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Property tax alternative might add up to trouble

BE WARY OF what you wish for.

Those words of caution apply to Luzerne County Commissioner Greg Skrepenak’s hope that the state legislature will give counties the option to impose other forms of taxation, such as a sales tax.

It’s not hard to understand why Skrepenak – or most county commissioners in Pennsylvania, for that matter – would want the ability to levy a modest sales tax.

The perception is that real estate taxes, a county’s main income source, are too high, with or without a reassessment. There’s also the view that a sales tax paid incrementally on purchases doesn’t hurt nearly as bad as getting a lump sum annual property tax bill.

Skrepenak noted a study done three years ago by the state County Commissioners’ Association concluded Luzerne County could generate $17 million from a 1-percent sales tax, which is about a quarter of what the county real estate tax brings in annually.

This option is far from a panacea. In fact, in some respects it opens a Pandora’s box of other problems.

Adding to the state’s 6 percent sales tax can be regressive by placing a greater burden on low-income families.

For example, for a family making $50,000 annually, a 1 percent sales-tax increase would raise the tax on a $20,000 family car by $200 to $1,400, which is 2.8 percent of its income.

An affluent family with $150,000 annual income that’s buying a similarly priced car for a teenage child would pay taxes amounting to less than 1 percent of its annual income.

Furthermore, if one county implements a sales tax but a neighboring one opts not to, what effect will that have on commerce? Isn’t it conceivable, even likely, that consumers will travel a few extra miles when making major purchases to save on the sales tax?

Wouldn’t that savvy attitude hurt some local businesses?

Skrepenak deserves credit for exploring options, but elected officials must remember all new taxes create vulnerabilities to be considered when overhauling tax strategies.

In other words, don’t buy into a county sales tax just yet. Our leaders still need to do more solution shopping.

Sales tax pitfalls:

• People with lower incomes can actually pay a greater percentage of their incomes in sales taxes than those with higher incomes, making a sales tax regressive.

• Funds generated by sales taxes are influenced by changes in the overall economy. In better economic times, consumers (both individuals and businesses) spend more on taxable items, generating more revenues. Downturns can have a negative effect.

• Collecting sales tax for “remote” sales – purchases made in other states, usually through catalogues or over the Internet -- creates another set of problems and associated costs.

Source: Pennsylvania Economy League

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