We plan to introduce legislation to equitably address Philadelphia’s power of pre-emption on local income taxes by applying tax collection practices that mirror those exercised by all other taxing jurisdictions across the Commonwealth under the Local Tax Enabling Act.

The Sterling Act, enacted in 1932 to assist Philadelphia following the depression, is Pennsylvania’s first local income tax enabling legislation and grants the City of Philadelphia broad taxing authority.  As you may know, the City of Philadelphia imposes a City Wage Tax on salaries, wages, commissions, and other compensation paid to employees commuting to a Philadelphia employer.  All Philadelphia residents owe the City Wage Tax regardless of where they work.  Non-residents who commute to work in Philadelphia must also pay the Wage Tax.  However, unlike the imposition of local taxes in other taxing jurisdictions, none of the non-resident City Wage Tax is returned to the non-resident’s home government.  As of July 2020, in the midst of the pandemic, the City raised this tax on commuters but did not raise the cost for those who live in the City of Philadelphia.  This is the highest city wage tax in the country.

As a result of this disparity of tax practice (often called a commuter tax), many surrounding suburban areas are losing significant tax revenue to support their police, fire, EMS and schools from their residents who work in Philadelphia.  As an example, Bucks County local governments lost about $8.6 million in revenue for 2017.  To be clear, these local municipalities are receiving ZERO earned income tax dollars from those that work in the City, thus increasing the tax burden on all who do not work in the City of Philadelphia.  Many neighboring communities are impacted in the same manner. 

Our legislation will correct this unfair and long overdue issue by amending the Sterling Act to require Philadelphia to reimburse the surrounding taxing jurisdictions that impose an earned income tax at a rate equivalent to that which would have been collected from commuting workers of their respective boroughs and townships.

We hope you will consider joining us in sponsoring this important piece of legislation.