Proposal to Eliminate School Property Tax Would Result in Expanded Sales Taxation

Every Pennsylvania resident should review Senate Bill 76, which is being considered by the Pennsylvania General Assembly. The proposal would repeal the ability of school districts to levy property taxes, and replace the lost revenue with tax increases and new taxes.

The three major changes to the taxes are:

  1. Increasing the PA state sales tax from 6 to 7%.
  2. Expanding the 7 % sales tax to cover goods and services which are currently not taxed.
  3. Increasing individual personal income tax rates and income taxes paid by individuals and small business owners (S Corps and partnerships) from 3.07% to 4.34%.

The expansion of PA sales tax (at the 7%) rate would be payable on:

  1. All food and beverage items currently not taxable.
  2. Clothing and shoes that sell for more than $50 at retail.
  3. Toothpaste, toothbrushes and other hygiene products.
  4. Nonprescription medicines.
  5. Caskets.
  6. Text books.
  7. State and federal flags.

The newly taxable services would also impose the 7 % sales tax on most legal services, accounting services, veterinary services, funeral and cremation services, cable services, day care services, social assistance services, house repair services, and nursing and residential care facilities.

The bill summary indicates that there would be no sales tax on business to business sales with respect to the taxable services, but such services would be taxable when rendered for individuals rather than businesses.

The above information was taken the PA Senate website link:

While the elimination of the real property tax will be a benefit to some businesses and individuals, the new taxes and tax increases will have a substantial negative impact on some Pennsylvania taxpayers. Each taxpayer should compare the effect of the proposal by comparing the impact of the increased income taxes and sales taxes to the potential reduction of their July School real estate tax bill (reduced by any corresponding tax rebate for senior citizens).

For example, a married couple whose combined (or business owner) whose combined income is $100,000 would pay $1,270 more in PA income taxes. If a family spends $7,200 per year on newly taxable food, clothing, toiletries, the tax increase to them would be $504.

Senior citizens currently receive property tax rebates, while farmers receive Clean and Green reduced real estate tax rates. The elimination of real estate taxes will be a trade off of these benefits for higher income tax rates and expanded sales taxes.

Contact Williamson Friedberg & Jones

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