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Tax reform doesn't necessarily mean tax relief

November 10, 2006|by DON AINES

CHAMBERSBURG, Pa. - There will be winners and losers in school property tax reform if voters in the Chambersburg Area School District approve a proposal to offset lower real estate tax revenues with higher earned income taxes.

The Chambersburg School Board on Wednesday unanimously approved a recommendation by a tax study commission to raise the district's earned income tax from .5 percent to 1.2 percent in the 2007-08 school year, in exchange for a $259 homestead exemption for thousands of qualified homes.

The recommendation will be placed on the ballot for the May 15 primary, as required by Pennsylvania's Act 1 Taxpayer Relief Act.

Tax reform, however, does not mean lower school taxes for everyone. Most renters, for example, do not qualify because they do not own their residences. In Chambersburg alone, there are more than 3,500 nonowner-occupied residential units, almost all of them rental houses and apartments, Assistant Borough Manager David Finch said.

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Renters with a household income of $25,000 would pay an additional $175 in earned income taxes, a figure that increases to $385 for a household making $55,000 a year, according to commission estimates.

Many homeowners would also see school taxes increase. In a household with an annual income of $25,000, the savings are $84 in the first year, rising to $192 in the second year when the exemption rises to $385 based on a full year of collections of the higher income tax. Households with incomes above about $53,000, however, will pay more in income taxes than they will save with the exemption, according to commission estimates.

The higher earned income tax will generate about $8.5 million in additional revenues, which will be used to offset money the district loses from the homestead and farmstead exemptions on up to 22,854 properties, Business Manager Rick Vensel said. Total real estate collections for this year are projected at $37.3 million, he said.

Applications were mailed to about 23,000 homes and farms in the district in October 2004 after the state passed Act 72, an earlier property tax reform plan enacted by the state, Franklin County Chief Appraiser Gary Martin said. More than 14,500 district homes and farms received exemptions, he said.

Act 72 was rejected by most of the 501 school boards in Pennsylvania and all but one of the six in this county, the exception being the Tuscarora School District. Act 1 is different in that districts are required to draft a tax reform referendum. The commission recommended the minimum tax relief allowed under Act 1, Chairwoman Barbara Montgomery told the board Wednesday.

Under Act 1 the exemption, which is the same for all qualified properties in a district regardless of assessed value, could be increased by further raising the earned income tax. The tax can be raised in the future to further offset property taxes, but not lowered, so the commission's recommendation gives the district "wiggle room," Montgomery said.

The commission decided not to recommend a personal income tax, which would include such things as interest, dividends and rental income, because it would be more difficult to collect, Montgomery said.

The amount of the exemption could go down as more homes qualify, Martin said. The county will mail out 10,000 or more homestead and farmstead applications by the end of the year to cover new houses, resold homes and other homes that were not exempted in 2004, he said.

If more properties qualify, "that would diminish the amount of exemption per property," Martin said.

Districts are supposed to receive additional money for future property tax reductions once slot machine casinos begin operations.

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