Local Tax Study
Commission Issues
Recommendation to School
Board
The West Chester Area
School District's
Local Tax Study Commission (LTSC) has recommended that the
current .5% earned income tax imposed by the district be
replaced by a 1.1% personal income tax with the increased
earnings from that source used to offset the real estate
tax
paid by each homeowner.
A personal income tax, or PIT, taxes
earned income as well as investment income such as gains on
the sale of property, rental income, dividends, and interest.
Social security and any deferred income such as 401(k)
or
403(b) accounts are not taxed.
The LTSC was appointed by the School
Board in August under the provisions of Act 1 of 2006. Act
1 requires that a referendum be placed on the May 2007
ballot
giving taxpayers the option to shift some of their tax burden
to either an increased earned income tax or a personal
income
tax. Only one option may be placed on the ballot, and that
option must be approved by the voters to take effect.
If the
option is rejected, the district retains its current tax
structure.
Appointment of an LTSC representative of
the socio-economic, age, and occupational backgrounds of
district residents was required by Act 1, but the School Board
is not required to accept their recommendation. Rather,
the
Board may amend or change the recommendation prior to
finalizing the question that will appear on the May ballot.
According to calculations
prepared by the district's financial advisor, Public Finance
Management, Act 1 permits a minimum increase of 0.6% and
a maximum increase of
1.10% in the earned income tax. Should the PIT be preferred,
Act 1 permits a 1.1% minimum and a 1.5% maximum rate. In
making its recommendation, the LTSC worked within those
parameters. The School Board must do the same in making
its
final decision.
E. Martin Shane, chairman of the 8-member
LTSC, delivered its recommendation to the School Board at a
public meeting on Monday, November 20. He began by explaining
the criteria established by the commission to determine what
they believed to be the best option for the school district.
Those criteria looked at the impact of the various options on
district residents; the impact of the options on preserving
the strength of the school district; and the impact on the
future demographics/housing market in the district community.
In its deliberations, the commission
found that it would be difficult if not impossible to
determine the impact of the third criteria (the future
demographics/ housing market in West Chester) without knowing
the options chosen by other school districts in the county
and, ultimately, whether the voters chose to approve those
options. Consequently, the commission eliminated that factor
from its weighting.
Mr. Shane also reviewed
the LTSC's
justification in making the decision to impose the minimum
1.1% PIT permitted under Act 1. Included in that justification
was the fact that the PIT is more equitable in that spreads
the tax burden over all types of income instead of limiting
the tax burden to only earned income. The commission also
found that the minimum PIT will have a less negative impact
on
households than a maximum increase in the PIT.
For additional information on the
criteria and the recommendation, click on the links below.
The School Board thanked
the Commission for its work. In addition to Mr. Shane,
the members were
Marjorie Guyer, Senya Isayeff, Jon Ivins, James O'Brien, Rev.
Tyrone A. Patton, Jr., Christopher Scholl, and Roy Smith.
District Business Manager Dr. Suzanne Moore and Assistant
Business Manager John Scully worked closely with the
commission and provided critical data. Mr. Shane thanked them
for their invaluable work. He also thanked Debra Castello,
who
served as secretary.
The Board will study
the commission's
recommendation and make a decision by March 13, 2007 as
required by Act 1. Residents will be informed of public
meetings and any critical dates through the website, legal
advertisements, and other means.
Current Tax Structure & the
Impact of Act 1
Residents of the district currently pay a
0.5% earned income tax to the school district and another 0.5%
earned income tax to the municipality in which they reside.
Should the district opt to go to a personal income tax, the
municipalities would continue to impose their 0.5% earned
income tax. In addition, earned income would be taxed by the
district at 1.1% as part of the personal income tax.
Residents of the school
district also pay a real estate tax of 15.16 mills in Chester
County and 11.02
mills in Delaware County on the assessed value of their
property. That tax rate applies to the 2006-07 school year
and is subject to change. Should the recommendation of
the Local
Tax Study Commission be accepted by the School Board and
adopted by the voters in May, a credit of $761 would be
applied to the real estate tax for every qualified homestead
and farmstead in the district. Commercial property, including
apartments, would not be eligible for the credit under
Act 1.
The credit would be in the form of an "exemption," which is
the equivalent reduction in the assessed property value on
the
tax bill necessary to generate the reduction in taxes.
The $761 credit is calculated based on
current data and could vary slightly with changing incomes,
property values, and the number of properties qualifying for
the credit. It would apply equally to all homeowners and would
not change according to the assessed value of an individual
property. In addition, during the first year, it is estimated
that the credit would amount to only about 70% of the full
amount. The reduced credit is a consequence of the lower
income tax collections during the transition period of the new
rate.
To qualify for the credit, homeowners
must apply for a homestead/farmstead exemption with the county
assessment office by March 1, 2007. Many homeowners have
already done this under the requirements of Act 72, which
provided options for tax relief in 2004 but was not adopted
by the West Chester Area School District. However, homeowners
who
are new to the district or who have moved since they applied
for the Act 72 exemption must do so under their new address.
Anyone with questions
about their status or needing an application is urged to
call the Chester County
Assessor's Office at 610-344-6105 or visit
their website. Interested
homeowners can also contact the Delaware County Assessor's
office at 610-891-4891. More information will be forthcoming
from
the
school district
this
winter.
*
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