Real estate taxes are the primary source of tax revenue for Pennsylvania local governments and school districts. Income taxes are the second largest revenue stream. Tax reform in recent years has aimed to reduce reliance on property taxes, place greater emphasis on income taxes and reduce or eliminate a variety of miscellaneous taxes, also known as “nuisance taxes.”
Municipal codes authorize municipalities and school districts to levy real estate taxes on property owners. Most other local taxes are authorized by the Local Tax Enabling Act, except in Philadelphia.
Pennsylvania tax legislation is complicated. The information on this page is a general reference. For more information, talk with the municipal manager, treasurer, tax collector or business manager on your beat; or consult the Taxation Manual published by the Governor’s Center for Local Government Services and the Local Tax Reform Education Project of the Penn State Cooperative Extension Office.
REAL ESTATE TAXES
Most property owners in Pennsylvania pay real estate taxes to their counties, municipalities and school districts. For most property owners, school district taxes are the largest of the three.
Real estate taxes, also called property taxes, are based on assessed value of real estate.
Real estate taxes are expressed in mills. One mill equals 1/10 of a cent of assessed value ($0.001).
State law limits the millage rate that different classes of taxing jurisdictions may levy for general spending purposes, sometimes called the “general fund.” A number of loopholes allow for taxation beyond the limits, and special rules apply to Philadelphia, Pittsburgh, Scranton and some home rule municipalities.
The limits are:
- Third class cities, 25 mills
- Boroughs, 30 mills
- Townships, First Class, 30 mills
- Townships, Second Class, 14 mills
- School Districts, except Philadelphia and Pittsburgh, 25 mills
Cities, boroughs and townships can levy an additional 5 mills with court approval. To get court approval, they have to show the additional millage is necessary to meet the needs of an approved budget.
Also, in addition to general-fund taxation, additional millage is allowed for special purposes. For example:
- Third class cities may levy unlimited millage for recreation, bonded debt and libraries.
- Boroughs may add unlimited millage for debt service, libraries, and recreation; 8 mills for street lighting; 3 mills for fire equipment and fire houses; 2 mills for their municipal building; 1/10 of a mill for shade trees.
- First class townships may add unlimited millage for libraries, recreation, their municipal building and debt service; 3 mills for fire houses and equipment; 1/10 mill for shade trees.
- Second class townships may add unlimited millage for recreation, debt service and libraries; 5 mills for street lights; 3 mills for fire houses and equipment; 2 mills for fire hydrants.
Additional millage is also allowed to support community colleges and ambulance squads, for distressed communities and to rescue underfunded pension systems. For more detail, consult the Taxation Manual.
Most non-real estate sources of tax revenue for local governments and school districts are authorized by the Local Tax Enabling Act and may include:
- Earned income tax (also called income taxes, wage taxes, net profits taxes or a combination of these terms)
- Per capita tax
- Occupation tax
- Local Services Tax, formerly the “occupational privilege tax,” levied on residents and nonresidents.
- Real estate transfer tax
- Amusement/ admissions tax
- Business gross receipts tax
Under the Taxpayer Relief Act of 2006, commonly called Act 1, school districts by voter approval may reduce property taxes by levying a personal income tax to replace their earned income tax.
Sales tax is a potentially important revenue source for local governments, but so far it has only been authorized for Philadelphia and Allegheny counties.
The aggregate of all local taxes levied under the Local Tax Enabling Act may not exceed the equivalent of 12 mills times the market value of real estate within the taxing district.