PENNSYLVANIA Study urges state to take over earned-income tax collection

The state could collect local taxes at a lower cost.
HARRISBURG (AP) -- A fragmented and inefficient system of collecting the state's local earned-income taxes costs municipalities $100 million a year, according to a study released Thursday that suggests the state would do a better job.
The Governor's Center for Local Government Services spent nearly two years reviewing the system, in which 560 tax collectors bring in almost $1.7 billion for 2,900 municipalities and school districts. It concluded that the system should be scrapped and replaced by a statewide or countywide approach.
"The system to collect these taxes is severely broken and needs to be fixed," the center's executive director, Ken Klothen, told a Capitol news conference.
Reason for losses
The current losses result from a combination of uncollected taxes, revenues sent to the wrong municipality or school district and other shortcomings, he said. The report identified a $100 million gap between actual collections for 2000-01 and what state income records indicate should have been collected.
In addition, he said, it currently costs 3 percent of total revenue to administer the tax, or about $51 million. The state Revenue Department could do the same job for about $17 million, not including startup costs, he said.
Quakertown accountant Cheri Freeh said a lack of uniformity creates confusion among taxpayers and businesses.
"The system is really a mess," she said. "Tax preparers in general are very excited about the recommendations in this report."
Weis Markets vice president Rick Mills said dealing with 2,100 taxing bodies for the supermarket chain's 15,000 employees is "horrendous."
"We're looking for consolidation on the collections side," he said.
Gov. Ed Rendell supports the recommendations as a starting point for talks with the Legislature, Klothen said. Changing the way the taxes have been collected since 1965 would require General Assembly action.
Familiarity issue
Albert R. Timko Jr., president of the Pennsylvania Earned Income Tax Officers, Administrators and Collectors Association, said local collectors are more familiar than a state agency would be with the businesses and taxpayers in their area.
"It might be cheaper to do it statewide, but I don't believe it will be as efficient. There are good collectors out there," said Timko, who is Bethlehem's tax administrator.
If the Legislature does not authorize the Revenue Department to collect the tax, the report suggests it adopt a countywide method and impose greater uniformity in how collectors are paid, how money is distributed to governments and school boards, the tax forms and residency rules for taxpayers.
Klothen said any legislation would have to be adopted by next summer to avoid complications arising from changes to the tax structure that accompanied the approval of slot-machine gambling in July.
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