Pennsylvania’s local tax system has roots in English history and in the colonial times; however the present local tax system dates back to the mid-1960’s with the passage of legislation that allows local communities to raise their revenue from a myriad of tax sources given them by the state legislature in 1965.
This tax structure has spawned a complex array of local taxes, including property taxes, wage taxes and the occupation privilege tax. Originally meant as a temporary means of raising money, the taxes permitted under this system have turned into a permanent source of revenue for local governments. The result is a lange of local taxes that confront Pennsylvania across 67 counties, 501 school districts and some 2,500 municipalities.
While many dislike property taxes, Pennsylvania’s reliance on them is relatively low; it ranks 31st among the 50 states and is 7.5% below the national average. Unlike many states, Pennsylvania exempts tangible personal property – such as machinery and equipment, inventories and cars – from its tax base.
The major portion of most property taxes is that levied by school districts. For decades Pennsylvania’s school districts have increasingly relied on property taxes to make up for a decrease in federal and state funding. The state’s contribution to basic education costs dropped from 50% in the early 1970’s to 35% today.
The increasing reliance on property taxes to fund public education has resulted in an inequity in school district resources. Property values and income levels have a direct impact on a district’s ability to raise education revenues. Communities with a relatively low tax base end up taxing their citizens at higher rates than do communities with higher property values and larger tax bases. As a result the school districts with rapidly growing tax bases are able to increase spending considerably with minimal tax consequences while school districts with stagnant or declining tax bases have to struggle to maintain spending.
Whether one believes philosophically that the property tax system is inequitable, at the very least it should be fairly administered; that is, the assessments of all properties should be reasonable as they relate to all other properties in the same municipality. It is a daunting assignment for the tax assessors to keep values fair because conditions such as inflation, construction upon lots, and declining neighborhoods cause values to fluctuate. Periodically counties will undertake a county-wide reassessment to insure fairness; this, however, is a painfully slow and prohibitively expensive process because of the thousands of properties that must be appraised.
In July Pennsylvania passed a law that will allow up to 61,000 slot machines in 14 locations throughout the state as a method to alleviate the inequitable school district funding. Lawmakers hope that slot machines can bring in as much as $280 million in revenue annually and will be a good way to increase funding for public schools while not raising taxes. They claim that placing slots at various places in Pennsylvania will prevent Pennsylvanians from traveling out of state to gamble, thus keeping their money in the state while creating new jobs. (It has been estimated that one-third of the money gambled in Atlantic City comes from Pennsylvania.)
Despite the addition of slot machines, property taxes will continue to play an important role in generating revenue for public education. How a property is assessed by a municipality determines how much the owner pays in property taxes. It is not uncommon for municipalities to assess a property at a higher value than its actual value may be, making the owner responsible for more than his/her fair share in taxes. An owner who believes that his/her property has been assessed incorrectly may challenge the assessment. If you believe that your property is improperly assessed and that you are paying excessive taxes, call us to see if we can help.
— J. Ken Butera