Nov 13, 2013 5 min read

Never again pay a property tax bill to your school district?

While the idea, on its face, may sound enticing, taxes are going to fund public schools. If a bill in the state Legislature becomes law, it would be a question of which taxes, and how much of each, would finance public education.

What’s known as House Bill 1189 contains no provision to alter the taxing options of either municipalities or counties, so, even if the bill passed, it would have no effect on real estate taxes levied by those governmental bodies.

Sponsored by state Rep. Seth Grove, R-York, House Bill 1189 is an amendment to the Local Tax Enabling Act giving school districts the option of reducing or eliminating school property taxes. A co-sponsor is Rep. Pam Snyder, D-Jefferson.

The bill passed the House Oct. 2 by a vote of 149 to 46. The only local legislator voting against it was state Rep. Jesse White, D-Cecil. According to a Legislature website, the bill was referred to the Senate Finance Committee Oct. 10.

The Pennsylvania Newspaper Association recently made two members of the Pennsylvania Institute of Certified Public Accountants, Cheri Freeh of Quakertown, Bucks County, and William Lazor of Kingston, Luzerne County, former PICPA president, available to discuss the bill in a teleconference.

“Business privilege, earned income, net profits taxes are subject to fluctuations in economic activity. Unemployment compensation is not taxable, but wages are,” Lazor said.

“This is almost akin to what the auditor general found to be objectionable in interest rate swaps based on the unpredictability of the interest rate market. There are some who wound up with some problems. It’s great when we’re in a boom cycle, but you’ve got to put something away when bad times come.”

Freeh noted that “if the economy suddenly does very well, or in economic hard times, there is no method in this bill to make up the difference. It would be severely detrimental to school districts trying to make up their budget.”

Individual school districts could decide if an earned income tax, net profits tax, business privilege tax or mercantile tax, or any combination of those, would be used to replace or reduce property taxes. The bill refers to them as “elimination taxes.”

The business privilege tax is a tax on gross receipts, which businesses figure into a sales price, or what they’re going to sell something for.

“It may make them less competitive,” Lazor said.

The mercantile tax is assessed on the gross income of anyone engaged in the sale of goods, wares and merchandise located within a municipality or a school district.

“At least businesses know what their tax burden is at the present time,” Lazor said. “The layering of a school-district-only business tax creates another layer of administration and taxation. One school district may have it and another school district may not have it.”

He refered to Pennsylvania’s “fractured tax system,” which has more tax jurisdictions and tax collectors than in the rest of the United States.

The bill doesn’t mention at all who is the tax collector, the PICPA representatives pointed out.

A few years ago, the state whittled the number of local earned income tax collectors to 19, down from 600.

“Homeowners are out there clamoring for lower property taxes,” Freeh said.

“Those who live on investment income will pay no tax. If you earn a lot of money, you’re going to pay a lot of income tax. For businesses, some will pay no tax. It’s a very unstable tax base.”

Lazor noted that “PICPA does not take a position on this. Our comments are related to any tax that exists or is proposed and how it may affect the economy.”

In Washington County, the representatives of the Washington and McGuffey school districts began presssing county officials five years ago to reassess real estate for the first time in more than 30 years and eventually took the matter to court.

The commissioners this past August said they had run out of options and signed a $6.9 million contract with Tyler Technologies to perform the reassessment, which is scheduled to take effect in 2017.

Scott Burchell, business manager of McGuffey School Distrct, is a member of the Pennsylvania Association of School Business Officials’ committee on property tax and referendums.

He said House Bill 1189 gives school boards flexibility so that the district does not have to focus its entire taxing power on property millage rates.

But he said of eliminating the property tax through House Bill 1189, “I don’t believe that would be a viable option. Elimination to me would be extremely difficult without additional revenue streams or additional funding from the state.”

Despite the name of the committee of which Burchell is a member, he said eliminating or reducing school property tax carried no referendum requirement, but is a decision completely within the purview of the school board.

Rick Mancini, Washington School District business manager, declined to comment Tuesday because his office was busy with its annual audit.