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TAXING TIMES: Looking at the notice: In search of a fairer system

A lot of wrangling, litigation went into the form you'll be receiving soon in the mail

Saturday, August 26, 2000

Imagine this: You earn exactly the same amount of money as the family next door and have exactly the same number of tax credits and deductions on your income tax return. In fact, every entry on your tax return is identical to theirs, except for the line that lists taxes owed. It shows that you must pay 25 percent more.

 
    Reading the mail

PG Graphic: Step by Step: Reading your assessment notification letter

 
 

Sound fair? Of course not. No one would stand for an income tax system that treated taxpayers so unevenly.

Yet Allegheny County's property tax system has operated that way for years. Homes that would sell for similar prices if they were put on the market have been assessed at widely different amounts by the county.

In 1997, Common Pleas Judge R. Stanton Wettick Jr., who ordered the property reassessment now being performed by Sabre Systems and Service, cited a particularly egregious example. It came from a study by taxpayers who had filed suit against the property assessment freeze that had been approved by county commissioners.

The judge noted that two properties had recently sold within a few months of each other, one for $700,000, the other for $14,625. Both had been assessed at $20,000 by the county.

"If the freeze is maintained, both property owners will be paying identical county and school district taxes for the life of the freeze," he wrote.

He ended the freeze and ordered a countywide reassessment to make the system fair.

No fairness guarantee

Yet even a tax that is assessed on accurately appraised property can fail the fairness test compared with other methods of taxation.

Reporting income for the income tax is fairly straightforward, and the tax can be structured to give a break to those least able to pay. Likewise, the sales tax is easy to tally, and essentials -- clothing and food -- are exempted.

Yet property owners can do little to control the value of their homes.

Is it fair to force senior citizens or middle-income wage earners out of homes whose values have pushed property taxes beyond their ability to pay?

Most politicians and most Pennsylvania residents would say no.

Yet programs to help are mostly limited to senior citizens on very limited incomes.

Still, the property tax offers something those other taxes do not -- stability. Changes in the economy can have a big impact on revenues collected through income and sales taxes. Property tax collections aren't affected nearly as much, which is a plus for school districts and municipalities that need stability for budgeting.

Efforts to reform the state's property tax system by lightening the property tax load on property owners have been dismal failures.

The late Gov. Robert P. Casey proposed the most sweeping tax reform package in the past 20 years.

His plan would have given local governments the authority to shift away from property taxes to other taxes. It was comprehensive and bold, but complex and divisive. The proposal squeaked through the Legislature, only to be crushed in a 1989 statewide referendum.

Other efforts have met about the same fate.

In 1997, voters approved a constitutional amendment that allows a school district to exempt a flat amount of a home's value from property taxes. Based on this amendment, the Legislature in 1998 passed, and Gov. Ridge signed, Act 50, the so-called Homestead and Farmstead Exclusion program.

Under this law, school districts can increase the earned income tax by as much as 1.5 percent while trimming property taxes through a tax exemption on homes of up to 50 percent of their assessed value.

But the details are complicated and confusing, requiring taxpayers to mail forms requesting tax relief without knowing if their school boards will even consider invoking Act 50. It also requires that some subsequent tax increases proposed by a school district be approved by voters, something few school boards are eager to try.

Voters in three districts have elected to give their school boards permission to implement the plan, none in Allegheny County. North Allegheny School District is studying the possibility of implementing the proposal.

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