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dollar signAct 1 Tax Commission Study

In the Commonwealth of Pennsylvania, all school districts are required by Act 1 of 2006 to set up a citizen Tax Commission. The task of the commission is to examine the demographics and tax structure of their community. They must decide whether to shift from property taxes to some form of income tax to fund the local public schools. Any increase in income tax requires a reduction in Property tax to equal it. There can be no net gain in tax dollars by the school district.

Act 1 requires all school districts to place a question on the primary election ballot (this is called a front end referendum). They must ask voters if they want to increase the school district's Earned Income and Net Profits Tax (EIT), or implement an EIT or a Personal Income Tax (PIT) or shift the current EIT to a PIT.

This shift in taxes would then require school districts to reduce property tax rates for those who own an eligible homestead or farmstead property.

Businesses will not receive any reduction in property taxes. The tax reduction is only on the primary residence. People who own more than one property in the district will receive a single property tax rebate, not one for each property they own. A person must live in the property to get the rebate. A hunting cabin or vacation home does not qualify for the tax reduction. Every eligible property in the district gets the same amount of rebate regardless of value of the property. An $80,000 home and a $300,000 home get the same rebate amount. Farmers can also qualify for a second Farmstead tax reduction.

This referendum question on the ballot must contain a rate or an increase in the rate of income taxation that is sufficient to generate enough revenues to allow the school district to provide property tax relief that is equal to at least 50% of the maximum permissible homestead/farmstead exclusion. According to the PA Constitution, the maximum permissible homestead/farmstead exclusion in any school district is equal to one-half of the median assessed value of eligible homestead/farmstead property in the district.

Act 1 of 2006 says a district is not required to propose an EIT rate greater than 1%.

The Tax Commission must consider: the history of local taxation, the rates and revenues from taxes, how much of the total revenue the district receives is from these local taxes, Projected revenue form these taxes, demographics of the community like age, income, employment and property use (residential, farming, business, industrial)

Obtain a copy of the district's annual budget. It is a public record. It will report sources of revenue and what percentage, of the whole revenue amount, each source provides.

Property Tax Relief info House Bill 39 (Act 1)
Demographics Info The base index
Community Demographics and Tax Distribution resources Local Tax Study Commission Guide
Senior citizens - expanded property tax or rent rebate Property Tax Summary info

Watch the - Tax Fairness: video from Local Tax Reform Education Project

Which change do you support? How high would you raise income taxes to reduce residential/farmstead property taxes?

Question 1 - "Do you favor imposing an additional ______% earned income tax? The revenue generated from the increased tax rate will be used to reduce taxes on qualified residential/farmstead properties by $___________. The current earned income tax rate is____%.

Question 2 - "Do you favor converting the school district's earned income tax to a personal income tax at ____%? The revenue generated from the increased tax rate will be used to reduce taxes on qualified residential/farmstead properties by $___________ and to replace the revenue from the school district's current earned income tax. The current earned income tax rate is____%."

Question 3 - Shall we impose a Personal income tax of ____%? The revenue generated from the tax rate will be used to reduce taxes on qualified residential/farmstead properties by $___________.

Once you decide - What did your school's tax commission propose? What was the outcome of the vote in May 2007?

Every two years, in the odd numbered years, the district can propose a further shift from property taxes to income taxes via a front end referendum.

"Behold the turtle for he does not move forward without sticking out his neck." PBL site / Rubric template - teacher resource

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developed by Cynthia J. O'Hora, Released to public domain and Posted 10/2006, UTD 6/2007