The point of Pennsylvania Act 32 was to not have employees owe taxes at the end of the year, a health care payroll manager said May 7 at the 2013 American Payroll Association Congress in Grapevine, Texas.

Employer issues arise when determining how to “collect the tax equally over the number of payroll periods that the employee would normally get paid in a year,” said Bruce Phipps, corporate payroll manager for Einstein Healthcare Network.

Pennsylvania has more local income taxes than all other states combined, Phipps said. The Local Tax Enabling Act of 1965 authorized employers to levy income taxes on employees and established 560 local earned-income tax collectors, almost $2 billion in annual revenue, more than 2800 municipalities and 465 school districts. The law, however, proved to be “fragmented, confusing, and difficult to withhold and remit,” he said.

The key reason for creating Act 32 was that the Local Tax Enabling Act resulted in $267 million in lost annual tax revenue for municipalities, Phipps said. Eighty-five percent of residents in Pennsylvania work somewhere other than where they reside, he said.

With the passage of Act 32, the Department of Community and Economic Development identified tax collection districts, created an information document, the Act 32 advisory committee, and developed bylaws for the tax-collection committees, Phipps said. Uniform tax withholding, remittance, rules and forms, increased oversight and enforcement, and reduced burden on businesses and taxpayers were also goals of the DCED.

A key element that arose from Act 32 was quicker distribution of revenues for different townships, Phipps said.

Other major provisions of Act 32 include:

• Broadening of the local tax enabling act to include personal income tax on investment income;

• New rules for filers;

• Creating a rule that an employer with locations in multiple counties can petition to be a single-county filer. Instead of filing quarterly, however, the employer would have to file monthly;

• Creating an independent tax appeal board;

• Giving mediation authority to the DCED; and

• Requiring each district to submit annual audit to DCED.

Employers must determine where employees live and the tax rate, where employees work and the tax rate, withhold at the higher of the two rates, and remit to the tax collection district where employees work, Phipps said. Address changes should be reported to tax collector, and then to DCED, he said.

By Kristin N. Washington