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Pennsylvania Emergency Municipal Services Tax

Sept. 13, 2006

Presented to the Pennsylvania House of Representatives Finance Committee

Introduction
Good morning. I am Beth Winters, Director of Legislative Services for the Pennsylvania School Boards Association (PSBA). I would like to thank Chairmen Leh and Levdansky for inviting PSBA to testify on the emergency municipal services ( EMS ) tax.

Maintain Tax Alternatives
PSBA's legislative platform supports the authority of school districts to levy, assess and collect a variety of local taxes that are suitable to each school district's economic capabilities and conditions that exist locally. PSBA maintains that the EMS tax is a tax alternative that districts can use to offset increases in local school property taxes. Although revenue generated by non-property taxes is smaller than that generated by the school property tax, non-property tax revenues still generate a significant level of revenue to support education.

The EMS tax that replaced the occupational privilege tax beginning January 1, 2005 allows certain school districts to collect either $5 or $10 per person from the maximum $52 tax. According to the Pennsylvania Department of Education's most available data, in 2004-2005 there were 253 school districts levying an EMS tax. These taxes accounted for approximately $15.4 million in that year, a significant amount of money for our districts. Attached to my testimony are spreadsheets that delineate the total amount of revenue districts received from the EMS tax in 2004-05.

Eliminating the EMS tax altogether would obviously affect all school districts that levy the tax. It removes an option for school districts that choose to look for additional revenues without raising local property taxes. Faced with a loss in EMS revenue, school districts have two options: either replace the funds through additional sources of revenue or reduce operating costs. Unfortunately, for school districts both of these options are severely limited. In the instance of replacement revenue, this stream would most likely come from further property tax increases, since Act 511 tax rates are capped.

If the General Assembly intends to eliminate the EMS tax, then PSBA maintains that school districts should be authorized to levy a replacement revenue stream and consideration be given to authorizing districts to reinstate the local occupational privilege tax. The elimination of the EMS tax would place an undue hardship on school districts to replace that lost revenue under the Act 1 of the Special Session.

Changes to the EMS Tax
On the other hand, if the General Assembly seeks to make changes to the collection of the EMS tax, rather than a wholesale revocation of that tax, then PSBA urges this committee to carefully consider the impact of any proposed change on school districts. One of our major concerns deals with the issue of employee EMS tax deduction and remittance. Under current law, the EMS tax is typically collected by employers, turned over to the tax collector and then remitted to the school district by April of each year if it is levied on a January - December cycle. Prior printer versions of Senate Bill 157 contained a provision that requires the EMS tax to be deducted evenly over the number of payroll periods established by the employer rather than a lump sum deduction at the beginning of a calendar year. This type of provision may ease the financial hardship that the EMS tax represents for some Pennsylvania taxpayers. For school districts, however, school districts cash flow is negatively implicated.

For example, under the House passed version of Senate Bill 157, if a school district levies a $5.00 EMS tax in 2006 it would be deducted from an employee's payroll over 26 pay periods that means 19 cents is deducted per employee per pay period for a school district and $1.25 per quarter is remitted to the tax collector within 60 days and then to the district within thirty days of receipt by its tax officer. Accordingly, school districts would receive their full $5.00 per taxpayer not in April 2006 as current law provides, but a $1.25 per taxpayer - 90 days after the end of each quarter with the final payment being received by the district in the next calendar year. If the general assembly seeks to spread the EMS tax deduction over the course of the calendar year, then PSBA requests that school districts get paid first and therefore their full share of their portion of the EMS tax be remitted by the tax collector within 30 days of receipt.

Additionally, PSBA recommends that those school districts that levy the EMS tax be able to retain the discretion to determine any EMS tax exemptions for individuals. The latest version of Senate Bill 157 (PN 1989) maintains existing law and allows local taxing authorities to exempt any individual whose total income is less than $12,000 and to adopt regulations for the processing of claims for exemptions. The prior version of Senate Bill 157 (PN 1822) passed by the House of Representatives, however, requires local taxing authorities to exempt individuals earning less than $12,000 from paying the EMS tax. If the General Assembly wants to provide additional tax relief above and beyond the property tax relief provided under Act 1 or the relief that the local taxing authorities determine that they can afford under the Local Tax Enabling Act, then PSBA suggests that the state provide a credit to individual taxpayers on their state income tax for the payment of the EMS tax rather than requiring local taxing authorities issue the credit.

Finally, we would also suggest that actions taken on the EMS tax must be in concert with the recently enacted Act 1 of the Special Session. In particular, Act 1 prohibits school districts from levying a tax for the support of public schools that was not levied during the 2005-06 fiscal year without the consent of its voters. Various versions of Senate Bill 157, on the other hand, contradict Act 1 in that they incorporated a complete prohibition against school districts levying an EMS tax if they have not done so prior to the bill's enactment. These two public tax policies clearly conflict. Accordingly, PSBA suggests that the public policy chosen under Act 1 take precedent over any subsequent EMS tax change in this regard. Act 1 of the Special Session, at least, allows local voters to determine if they are supportive of additional local tax levies to fund their school districts.

Conclusion
We appreciate the opportunity to share with you these practical insights to the issue of the EMS tax. If school districts do not have the authority to collect a variety of local taxes, districts will be forced to return to the property tax, which is now limited by Act 1 of the Special Session, in order to raise sufficient revenue to maintain educational services. The association stands ready to work with the committee to draft amendatory language if necessary. I will be pleased to take any of your questions at this time.

The occupational privilege tax is levied for the privilege of engaging in an occupation within the taxing district. The occupational privilege tax must be levied on residents and nonresidents alike and may only be levied by the jurisdictions in which the occupation is pursued. This is in contrast to the occupation tax that is based not on income. An occupation tax must be identical for all members of a particular occupation. The City of Philadelphia , the School District of Philadelphia and the Pittsburgh School District are not authorized to levy an emergency services tax.

53 P.S. § 6908 provides that in the case where a school district did not levy a tax on the privilege of engaging in an occupation on the effective date of this paragraph, the school district may impose a future levy not to exceed five dollars ($5).

53 P.S. § 6919 (Requires employers to remit EMS (formerly the OPT) within 60 days of notice received from the tax collector). The collector must pay over on or before the 10 th day of each month (unless resolution requires a greater frequency) all moneys collected as taxes during the previous month to the taxing district.

See Senate Bill 157, PN 1422, page 8, lines 21-27. "For any payroll period in a calendar year, a political subdivision levying a local services tax pursuant to an ordinance or a resolution under the authority of this act shall collect no more than the pro rata share of the tax levied on a person for a calendar year determined by dividing the tax levied on a person for the calendar year by the number of payroll periods established by the employer for the calendar year." See also SB 157, PN 1822, page 8, lines 23-30.

See Senate Bill 157, PN 1822, page 9, lines 20-27. "If a school district and a municipality located in whole or in part within the school district both levy a local services tax, the school district's pro rata share of the aggregate local services taxes levied on taxpayers employed within the municipality shall be collected by the municipality or its tax officer and paid to the school district on a quarterly basis within sixty days of receipt by the municipality or its tax officer."

See Senate Bill 157, PN 1822, page 11, lines 18-23.

See Section 333(b)(2).

See Senate Bill 157, PN 1822, page 9, lines 17-20 that states, "A school district that did not levy or collect an emergency and municipal services tax on the effective date of this subclause shall be prohibited from levying a local services tax."