Local Tax Reform Update

So, what’s next in the ongoing efforts to eliminate school property taxes as I continue to believe no tax should have the power to leave you homeless?

Article VIII, Section 1 of Pennsylvania’s Constitution calls for uniformity of taxation:  “All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.”  This provision is why Pennsylvania’s Personal Income Tax is a flat tax rather than a graduated tax like federal income taxes.  Pennsylvania’s Constitution doesn’t allow for graduated income taxes.

However, Pennsylvania’s Constitution also provides some exclusions from the requirement for uniform taxation, including:  churches, cemeteries, government entities, charitable organizations, and “homesteads.”

A “homestead” is a person’s or family’s primary residence (i.e., no vacation properties) they own (i.e., no rental properties) – including farmhouses and outbuildings (i.e., no commercial, industrial, or retail properties).

On Election Day, voters approved (54% to 46%) an admittedly confusing amendment to the Pennsylvania Constitution:  “Shall the Pennsylvania Constitution be amended to permit the General Assembly to enact legislation authorizing local taxing authorities to exclude from taxation up to 100 percent of the assessed value of each homestead property within a local taxing jurisdiction, rather than limit the exclusion to one-half of the median assessed value of all homestead property, which is the existing law?”

The previous exemption for homestead properties allowed local taxing authorities to exclude up to one-half the median assessed values of properties located within their boundaries.  While some equate “median value” with “average value,” the former is calculated by putting all the numbers in numerical order and finding the one that’s in the middle – the 50th percentile.  It’s more difficult to calculate than an average where you simply add the numbers together and divide by how many numbers there are.

The approved constitutional change further simplifies the calculation by using 100% of the assessed value of each homestead property within a local taxing jurisdiction.  Previously, taxing jurisdictions had to first figure the median assessed value and then calculate what one-half of that value would be in order to enact a homestead exemption.  It’s one of the many reasons why this exemption to Pennsylvania’s uniformity clause was almost never used.

With the change in the Constitution, the calculation for homestead exemptions becomes much easier.  More importantly, it provides more options for the total elimination of school property taxes.

While I continue to believe across-the-board elimination of school property taxes as proposed by Senator Argall’s Senate Bill 76 is the best option, we now have other options to consider and I look forward to exploring them in the weeks and months ahead.

In the interim, I remain committed to the goal of ensuing no tax should have the power to leave you homeless.