Discussion and Explanation
House Bill 866 speaks to the concerns of taxpayers and tax practitioners with regard to the implementation of Act 32. As such, the bill addresses several issues:
In an effort to avoid double taxation on the citizens of Pennsylvania, House Bill 866 provides clarity, consistency, and fairness to the crediting provisions for all taxpayers. When Act 511 was created, the crediting language was carefully crafted to ensure that taxpayers would not be subjected to double taxation at the local level on their earned income. The intent of Act 32 of 2008 was to retain these crediting provisions, but an inadvertent change in wording resulted in taxpayers being subjected to double taxation. The word “Act” was replaced with the word “Chapter” and was not detected until recently when aggressive tax collectors started to take advantage of their ability to collect more tax and
thereby increase their collection commissions.
Crediting Provisions In and Out of State
Taxpayers with no income have no earned income tax liability, and therefore are not required to file a return with their local tax collector. Unfortunately, some tax collectors have penalized these individuals for not filing. The amendment contained in House Bill 866 clarifies that penalties cannot be charged to individuals with no taxable income after they have filed an earned income tax return marked as FINAL.
Taxpayers with No Income
Act 32 of 2008 provided the Department of Community and Economic Development (DCED) with certain responsibilities, including promulgating forms and collection regulations as well as receiving annual tax collector audits and compliance reports. Unfortunately, the law did not provide DCED with the power to enforce these provisions. The amending language would provide DCED with the power to enforce the provisions for which they are currently responsible as well as provide the public with a method to report tax collection issues.
Tax Collection Committee Oversight Board
Under current law, an aggressive tax collector may attempt to collect a multitude of earned income tax rates on employees who spend any time working in taxing jurisdictions outside their home jurisdiction. For example, if a taxpayer spends an hour working in four local jurisdictions in one day on temporary job assignments, there is nothing to prevent the tax collector from enforcing the collection of four different tax rates for one day of work. This situation creates confusion and places an unnecessary burden on employers and small businesses, making Pennsylvania a less desirable location to do business. House Bill 866 puts rules in place for employer withholding of taxes for taxpayers on temporary job assignments in jurisdictions outside their home jurisdiction, in addition to establishing a 90-day threshold. Employees on temporary job assignments in Philadelphia are subject to the Sterling Act. This makes the administration of tax collection easier and less confusing.
Contractor & Transient Employee Rules
Following the implementation of Act 32, tax collectors penalized individuals who were making estimated payments under Section 502 of the Local Tax Enabling Act (Act 511 of 1965). House Bill 866 provides that a taxpayer shall have been deemed to have met the estimated payment requirements, and therefore is not subject to penalty, so long as four equal and timely estimated payments are made that are equal to 100 percent of the prior year tax liability or 90 percent of the current year’s tax liability (less tax withheld in either case). This language is consistent with federal language in the Internal Revenue Code.
Establishing Estimated Payment Safe Harbor
There is a concern that the two-digit coding method currently used, which reflects the tax collection district where the tax payments were remitted, does not provide sufficient information for the taxpayer to complete an accurate year-end tax return. House Bill 866 would require that coding use the full political subdivision code in a specified format to clarify exactly the rate used in withholding the tax and where the tax was remitted.
W-2 Reporting Requirements
To avoid the potential for inappropriate personal gain to private audit companies at the expense of taxpayers, House Bill 866 prohibits auditing tax records on a contingency fee basis. The examination of tax collectors’ books would also be carried out on a calendar year basis. Some tax collectors are working on a fiscal year basis. By using two different calendars, audit samples are not consistent and DCED is not getting an accurate picture across Pennsylvania.