by Sept. 15 and DCED notified of their selection by Sept. 25.
Each district must determine by Nov. 1 whether regional taxes will be collected in 2011, and DCED must be notified of that determination by Dec. 1.
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