Q: What is Act 1?

A: Act 1 of Special Session 2006, adopted June 27, 2006, creates the Taxpayer Relief Act to provide property tax relief funded through gambling dollars and a local shift to an earned or personal income tax. Act 1 expands the Senior Citizen Property Tax and Rent Rebate program to increase the income eligibility for the rebate program from $15,000 to $35,000 for homeowners age 65 and older. The maximum rebate is raised from $500 to $650. Act 1 also provides extra rebates of 50 percent to seniors whose property tax bill exceed 15 percent of their income.

Q: What is meant by “a local shift to an earned or personal income tax?”

A: On the 2007 primary election ballot, all school districts (except Philadelphia) are required to place on the ballot a question of whether the voters want to increase the earned income tax to generate revenues for property tax relief or levy a local personal income tax for the same purpose. Act 1 also requires school boards to appoint a Local Tax Study Commission of five, seven or nine members to advise them as to which tax to propose. The Colonial School Board appointed a nine-member tax study commission at its August meeting.

Q: Will this tax shift save me money?

A: Increased revenue from a new income tax would decrease property taxes by giving each homeowner an identical dollar amount property tax credit. Though the tax shift will reduce the assessed value per homestead, some Colonial School District property owners will pay more in increased income taxes than they will recoup in property tax cuts. The “break-even” amount will depend upon the amount and type of income tax to be levied, however, it will probably be between $70,000 and $80,000 per year. Renters will see an increase in income taxes without the benefit of a property tax cut.

Q: How large will the new tax be?

A: No decision has been made on the size or type of tax to be proposed. However, a $500 credit for each homeowner would require approximately an additional 0.662% EIT or 0.521% PIT. A $1,000 credit would require approximately an additional 1.325% EIT or 1.048% PIT.

Q: Will all homeowners receive a property tax reduction?

A: To qualify for any real estate tax reduction, residents must complete a Homestead/Farmstead Exemption Application by March 31, 2007.

Q: What happens to the money raised by the EIT or PIT if enacted?

A: Proceeds from an EIT or PIT are used to reduce the assessed value of each homestead. The EIT or PIT does not affect education funding.

Q: Where can I find more information about Act 1?

A: http://www2.legis.state.pa.us/WU01/LI/BI/BT/2005/1/HB0039P0093.pdf