property tax
While property tax reform could benefit homeowners, it may also have a big impact on the real estate industry, according to local and state experts.
Two bills are currently under consideration by committees in the Pennsylvania Senate and House of Representatives. They are House Bill 76 and Senate Bill 76.
State Sen. David Argall, (R-29th District), the prime sponsor of the senate bill, said its goal is to eliminate all school property taxes across the state and replace those taxes with a combination of funding from the personal income tax and the sales and use tax.
On Wednesday, the House passed a bill that would empower Pennsylvania school boards to reduce or eliminate school property taxes and to make up the revenue from other tax increases. That bill authorizes the school boards to impose an “elimination tax,” consisting of an earned-income, a business tax or both, to raise the revenue necessary to offset a reduction or elimination of the property tax.
The school property tax has been a primary source for school funding since the 1830s, according to the proposed bill. Argall said the legislature cannot continue to “fix” or “reform” this archaic tax. “That is why we are proposing a new education funding model that would promote economic growth and completely eliminate the school district property tax once and for all,” he said.
The proposal would:
n Increase the sales and use tax by 1 percent and broaden the base of the state sales tax to include more services and products. Necessities and business-to-business transactions will continue to be exempt from the sales tax. Revenue generated is estimated at $5.552 billion.
n Increase in the state’s personal income tax from 3.07 percent to 4.34 percent. Revenue generated is estimated at $4.540 billion.
n Include property Tax Relief Fund – Transfers. Revenue generated would be $526 million.
Argall said the current property tax baseline is $10.607 billion and property tax replacement by Senate Bill 76 would be $10.618 billion.
Although aimed at helping property owners, the bills would could be a boon to the real estate industry, said Scott Cavinee, president of the Fayette Board of realtors.
“Most importantly to the housing market, the bill would be qualifying buyers at a higher sales price, especially on the most modest purchase it could be the difference between qualifying and not qualifying (for a home loan). “You see a bank takes into account property taxes when doing total debt-to-income ratios. 聽Without school taxes, which is typically the largest tax, a buyer will qualify for a higher sale price. It literally could be the difference between qualifying or not for some people,” Cavinee said.
The Pennsylvania Association of Realtors (PAR) agrees and is committed to real property tax reform in Pennsylvania.
PAR’s board of directors have voted to support the senate and house bills.
Based on an economic impact study conducted by Anderson Economic Group, the bill is nearly revenue neutral.
The Anderson Economic Group report said some notable additions to the sales and use tax list include newspapers and magazines, non-prescription drugs, clothing and footwear that costs more than $50, personal hygiene products, personal legal and financial services and tickets for sporting events and concerts.
The state would allocate funds to school districts by providing each school district with funds equal to revenues from property taxes for operating purposes in the previous year, adjusted by the rate of inflation. In each subsequent year, the allocation would increase by either the rate of inflation or the rate of growth in state sales tax revenue, whichever was lower. School districts also could implement a personal or earned income tax within the district, subject to a no-exception public referendum.
In addition, Keystone Analytics, a wholly-owned PAR company, conducted surveys of Pennsylvania voters and determined a majority support property tax reform. Consumers believe property tax reform is important for Pennsylvania.
“PAR believes that this reform is important to maintain the real estate industry recovery in the commonwealth. PAR plans to lead a diverse coalition of home owners, business and industry leaders and professional groups to urge Pennsylvania legislators to pass Senate Bill 76.
However, the Pennsylvania Budget and Policy Center (PBPC) claims the bills threaten long-term public school funding. PBPC is a nonpartisan, statewide policy research project that provides independent analysis on state tax, budget and related policy matters, with attention to the impact policy proposals on working families.
The group said House Bill 76 creates a funding gap that will leave Pennsylvania’s students permanently behind. PBPC said the bill makes permanent the state education funding cuts enacted two years ago. The bill would fund schools at the 2013-14 level, leaving close to $1 billion in state cuts intact. The bill would create an initial funding gap of as much as $2 billion, as the sales and income tax increases would not be sufficient to replace local tax revenue. And, according to PBPC, income and sales tax revenue can drop significantly during a bad economy, meaning immediate cuts to schools. Income or sales tax collections — or both — have fallen seven times in the last 23 years, PBPC said. During this same period, local property tax revenue never once decreased from the prior year. Property taxes keep education funding more stable during recessions.
The PBPC countered that Pennsylvania can help people having trouble paying their property taxes. Help with property taxes can come in two forms: additional resources to school districts with high tax rates and help to individuals who have difficulty affording their property taxes. Pennsylvania also could increase the homestead exemption for senior citizens. “By targeting relief to people on fixed incomes rather that giving it to everyone — rich and poor — the value of the relief could be much greater,” the PBPC said.