Senate News Update
From Senator Jane Earll
May 6, 2005

Tax Collection a Big Issue 

Most everyone has a few bills to pay every month, whether it's for gas, electric, credit cards, or a host of other items.  Each month, on our specific "due date", we all send our individual payment, using the same billing procedures, to one central collection point, which processes the bill and credits our account.  Most times, the process is seamless, efficient, and easy.  Unfortunately, in Pennsylvania, the collection of your local taxes is not done in such a simple fashion, and that amounts to a serious loss of revenue –as well as some headaches- for all taxpayers. 

Last August, a report many years in the making was finally published that outlined the extreme inefficiencies in the system of local tax collection across the entire state.  Specifically, the report (done by the Governor's Center for Local Government Services) focused on the collection of the Earned Income Tax, and estimated that over $100 million is lost annually due to a variety of factors, including inconsistent withholding, lack of capacity and resources at the local level, lack of coordination, lack of accountability, and lack of oversight and enforcement. 

Locally, we don't have to look any farther than the messy situation between the City of Erie and Millcreek Township a few years back, in which money that was supposed to be transferred between the two was not because of outdated and inefficient local tax collection policies.  That kind of scenario is playing-out all over Pennsylvania, and it needs to stop. 

The report from the Center for Local Government Services found that there are roughly 600 local tax collectors for 2900 local taxing jurisdictions across the state.  Pennsylvania has more taxing jurisdictions levying a local income tax than all other states combined, and some of our counties spend more money collecting local taxes than other entire states do!  This leads to the problems like we witnessed between Erie and Millcreek, and contributes to that $100 million loss each year.  One way to stop that would be centralize (either at the county level or state level) the collection of local taxes. 

I am Chairwoman of the Senate Finance Committee, which has oversight of the Pennsylvania Department of Revenue.  The report references the Department as an option for centralized tax collection, and this is an issue I am interested in having my committee explore further.  Recently, I held a public hearing on Senate Bill 292, which would address the lack of uniformity across the state with regard to how local taxes are collected.  This is really the first step that must be taken before we can begin serious discussions about shifting to a county-wide or state-wide collection system. 

In fact, it may even smooth the transition on its own.  Roughly 36 of Pennsylvania's 67 counties already have or are moving towards a consolidated tax collection system.  It is important to ensure that all municipalities are collecting, reporting, and distributing taxes in the same format and on the same schedule in a uniform and efficient way.  Once that is accomplished, the efficiency of moving to a central collection point may become obvious on its own. 

Senate Bill 292 provides real enforcement teeth (in the form of fines and penalties) to the law regarding reporting, collecting, and distributing local taxes. Efforts to standardize these formats now will be helpful in the future, not only with regard to the Earned Income Tax, but potentially other local tax collection systems as well.  This issue of local tax collection is a topic worth delving into, and my committee is taking the formidable "baby steps" needed to initially move the ball forward. 

As always, if you have any questions on this or any other state government matter, please do not hesitate to contact my office directly at (814) 453-2515.