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Bill would eliminate most local tax collectors

July 2, 2008

Mike Wereschagin, Pittsburgh Tribune-Review


Gov. Ed Rendell expects to sign a bill today that would overhaul the fragmented local income tax collection system in Pennsylvania, forcing employers to withhold the tax and possibly generating $237 million for municipalities and school districts.


But first, those local governments will have to get along.


The bill, which the General Assembly passed this week, consolidates local earned income tax collection at the county level, slashing the number of tax collectors from 560 to, at most, 69. Municipalities and school districts in each county -- except Allegheny -- have to form a committee and agree on one tax collector by November 2009.


Allegheny County, with its 129 municipalities surrounding Pittsburgh, will be broken into four tax districts -- the city, and three other districts separated by the rivers. Those last three will form their own committees.


"There's no doubt there's a lot of money being lost, and I think you can blame most of that on a system that's disorganized throughout the state," said Tim Allwein, government affairs director for the Pennsylvania School Boards Association. The association opposed the bill, however, because the new system could cost some districts more than they're paying now.


"Time will tell whether or not the dollars that are saved by consolidating collection will more than make up the expenses," Allwein said.


The bill requires employers to take the tax -- typically 1 percent that gets divided between an employee's school district and town -- out of workers' paychecks.


Companies won't save money under the new system, but the business community lobbied for it because it eliminates the aggravation of doling out tax money to as many as 150 local governments, said Barbara McNees, president of the Greater Pittsburgh Chamber of Commerce.


"The commonwealth of Pennsylvania ... has more tax collectors than all the other states combined," McNees said.


Getting the bill passed was a four-year slog marked by opposition from local governments leery of sharing anything, said Rep. David Levdansky, D-Forward. The bill grew from a state study blaming the tax collection system for hundreds of millions of dollars in lost cash.


"Change comes slowly to Pennsylvania, especially when you're trying to consolidate and streamline anything," Levdansky said.


The study suggested letting the state Department of Revenue collect the taxes, since it collects state income taxes.


"There was tremendous resistance to that from all the local governments," Levdansky said.


Even the county-level compromise leaves some wary. Local tax collectors send money to municipalities and school districts daily, said Dick Hadley, a township supervisor in Cranberry and manager of Reserve.


"There's a big fear that that cash flow is going to dissipate down to 30 or 60 days," Hadley said.


He questioned the $237 million in lost taxes -- an amount suggested in a 2007 Pennsylvania Economy League study -- this bill is supposed to help collect. A countywide collection agency might not be able to follow all the self-employed and small-business owners as well as the local governments of areas where they're located, he said.


"I have no doubt there's some money slipping through the cracks," Hadley said. "Will this solve the problem or exacerbate it?"


For many business owners, it couldn't get much worse.


"There's no common form, no common criteria" in the current system, McNees said.


Each municipality and school district selects its own tax collector -- and sometimes they don't pick the same one. The result, researchers and lawmakers say, is a disjointed system that gives prospective employers one less reason to set up shop in Pennsylvania.


The law would not affect property tax collectors, who are elected locally and could be eliminated only by changing the state Constitution.


"We feel this is a good first step toward a more efficient government," McNees said.