Who is levying the varied and myriad taxes?
(April 2003) To describe Pennsylvania local taxation as a "system" of taxation does violence to the English language. It’s more like a "collection." Generally allowed to tax anything that the state does not, municipal and school district governing bodies individually select from a menu of tax possibilities including, among other things, amusements, real estate transfers, business gross receipts, a person’s place of residence, a person’s place of work, and the title of a person’s occupation. Counties’ choice is much more restricted.
The authority for all local taxation lies within State laws that govern not only what tax can be levied, but also specify limits on rates and the base or subject of taxation. Local governments must work within these legislated parameters.
The biggest revenue generator for counties, municipalities, and school districts is the real estate tax -- the property tax -, which accounts for about two-thirds of all local taxes. In fact, the property tax is, by law and for all practical purposes, the only source of tax revenue for almost every county government. The tax is on the value of land and buildings owned by individuals and businesses. County assessment offices that, ideally, appraise each property’s market value and then apply a predetermined ratio, which could range on county-by-county basis from 20 percent to 100 percent, establish these values. Each taxing jurisdiction then levies a uniform tax millage rate the appraised value of each property. Because of differences in assessment policies and practices, millage rates cannot be compared from county to county; and county administrative practices across Pennsylvania regularly generate charges of unfairness.
The earned income tax, usually called the local wage tax, is levied by municipalities and school districts on wages, salaries, commissions, net profits, and other compensation (income from interest and dividends is excluded). This tax covers employed individuals, unincorporated businesses, partnerships, and professional persons and generally applies only to those who reside in the taxing jurisdiction. (Philadelphia is the biggest exception, but that’s a whole other story.) Most Pennsylvania residents pay a maximum of one percent of their earned income, and the school district and the respective municipalities generally share the revenues evenly. Higher rates exist in Philadelphia, Pittsburgh, Scranton, selected home rule municipalities, and several municipalities with special circumstances.
State law gives municipal governments and school districts the authority (with exceptions) to levy a wide variety of other local taxes. These include:
- Millage-based Occupation Tax -- based on the locally-assessed value of occupations.
- Flat Occupation Ta -- levied at a flat rate on adult residents.
- Occupational Privilege Tax -- levied on individuals for the privilege of employment within the taxing jurisdiction.
- Real Estate Transfer Tax-- imposed as a percentage of the selling price of real property.
- Per Capita Tax -- levied at a flat rate on adult residents of the taxing jurisdiction.
- Local Business Taxes - levied on business gross receipts.
- Amusement Taxes -- based on admission prices to places of amusement, entertainment or recreation.
- Mechanical Devices Tax -- levied on coin-operated machines
- Local Sales Tax - levied in Philadelphia and Allegheny Counties at a one percent rate (using the same base as the state); authorized by special state legislation.
- Other Special Taxes --levied on a very limited basis across the state.
Each municipal government and school district can mix different sources from this broad menu, but within a set of complicated restrictions and with all sorts of exemptions. Although the spectrum of choices is broad, these taxes amount to only 15% of total local taxation. (See this table to understand which local governments use these tax sources.)
With the myriad of taxes at the local level, it is easy to confuse what government entity is imposing which tax. The picture is complicated further by the fact that most local governments can and do use a different set of taxes than their neighbors. When combined with state taxes, this contributes to misunderstandings, a poor perception of Pennsylvania’s overall tax system, higher administrative costs, and the loss of accountability.