Business owners often shake their heads over the dizzying number of governmental bodies in Pennsylvania that levy taxes on them and their employees.
In all, about 2,900 municipalities and school districts across the state use an earned-income tax. But remarkably, Pennsylvania, which is home to more taxing jurisdictions than any other state, is close to changing how that tax is collected.
When Act 32 takes effect in 2012, employers will deal with just one tax collector. And where Pennsylvania once had 560 tax-collection agents distributing $1.7 billion in earned-income tax, there will be just 21. (You can read more about the history of Act 32 here.)
It’s the kind of good-government change that outgoing Gov. Rendell, who signed Act 32 into law in mid-2008, rails that the media never cover. Since the law will not change the 0.5 percent to 1.7 percent of earned income that workers pay under the tax levied by their municipality and school district, most of them may not care who’s collecting the tax next year.
When it takes effect Jan. 1, 2012, Act 32 - which doesn’t apply to Philadelphia and its loathed wage tax - would seem to be a rare win-win-win situation. Muni- cipalities will likely collect more money. Two studies estimated that between $100 million and $300 million in revenue may be going uncollected each year under the current system.
Even though they now shoulder the burden of withholding the earned- income tax, employers will benefit because they’ll deal with fewer tax collectors. Think, for example, of Wal-Mart, which probably has stores in most of Pennsylvania’s 67 counties.
Lastly, except for the self-employed and those who work out of state, most employees won’t have to figure out what they owe and to whom they owe it.
Right now, however, all this is a pain for employers in Chester County, because it chose to be an early adopter of Act 32, as of Jan. 1, 2011.
There are two problems with this. First, the Pennsylvania Department of Community and Economic Development says the Chester Tax Collection Committee didn’t meet the criteria to be an early adopter. Second, the official state forms, including a certificate of residence, aren’t available yet.
The second problem would seem close to being solved. DCED policy manager Mitch Hoffman told me those forms were a week to 10 days from being ready.
Despite the state’s contention, Chester County isn’t backing down, according to several area accountants and suburban municipal officials.
From the county’s biggest employer, Vanguard Group Inc., on down, businesses are expected to comply with Act 32 immediately. I couldn’t reach a spokesman for Keystone Collections Group, the Irwin, Pa., firm picked by Chester County, to find out what it’s doing to make sure employers know about the new requirements.
But I did talk with Joe Lubitsky, director of administrative services of the Chester County Intermediate Unit, who has been hired by the tax committee to shepherd the Act 32 process along. He said the committee had gotten the word out through advertisements and postings on local government websites about the earned-income tax changes.
Lubitsky had nothing good to say about how the DCED had handled things, especially the lack of forms. Hoffman was adamant that Chester County had failed to comply.
Where does that leave Chester County employers? After all, there are penalties for noncompliance. Employers who “willfully” don’t collect, account for, and distribute income taxes could be charged with a misdemeanor, face a fine of up to $25,000, and/or be subject to two years in prison.
Lubitsky has been telling employers to contact Keystone Collections, which has its own certificate-of-residency form online at www.keystonecollects.com.