HARRISBURG - A new House bill designed to provide school districts with options to reduce or eliminate property taxes could get a green light for some action this fall.
The measure, sponsored by Rep. Seth Grove, R-196, York, offers an alternative to a much-publicized bill to increase both the state personal income tax rate and sales tax rate in order to eliminate property taxes. Grove proposes to give school districts the option of eliminating or reducing property taxes through an elimination tax consisting of an additional earned income tax on wages and a tax on business gross receipts. In the latter case, a school board could choose between a mercantile tax or business privilege tax under the bill. Currently, districts lack authority to levy either tax.
Under the bill, every dollar raised through the replacement taxes would go to reduce property taxes.
"We're talking about a tax shift," said Grove.
Grove said his bill offers the benefits of local control and flexibility so districts can develop a tax base that reflects the local economy. It avoids the complexities of involving state government in property tax relief which would involve putting state tax revenue into a special fund and redistributing the money to schools, he added.
The lawmaker said he didn't include voter referendums in his bill so as not to tie the hands of school districts, but public hearings would be required on a tax shift plan. "With the options that will be available, each school district can maximize its local revenues while considering the impact it will have on homeowners, wage earners and businesses," said a legislative memo.
Grove said businesses should find paying a gross receipts tax more acceptable than the proposed "Property Tax Independence Act" which calls for increasing the state sales tax rate.
"For border counties, it (higher sales tax rate) is a huge economic disadvantage," he added.
Grove is skeptical the "independence" bill can gain the necessary legislative support because its provisions to hike state taxes aren't attractive in sections of the state where property tax elimination is not a red-hot issue.
His bill is getting serious consideration from House GOP leaders.
"The Grove bill would allow local districts to keep control within the local community of their finances, of their budget and of their policies," said Stephen Miskin, spokesman for House Majority Leader Mike Turzai, R-28, Pittsburgh.
Attempting to eliminate school property taxes on a statewide basis poses problems because it could lead to sales taxes on important consumer items like shoes and winter coats, said Miskin.
"You need to raise $10 billion additional from the (state) sales and income taxes," he added.
Meanwhile, supporters of the independence bill - which include a number of local taxpayer organizations - say they are gaining support. The bill has been introduced in both the House and Senate.
The measure would increase the state personal income tax rate from 3.07 percent to 4.34 percent and increase the state sales tax from 6 percent to 7 percent. In addition, more goods and services such as professional, legal and accounting counseling and clothing items under $50 would be subject to the sales tax.
Those actions, along with existing gambling tax revenue, would generate $10.7 billion in revenue to support public schools, thus eliminating the need for $10.7 billion in school property tax revenue, bill supporters said.
"Groups like the Western Pennsylvania Coalition of Taxpayers, the Wilkes-Barre City Taxpayers Association and the South Eastern Tax Reform Coalition are leading the charge to eliminate this tax," said Sen. David Argall, R-29, Tamaqua, the Senate bill sponsor, in a recent op-ed piece.
He said the state Independent Fiscal Office will complete an updated analysis of the bill shortly.
Rep. Jerry Knowles, R-124, Tamaqua, said his constituents want property taxes to go away and he's not interested in a local option bill.
"The goal is to eliminate this tax," added Knowles. "If you just reduce them, it can come back to haunt you."