Warwick Township
LOCAL SERVICES TAX
(previously known as Emergency & Municipal Services Tax)
Q&A’s on the Local Services Tax - renamed tax takes effect January 1, 2008
(excerpt from the October, 2007 edition of PA TownshipNews)
Nearly three years after the emergency and municipal services tax was first enacted by Act 222 of 2004, the changes to this tax are about to become a reality. In June, Governor Ed Rendell signed into law Act 7 of 2007, which, among other things, renames it as the local services tax. Read on to find out how these changes will affect Warwick Township.
Q: When will Act 7 of 2007 take effect?
A: January 1, 2008. Townships are planning and budgeting for the changes in the tax now to be ready in time.
Q: Why was the name of the tax changed from the emergency and municipal services tax to the local services tax?
A: Because some people assumed the tax would be used to fund emergency medical service providers, voluntary donations to these providers declined after the tax was first enacted. The name change is intended to address this problem.
Q: May Township’s assign an employee to collect the tax, or must they use an outside firm?
A: Townships may use an employee or an outside tax collector or private firm to collect the tax.
Q: Must the Township use the same tax collector as the school district?
A: Act 7 requires the Township or its tax officer to collect the tax on behalf of the school district if the combined municipal and school district rate is more than $10.
Q: Does Act 7 require employers to deduct the tax weekly?
A: If a municipality and school district’s combined local services tax rate is more than $10, employers must withhold the tax based on their number of annual payroll periods and are prohibited from withholding the tax in a lump sum payment. Therefore, if an employer pays its employees weekly, the tax must be withheld weekly.
Q: How often are employers required to submit tax revenue to the municipal tax collector?
A: For municipalities and school districts with a combined tax rate of more than $10, employers must submit tax revenue within 30 days of the end of each quarter.
Q: What happens if an employee resigns? Must the employer try to collect the tax from the former employee for the remainder of the year?
A: No. The employee is now liable for the tax. If an employee quits, his previous employer only needs to withhold the tax for the payroll periods in which he was employed. The new employer will be responsible for withholding the tax from future paychecks.
Q: If a Township and school district’s combined local services tax rate is $10 or less, may the Township continue to require that the full $10 be withheld in a lump sum from the first paycheck of the year?
A: Yes.
Q: Is the new $12,000 low income exemption for the tax mandatory?
A: Yes, if the combined municipal and school district rate is more than $10.
Q: Does Act 7 define "income from all sources" for purposes of the low income exemption?
A: Yes. The act defines "income from all sources" as the total earnings and net profits from all sources within the municipality for the calendar year in which the local services tax is levied.
Q: Should employers withhold the tax from employees who earn less than the $12,000 low Income exemption?
A: Not if the employee files an upfront exemption certificate with both the employer and the municipality affirming that he reasonably expects to receive less than $12,000 during the calendar year for which the exemption certificate is filed.
Q: Are sample exemption certificates available?
A: Act 7 requires the state Department of Community and Economic Development to create and provide these forms to employers and municipalities. DCED will make these available at www.newpa.com when they are finalized. Employers must provide the form to current employees when it is available and to new employees at the time of hiring.
Q: What happens if the income of an individual who filed an upfront exemption certificate exceeds $12,000 during the calendar year ?
A: If that persons earned income from the primary employer exceeds $12,000, or the municipality’s tax collector informs the employer that the employee’s income has reached $12,000, the employer must begin withholding the tax from the employee. The first withholding must be a lump sum to catch up on the amount the employee owes to date, and then the remaining withholdings would be the same amount per paycheck as other employees.
Q: Does the Township need to amend its emergency and municipal services tax ordinance? If so, by when?
A: All townships that have enacted a new or increased emergency and municipal services tax since December 1, 2004, and where the combined rate exceeds $10, should re-enact their existing ordinance to reflect the new local services tax provisions by December 31, 2007.
Townships that adopted the former occupational privilege tax of $10 or less before December 1, 2004, and have not changed the tax rate and do not plan to change it now do not need to take any action.
Q: What if our Township wants to enact a new local services tax or increase its existing tax?
A: If your Township wants to levy a new local services tax, it must enact an ordinance by November 30, 2007, to be effective by January 1, 2008. If your Township wants to change the rate, it should also adopt a new ordinance by November 30, 2007 and notify DCED of the change by December 15, 2007.
Q: If a Township does not notify DCED that it has adopted the tax, can an employer be penalized for not withholding this tax?
A: No. Townships can only require employers to withhold the local services tax if they have notified the department that they are levying the tax so that DCED can list this information in the Register for Earned Income and Local Services Taxes. However, employers may voluntarily withhold an unlisted local services tax.
Q: What are the advertising requirements for a new or increased local services tax?
A: A new or increased tax that is subject to the Local Tax Enabling Act, such as the local services tax, must be advertised once a week for three successive weeks with the details of the tax, the reason for the tax, and the estimated revenue from the tax. This is in addition to the advertising requirements in the Township Code that require all ordinances to be advertised once, not more than 60 days, or less than 7 days before adoption.
Q: Are there any restrictions on the use of the revenue from the local services tax?
A: Yes. Act 7 requires municipalities to use at least 25 percent of the tax revenue for emergency services, including police, fire, and ambulance protection. The remainder may be used for road construction or maintenance, property tax reduction, or property tax relief through the implementation of a homestead or farmstead exemption.
Q: Is there anything else that a Township must do to comply with Act 7?
A: Yes. Townships levying a local services tax must adopt regulations consistent with the Local Taxpayer Bill of Rights and Act 7 for the processing of refund claims for anyone who overpaid the tax. A Township is only required to refund an overpayment of $1 or more, and refunds are not subject to interest if made within 75 days of either a refund request or January 30 of the year the tax is paid, whichever is later.
For more information on the Local Taxpayer Bill of Rights, log onto www.newpa.com and choose "Community" and then "Local Government Information." Under "Publications" choose "Manual for Local Taxpayer Bill of Rights".
Q: If an employee works in more than one municipality and each levies the local services tax, which one has priority for the collection of the tax?
A: The primary place of employment is determined the day the taxpayer first becomes subject to the tax during the payroll period if the tax is levied at more than $10. If the tax is levied at $10 or less, it is the first place of employment during the calendar year based on the following priorities (listed in order):
1) the municipality where the employee maintains his or her principal office or is principally employed;
2) the municipality where the employee lives and works if that municipality levies the local services tax; and
3) the municipality where the employee works and is nearest to his residence if that municipality imposes the tax.
