Property Tax Reform in Pennsylvania

for the South Central Assembly Feb. 20, 2013

David W. Davare, Ph.D.

Property Tax

Current systemRevenue and importanceLimitations and special issuesTax levy methodologyAssessment issuesReform and related issues

Used byEntity Number % of local

revenue% of total revenue

County 67 92% 29%

Municipal 2450+/- 49% 81%

Schools 500 78% 41%

Used byEntity Number

Reported (Total)

Year of Data

Total RE Tax Revenue

County 58 (67) 2009 1,942,756,051

Municipal 2502 (2450+/-)

2010 1,576,530,198

Schools 500 2009-10 10,757,487,536

Property tax revenue

Total RE Tax $14,276,773,785

2010 Taxable Income $310,368,447,000PIT at 4.59% + 3.07% or 7.67%

2010 Taxable Wages $245,629,659,000EIT at 5.81%

Property tax limits 2nd Class A Counties, 30 mills 2nd, 3rd to 8th class Counties, 25 mills3rd Class Cities 25 millsBoroughs, 30 mills1st class townships, 30 mills2nd class townships, 14 millsHome Rule Governed by their charterSchool districts 25 mills excludes salaries,

benefits and debt

Property tax limits

For 3rd to 8th class counties, Cities, Boroughs and Townships, an additional 5 mills may be imposed with the approval of the county court.

Codes authorize various special purpose levies for debt service, capital projects, fire hydrants, street lights, libraries, etc.

Pa Constitution

Article VIII Section 1: Uniformity of taxation

All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.

Exceptions to taxation

Tax exempt properties Act 319 Clean & GreenLERTA/TIF/KOZ-KOEZHomestead/Farmstead (Act 50/72/1)

Tax reform attempts

1988-89 Casey plan1996 – Act 502004 – Act 722006 – Act 1

Tax reform attempts

All shift from property to income. Both earned and personal incomeAct 72 and Act 1 included

homestead/farmstead exclusionsAct 72 and Act 1 opened

homestead/farmstead to municipals as well as Schools

Property tax calculation

Assessed value * millage * collection rate

= Revenue

Assessment of property

No state mandates on assessment No required reassessment Third class cities can do own

assessment (Reading) Assessment my use either price,

or replacement value

Assessment of property

Assessment my use either purchase price or replacement value

Assessing county selects base year County establishes pre-determined

ratio (market to assessed)

Assessment of property

Land value taxation has limited authority in PA

May be used by 3rd class cities and 3rd class school districts that are co-terminus with 3rd class cities

Assessment of property

Government entities situated in 2 or more counties must equalize using STEB estimates of market value.

Tax reform proposals have

Only address where local dollars come from. Do not address demands and limitationsShifting from property to income, without

consideration of commercial property tax revenue

Shift the business tax burden to individuals. Failed to consider appropriate mix of taxes

Tax reform proposals haveIncreased property taxes by repealing

alternative taxes available under Act 511Encouraged increased rate on earned income. Left personal income to local choice Most proposals expand disparity of wealth as

defined by property and incomeRequire a “one-size-fits-all” approach to local

tax reform.

Tax reform proposals shouldInclude state funding as part of the debate.Include an appropriate mix of taxesRequire counties to maintain a uniform state-

wide ratio of assessed to market valueRequire uniform assessment practices Require the regular reassessment of real

estate at stated intervalsFully fund mandates on local governments

Tax reform proposals shouldProvide state-wide support for assessment of

specialty property (utility production facilities)Supplement tax reduction/abatement

programs such as Act 319 (no local choice)

Discussion time