Officials worry taxation bill could hurt local budgets
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A bill nearing final approval in the state Legislature is designed to prevent businesses from paying the same tax twice.
But some local officials say the bill also would prevent them from charging the business privilege tax to contractors and others that set up temporary businesses in local communities.
The Pennsylvania Chamber of Business and Industry supports Senate Bill 405, arguing that a business should have a "permanent base of operations" in a municipality for it to be subjected to the business privilege tax.
But local elected officials say as it is written the bill could knock their budgets out of balance because it would apply retroactively to Dec. 31, 2011. They also say businesses rarely pay the tax at both their main location and temporary sites.
Rep. Nick Kotik, D-Robinson, said no public hearings were held to explore the legislation's potential effect when it was introduced, adding that the Legislature shouldn't move the bill before exploring the "different dimensions" of the problems it could cause.
"We shouldn't do business that way," he said.
McKeesport Mayor Mike Cherepko said levying the business privilege tax on two large construction projects in the city would bring in more than half a million dollars over the next two years. The tax is millage charged against gross receipts -- the total business revenue from services provided, before deducting expenses -- and varies by community.
"It's a privilege to do business in our community," he said. "Our residents ... are inconvenienced with traffic and the large trucks and the dirt."
He said the city's roads take a beating from trucks and machinery during construction projects, and the business privilege tax helps offset the cost of those damages.
Mr. Cherepko and Braddock council President Tina Doose spoke with state legislators during the Allegheny League of Municipalities spring conference at Seven Springs March 30-April 1. Both said representatives and senators seemed to be unaware of how the bill would impact municipalities that levy the tax.
Mr. Cherepko said some legislators were under the impression the bill would prevent companies from paying the tax twice -- once in the municipality where they are based and again in the town where they're doing construction work.
That was never the case. "These construction companies were never paying taxes" where they were based, Mr. Cherepko said.
Because many taxing bodies have already accounted for the tax in this year's budget, there has been discussion about moving the effective date to Jan. 1 or June 30, 2013 -- the latter to accommodate school districts.
In Butler Township, where the business privilege tax generated $1.21 million last year, between $65,000 to $75,000 came from "temporary" businesses. Manager Edward Kirkwood said the township has never imposed a business privilege tax on "temporary" businesses that are already paying the tax in the municipality where their business is based.
"That is a double hit, and that is unfair," he said.
But state Sen. Pat Browne, R-Lehigh, who sponsored the bill, said businesses are paying the tax "in multiple municipalities, twice on the same receipts."
Kennedy tax collector Mel Weinstein said his township brings in a little under $200,000 by levying the business privilege tax. It could lose 75 percent of that if the bill becomes law.
"Who thinks of these dumb things?" he said.
Mr. Browne said he understands some municipalities have come to rely on revenue from the tax, but the "goal here is to ensure that, notwithstanding the obligations of local government, that the business itself is not required ... to pay it twice."
He said a municipality could levy the business privilege tax on a "temporary" business as long as the municipality where the business is based does not levy the tax against the business.
Mr. Kotik, though, says that's not entirely clear in the proposed law and needs to be clarified.
The majority of the "temporary" businesses in Butler and Kennedy are building trades, such as carpenters and roofers. The bill is aimed at the construction industry, said Amy Sturges, director of governmental affairs for the Pennsylvania League of Cities and Municipalities, which opposes the bill.
But it would apply to other "temporary" business activities, too, such as food vendors or seasonal businesses, if a local ordinance is written broadly, she said.
Mr. Weinstein and Mr. Kirkwood noted that municipal services like police and fire protection and snow removal are provided for residents and visitors alike.
"We provide all the services for the person to work in that town," Mr. Weinstein said.
Originally a co-sponsor of the bill, state Sen. Wayne Fontana, D-Brookline, requested that his sponsorship be withdrawn after hearing from constituents and leaders from other municipalities that the rule would be a hardship. The bill was supposed to provide clarity for municipalities, he said, but there wasn't enough discussion in Harrisburg about how it would affect them.
"And there's still not clarity," he said.
The bill would essentially reverse a 2007 state Supreme Court case, V.L. Rendina Inc. v. City of Harrisburg, which said that municipalities have the right to levy the business privilege tax on any business operating within their jurisdiction, even on a temporary basis. Since that court case, similar legislation has surfaced as a way to narrow the taxing authority, Ms. Sturges said.
There are few taxing options available to local government bodies, and many would have to rely on a property tax increase to make up the lost business privilege tax revenue, Mr. Kotik said.
The bill passed the state Senate in February and is still in the House Appropriations Committee. The House won't have an opportunity to vote on the bill until after the April 24 primary. If the House makes any amendments to the bill, it would have to return to the Senate to be voted on again.
First Published April 9, 2012 12:00 am