There s a big train barreling

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1 eit collection Countdown to EIT Consolidation Experts Urge Township Officials to Start Planning Now for the New EIT Structure By January 2012, earned income tax collection in the commonwealth will look a lot different than it does today. Consolidation is coming, and townships should start planning now to develop a system that works. A little preparation will lead to a much more productive first meeting of the countywide tax collection committees this fall and, ultimately, will help protect the township s bottom line. BY JENNIFER L. HAWBAKER / ASSISTANT EDITOR There s a big train barreling down the tracks, says Jerry Andree, manager for Cranberry Township in Butler County, and if township officials don t want to wind up underneath it, they had better climb on board. He s referring to Act 32 of 2008, which is meant to streamline the state s system of earned income tax collection and keep much-needed tax revenue from slipping through the cracks. The law creates new earned income tax collection districts generally along county lines and reduces the number of tax collectors from 560 to 69. And while the final implementation deadline of January 2012 might seem a long way off, townships must complete their first task, appointing a representative to a countywide tax collection committee, by September 15. That, however, is just the beginning, and townships should start planning now for a successful EIT transition. In Butler County, Andree says, the mu- nicipalities and school districts began working together months ago to plan for the consolidation, well ahead of the state s implementation timetable. Officials know that by getting on board the EIT train now, they will have much greater control over where it goes and how it gets there. The law has passed, and there s no going back, Andree says. Now, we need to figure out how we re going to move forward. Act 32: In the beginning Although Gov. Ed Rendell signed Act 32 into law just one year ago, the proposal had a long and sometimes contentious history. The Governor s Center for Local Government Services began studying the current EIT collection system in 2001 after receiving complaints from employers, employees, tax collectors, and legislators. In its final report, issued in 2004, the center characterized the system as inefficient, inaccurate, and costly to municipalities and businesses 22 PA TownshipNews JULY 2009

2 2012 The consolidation of Pennsylvania s earned income tax collection system is just around the corner, and one township official likens it to a train moving full-speed ahead. PSATS is urging local government officials to get on board by planning for the 2012 implementation now. alike. Several legislative proposals resulted, with Senate Bill 1063 of 2007 emerging as the eventual winner. As the state s plan for EIT consolidation developed, PSATS fought for a system that included the safeguards and oversights that townships demanded. The Association s policy was shaped by resolutions that members had adopted in recent years, says Holly Fishel, PSATS Director of Research and Policy Development. Those resolutions sanctioned countywide earned income tax collection as long as municipalities received their fair share of the revenues. After much debate, Act 32 became law in July It creates 69 tax collection districts, each administered by a tax collection committee composed of one representative from each municipality and school district in the county. The committee must decide who will collect the earned income tax in that district and then oversee the process. The governing bodies won t be working on their own, though. The Governor s Center has convened an EIT advisory group, which includes representatives from PSATS, to develop some helpful tools for the tax collection committees. The group is creating standard forms, a tax collector request for proposal, sample tax collection committee bylaws and regulations, and tax collector practices and procedures, among other things. Now that the consolidated EIT structure is taking shape, Fishel says, the taxing bodies, including townships, need to start working toward a positive end result: collections that meet or exceed current levels. Officials in Butler County have The law has passed, and there s no going back. Now, we need to figure out how we re going to move forward. the right idea by getting an early start, Fishel says. Their task is especially daunting because there are so many municipalities and school districts involved, but it s better for everyone to plan ahead than try to play catch-up later. Bringing order to chaos That s just what the Butler County officials were thinking, too. We realized that we had to get ahead of this, Andree says. We have potentially 77 municipal and school district representatives [in the tax collection district], and we realized that if we walked into a meeting of that size unprepared, it would smack of chaos. We decided we would get together now and start building a foundation. The work began with the Butler County Council of Governments, which includes various municipalities and school districts. The COG formed an EIT subcommittee to prepare for JULY 2009 PA TownshipNews 23

3 eit collection the first meeting of the countywide tax collection committee, which must be held by November 15. Our goal is to have a framework as to how we go down this path, being careful that even the smallest community has a seat at the table and that the big taxing jurisdictions are not dominating this process, Andree says. However, he adds, No one entity is trying to take on the single leadership role. It is understood by all that this is a collaborative process, and all of the county s taxing jurisdictions are best served in that manner. The subcommittee s first task is focusing on education, Andree says: moving officials beyond their shock and anger at the new law and helping them understand what Act 32 means for their jurisdictions. To do that, members have launched 24 PA TownshipNews JULY 2009 a major outreach program, speaking to local township and borough officials at their spring conferences and developing every other communication channel they can think of. We firmly believe the key to success is communication, Andree says. When you communicate with 77 different taxing jurisdictions, some have , and some don t. Some have fulltime staff, and some don t. You have to cover all avenues. The subcommittee plans to continue gathering contact information for all of the taxing jurisdictions, identifying specific tasks that need to be done, and then figuring out who is going to Get the scoop on EIT consolidation Pennsylvania s earned income tax collection system will look a lot different come 2012, and townships need to start preparing now. Act 32 of 2008 will create new earned income tax collection districts generally along county lines and reduce the number of tax collectors from 560 to 69. The final implementation deadline of January 2012 might seem a long way off, but townships must complete their first task, appointing a representative to a countywide tax collection committee, by September 15 of this year. To learn more about the law and view an implementation timeline, maps of the new tax collection districts, and a frequently updated list of questions and answers from the state Department of Community and Economic Development, log onto the PSATS Web site at and click on the EIT link on the home page. Townships may also log onto the DCED Web site directly at Click on Get Local Gov Support on the right and then choose Tax Information and DCED s EIT Collection Initiative. For more background information on Act 32, see the following issues of the Township News: February 2008, Page 8 March 2008, Page 20 January 2009, Page 22 Look at other entities close to you and around the state. There are excellent examples of almost countywide and multimunicipal collection already in place. manage what is becoming an unwieldy process. People are donating their time to this right now, Andree says. We firmly believe that somebody will have to be brought on full-time just to deal with the organizational issues with the tax collection committee. We feel the biggest challenge of the act is not the collection but the creation of the organization that will manage the whole process. Years ago, Andree says, Cranberry Township joined with several of its neighboring municipalities to consolidate earned income tax collection, so he has some sense of what to expect. I know the amount of work it took to get nine municipalities together under one agency, he says. Multiply that by seven or eight, and it s an almost insurmountable organization task. Officials can help themselves and everyone else, Andree adds, by stepping up to the plate and participating from the start. And while many of the municipalities and school districts in Butler County are pitching in, he says, there s room for improvement. The director of the county assessment office ed a survey to communities to get their contact information, Andree says, and he only got responses from one-third of the taxing jurisdictions. That tells you right off the bat that people don t get it. We need 100 percent response so everyone knows how to move forward and understands what to expect. Start talking The experts agree that townships need to take action now. Act 32 requires counties to schedule the first meeting of the countywide tax collection committee, with guidance from the Governor s Center, but that s where the county involvement ends. It s up to

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5 eit collection municipal and school district officials not just to make the EIT consolidation happen, but to make it work. And the sooner they get started, the better. The first thing that township officials should do is get to know the law, and one way to do that is to log onto the Web site for the state Department of Community and Economic Development. A page dedicated to Act 32 includes a copy of the law, an implementation timeline, maps of the new tax collection districts, and a frequently updated list of questions and answers. (See box on Page 24 for instructions on how to access this information.) Next, townships need to appoint their voting delegate and one or more alternates to the countywide tax collection committee by making a motion at a public meeting. A lot of municipalities are asking who that delegate should be, says Mitch Hoffman, local government policy manager with the Governor s Center. We re stressing that it should be someone who has some fairly comprehensive understanding of the earned income tax because for most municipalities, that s their main source of revenue. The delegate does not have to be an elected official, Hoffman adds, or even live in the township. It can be a manager, a finance director, or perhaps a certified public accountant anyone who knows tax collection and will work well with others on the township s behalf. PSATS Holly Fishel offers a concise directive for those representatives. Their job is going to be making sure that the EIT revenue check keeps coming in and that the township is getting its due, she says. Some townships are concerned that their delegate s vote may not carry much weight compared to larger municipalities or school districts. During the first meeting of the tax collection committee, each representative s vote will be weighted 50 percent based on earned income tax revenue collected and 50 percent based on population. After that, the committee may choose a different voting option, including a simple majority rule. Several townships, Hoffman says, are looking at those facts and planning ahead. Municipalities that have a lower population or lower EIT revenue have a smaller vote, he says, so a lot of those are going to get together to appoint a single delegate. To do that, Fishel explains, each governing body still has to appoint one delegate. However, multiple bodies can appoint the same delegate. The work doesn t end with these appointments, however. David Blain, a supervisor for Lower Paxton Township in Dauphin County and a certified public accountant who has worked extensively with the EIT issue, has a few more words of advice. Townships need to start collaborating with other surrounding municipalities and school districts to see what tax collectors they use, how the arrange- 26 PA TownshipNews JULY 2009

6 Earned Income Tax Collection Q & A Q: How will the new EIT collection system work? A: Act 32 of 2008 creates a consolidated EIT tax collection in Pennsylvania, with 69 tax collection districts aligned generally along county borders. Each taxing body in the county will appoint a delegate and at least one alternate to a countywide tax collection committee, which will administer the system for that county. The committee will establish bylaws for its organization, decide who will collect the EIT for all of the taxing bodies, and provide for annual audits of the tax collector. Q: What does our township need to do to appoint a delegate to the countywide tax committee? A: The township must appoint one delegate and at least one alternate by making a motion at a public meeting. The delegate and alternate(s) do not have to be elected officials and do not even have to live in the township. They should, however, be knowledgeable about earned income tax collection and its importance as a revenue source for the township. Q: Townships are being told to prepare now for the EIT consolidation, but what does that mean? A: Townships should become familiar with the law and its requirements. They should also start collaborating with other municipalities and school districts in the county to learn what tax collectors they use and the pros and cons of each. Knowing the basics of the law and details about a variety of tax collectors upfront should help make the countywide tax collection committee meetings more productive. Q: It seems there may be significant startup costs associated with creation of the tax collection committee and choosing a tax officer. Who pays for these costs? A: Costs will be split equitably among the taxing jurisdictions in the county. Assistance for some costs may also be available from the state Department of Community and Economic Development s Shared Municipal Services Program. Q: Where can townships turn if we have questions about Act 32 and the consolidated EIT collection? A: Townships may call the Governor s Center for Local Government Services toll-free at (888) for technical assistance or log onto or for additional information. The Governor s Center is also developing standard forms, a tax collector request for proposal, sample tax collection committee bylaws and regulations, and tax collector practices and procedures, among other things, to help tax collection committees with the transition. Q: What role does the county play in the new EIT collection process? A: The county has no part in the collection process. However, it is responsible for setting up the first meeting of the tax collection committee and notifying the taxing bodies of the event. The meeting must be scheduled by September 15 and must be held by November 15. Q: Our township currently receives its EIT disbursement from our collector every two weeks. Why does the new law specify a 30-day timeframe for returning EIT revenue to the taxing bodies? A: Act 32 requires tax collectors (called tax officers in the law) to remit all withholdings to the taxing jurisdictions within 60 days for taxes received before April 1, Taxes received after that date must be remitted within 30 days. However, the tax collection committee may specify a shorter turnaround time in its contract with the tax collector. Q: Our township has worked hard to establish an EIT collection system that works well. How can we ensure that our revenue does not decrease under the new system? A: Act 32 includes various safeguards and audit requirements that will, for the first time, be applicable to all EIT collectors statewide. These include the following: Tax officers must keep records of every dollar received and distributed and submit monthly reports accounting for each dollar. Tax collection committees must arrange for an annual audit of the tax officer, which includes a reconciliation of monthly reports, the receipt and disbursement of all tax revenue, and findings of noncompliance with the law. Bond amounts for the tax officer will be tied to the annual audit. Tax officers will face fines, penalties, and jail time for noncompliance. Tax officers will use existing and new enforcement tools to pursue claims against nonfilers. The state Department of Revenue must exchange tax information on a yearly basis with each tax collection district. The countywide tax committees can specify other safeguards in their contracts with the tax officers. JULY 2009 PA TownshipNews 27

7 THE COUNTDOWN TO EIT CONSOLIDATION Plan now for upcoming EIT deadlines The new consolidated earned income tax system will be here before you know it, with full implementation scheduled for January And the first deadline for townships appointing a voting delegate and one or more alternates to the countywide tax collection committee is approaching fast. Township supervisors must name those representatives by September 15 by making a motion at a public meeting. Below are the EIT compliance deadlines as published by the state Department of Community and Economic Development. For more details, log onto and click on the EIT link on the home page. Townships may also log onto the DCED Web site at Click on Get Local Gov Support on the right and then choose Tax Information and DCED s EIT Collection Initiative. Action DCED provides the weighted vote for each tax collection committee. Each political subdivision names its tax collection committee delegates. Counties notify the public and DCED of the first tax collection committee meeting. Deadline September 1, 2009 September 15, 2009 September 15, 2009 Each tax collection committee holds its first meeting. November 15, 2009 DCED completes EIT system study and provides it to all tax collection committees. December 31, 2009 DCED publishes regulations. Early 2010 Tax collection committees approve bylaws. April 15, 2010 Tax collection committees appoint appeals boards. June 1, 2010 Tax collection committees appoint tax collectors for Tax collection committees notify DCED within 10 days of appointing the collector. Tax collection committees determine whether the tax officer will collect 2011 earned income taxes. Tax collection committees notify DCED of whether the tax officer will collect 2011 taxes. Tax collection committees complete transition plans from old to new collector. All documents and responsibilities are transferred to new collector. September 15, 2010 September 25, 2010 November 1, 2010 December 1, 2010 July 1, 2011 June 30, 2012 Act 32 of 2008 is fully implemented. January 1, 2012 Legislative Budget and Finance Committee completes audit and evaluation. December 31, 2016 eit collection ment is working, and what the benefits are, he says, so going into that first meeting, they re well-informed, welleducated, and they know what the collectors strengths and weaknesses are. In researching the options for tax collectors, Blain says, townships also need to make sure the collectors will be able to comply with all the requirements of Act 32. Some questions to ask, Blain says, are whether the collectors can ensure that the tax revenue will be distributed at least monthly (or more frequently, as the tax collection committee may require), whether they can provide for the proper reconciliations, and whether their infrastructure can handle collections for the entire county. Hoffman agrees that now is the time for the governing bodies to start talking. I don t think there s anything wrong with discussing tax collection strategies, he says. Some municipalities, he adds, are already developing proposals to present at the committee meetings touting the merits of their favored tax collector. Talk with your neighbors, Hoffman encourages. Look at other entities close to you and around the state. There are excellent examples of almost countywide and multimunicipal collection already in place. Maintaining control Despite the success that many townships have had with multimunicipal collections, or perhaps because of it, Blain can understand why township officials may be leery of the new law. They feel like they re losing control, he says. They ve had their own collection office and are used to controlling the process. However, he adds, the law is written to make sure that control does not just disappear. Every township will have a say through its vote on the tax collection committee, and the committee can structure the voting system as it chooses. 28 PA TownshipNews JULY 2009

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9 eit collection Blain sees plenty of benefits for townships under the new law. For starters, he says, money will be going to one collector and will be returned directly to the taxing jurisdictions. The tax revenue won t travel among multiple collectors, leaving less room for error. Add in the fact that tax revenue must be distributed dollar for dollar as it is collected, rather than based on a formula or estimates, and some townships may see an increase in their tax revenue. If you collect $100 for a municipality, Blain explains, then you have to return that $100 to them. It s a simple concept but one that is only voluntary under the current EIT collection system. Clearly defined audit requirements something PSATS fought for as the law was being developed are another plus, Blain says. Each tax collection committee must have a public accountant or a certified public accountant audit the tax collector at the end of the calendar year. The auditor s final report must include an opinion letter, a financial statement, a reconciliation of the monthly reports with the receipts and disbursements, a summary of collection fees charged, a report on the collector s compliance with Act 32, and a list of any noncompliance issues, which would be shared with DCED and the state auditor general. In the end, Blain thinks that Act 32 will do what it is intended to do. The question has to be Does the benefit outweigh the costs of it? he says. Absolutely. Your cost of collection is going to be distributed [among all the governing bodies], and the money will be distributed faster. Blain acknowledges that townships will face at least one major obstacle as they work to get the consolidated EIT collection system up and running. The big challenge for the tax collection committee is going to be the process of establishing the governing body, he says. It s going to be a difficult task to get everybody on the same page. Cranberry Township Manager Jerry Andree can vouch for that as officials in Butler County delve further into the organization process. Still, he knows that working through the difficulties now will pay off in the end. I was not a strong supporter of this EIT legislation, he says, but I know that doing things right from the start is important to my community s health and well-being. F We feel the biggest challenge of the act is not the collection but the creation of the organization that will manage the whole process. 30 PA TownshipNews JULY 2009