Act 32 of 2008

1. Act 32 of 2008 Restructuring the Collection of the Earned Income Tax for School Districts and Municipalities 1

2. 2

3. 3

4. 4

5. Regionalization of EIT Collection Under Act 32 Uniformity Consistency Efficiency Technology 5

6. 6

7. New Terms in Act 32 Tax collection district (TCD) – the county-wide region designated for consolidated local income tax collection. Tax collection committee (TCC) – new government entity, which controls and oversees tax collection within the TCD. 7

8. New Terms in Act 32 Tax officer – the term used to refer to the person or entity appointed to collect taxes on a county-wide basis. Tax appeal board – a new, independent 3-person board to hear appeals from tax collector decisions, including appeals by taxpayers and also by taxing authorities or their tax collectors claiming that tax revenue has not been properly distributed. 8

9. New Terms in Act 32 Universal non-resident withholding – every employer must withhold tax from every employee subject to tax and remit to the tax collector for the employment place. Multi-site employer option – multi-site employers may elect to pay tax in only one Pennsylvania county (the Wal-Mart Amendment). 9

10. New Terms in Act 32 DCED mediation – a dispute resolution procedure for taxing authorities and tax collectors. 10

11. Major Changes For… School Districts and Municipalities EIT Collectors Private third party Not for Profit Bureaus Taxpayers Employers State Government Agencies Department of Community and Economic Development Department of Revenue 11

12. Changes for School Districts and Municipalities Two new legal entities Tax collection district (TCD) – the county-wide region designated for consolidated local income tax collection. Multi-county school districts are located in the county with the most school district residents Municipalities follow their school district Tax collection committee (TCC) – new government entity, which controls and oversees tax collection within the TCD. 12

13. Changes for School Districts and Municipalities The governing body of the Tax Collection District is comprised of representatives of each school district and municipality within the TCD—mini United Nations! Initially an appointed delegate from each school district and municipality with weighted voting in effect—calculation based 50% on EIT revenues and 50% on population Initial meeting called by the chair of the county commissioners; no further county role. 13

14. Tax Collection Committee Initial Responsibilities Governance and organization such as weighted voting and by-laws Appointment of counsel and auditor Budget and insurance Subsequent Decisions Consider multi-county Tax Collection District Scope of tax collection Local Services Tax or even real estate tax in addition to EIT Major Duty Appoint TCD collector Private sector third party or bureau 14

15. New Duties of the Tax Collection Committee Investment policy mandated [§ 509(a)(6)] Investment income distribution Records policy Tax Appeal Board Three members of the TCC Compensation? (Note: consult with your solicitor and seek legal guidance on this issue.) 15

16. Changes for School Districts and Municipalities The TCC will have operating costs in addition to the actual cost of EIT collection Act 32 [§ 505(l)] requires the operating costs to be shared by the school districts and municipalities within the TCD in proportion to their EIT collections 16

17. Changes for EIT Collectors Must meet minimum qualifications and continuing education established by DC&ED [§ 505(f) and 508(a)] More accountability for reporting and payments to tax bodies No distribution to taxing bodies based on estimates Could result in slower distributions Could be significant 17

18. Changes for EIT Collectors Every tax collector, within 20 days after the end of each month, must provide a written report on a DCED prescribed form Report provided to each taxing authority for which taxes are collected and to applicable TCC Payments to taxing bodies and other TCD’s 60-day distribution rule 30-day rule effective 04/01/13 18

19. Changes for EIT Collectors Submit financial statements and annual audit to DC&ED, Auditor General and taxing bodies Comply with investment rules [§ 509(a)(6)] New bonding rules [§ 509(d)] DC&ED guidance to TCC’s in setting amount Records Joint ownership of all tax records by the taxing body and the TCD 19

20. Changes for EIT Collectors Tax collection agreement required Term of appointment Renewal/reappointment. Termination rights of TCC and tax collector. Procedures in event of termination Tax collector compensation rate, method and payment Bonding requirement 20

21. Changes for EIT Collectors Tax collection agreement required Tax distribution and reporting rules, including general distribution rules and also investment income distribution rules. Tax collector office locations. Tax collector personnel and staffing. Legal compliance, including Act 32, Local Taxpayer Bill of Rights, and all applicable tax and other laws. 21

22. Changes for EIT Collectors Tax collection agreement required Audit of questionable returns Delinquent tax collection steps, including responsibility for expense Tax collector right to charge costs and expenses of collection to taxpayer and permitted costs. Taxpayer hardship application processing procedure. 22

23. Changes for EIT Collectors Tax collection agreement required Interest and penalty abatement rules Tax appeal board rules Tax record rules Permissibility of tax collector using subcontractors. 23

24. Changes for Employers Lobbied aggressively for passage of Act 32 Argued the multitude of collectors and lack of uniformity increased cost of doing business Claimed EIT process was more burdensome than federal and state tax reporting requirements combined! 24

25. Changes for Employers Major changes in employee withholding Universal non-resident withholding The TCC may accelerate implementation [§ 512] The employer may not pay the tax direct to the tax collector for the school district and municipality to which the tax is owed DC&ED created statewide form [§512(4)] 25

26. Changes for Employers More detailed employer quarterly or monthly and annual tax returns Each employee’s name, address, and social security number. Each employee’s compensation during prior 3 months. Tax amount deducted from each employee. All municipalities and school districts that impose resident or non-resident tax on the employee. 26

27. Changes for Employers Certificate of Residency – must be signed by all employees. Employers must use DCED Tax Register to determine tax rate applicable to every employee. 27

28. Changes for Employers Multi-site employers may elect to pay tax in only one Pennsylvania county (the Wal-Mart Amendment) 28

29. Changes for Taxpayers Tax return amounts rounded to nearest dollar [§ 502(c)(1)] Quarterly returns mandatory for individuals with self-employed income [§ 502(c)(2)] Business losses can not be taken against income No tax on military pay for service outside of the state 29

30. Changes for State Government More oversight and regulatory involvement Study of EIT collection operational practices including existing regional EIT collection bureaus Report by December 31, 2009 Investigate feasibility of contracting to create a software application for TCD operations and reporting 30

31. Changes for State Government Rules and regulations Map of TCD’s and their taxing bodies Minimum qualifications and continuing education for EIT collectors Multiple employer filing locations Weighted voting calculation Estimated quarterly tax return rules Mediation rules for resolution of disputes among TCC’s, taxing bodies and collectors 31

32. Changes for State Government Rules and regulations Tax collector bond and financial security Taxpayer penalties and interest abatement rules Lancaster County grandfather process Other transition rules 32

33. Changes for State Government Forms By-laws for TCC’s Tax collector RFP Certificate of Residency for employer withholding Employer quarterly (monthly) returns Employer annual return 33

34. Changes for State Government Returns Taxpayer quarterly estimated return Taxpayer annual return Tax collector monthly report to taxing bodies and other TCD’s Tax collector audit opinion letter 34

35. Key Implementation Deadlines 35