Do you have an extra $500? Harrisburg tax confusion could cost that and more

HARRISBURG, Pa. (WHTM) – The word “persistence” doesn’t have a picture next to it in the dictionary. But if someone decides to put one in, that picture should probably show Mary Howells, who lives in Harrisburg.

“Nobody should be taken advantage of,” Howells said. “You work hard for your money and you should be able to keep it and not just be giving it out for reasons that you don’t even know.”

Howells spent several months trying to get answers about Harrisburg’s earned income tax, the portion of your income you pay if you live in the city. Harrisburg’s EIT used to be one percent, with 0.5 percent going to the city and 0.5 percent going to the school district.

In 2012, Harrisburg City Council passed an ordinance to raise the EIT to two percent; 1.5 went to the city, and the school district stayed at 0.5 percent.

If your total household income is $50,000, you went from paying $500 to $1,000.

“It could be a mortgage payment,” Howells said.

As someone who lives in Harrisburg, Howells has been following this issue closely. She was paying attention when City Council extended the increase, and knew it was set to expire at the end of 2016.

Then 2017 rolled around.

Howells wasn’t sure if she should tell her employer to drop her EIT rate back down to one percent, like one of her co-workers did. She knew if she did that, she might owe Harrisburg hundreds of dollars next tax season if it turned out the rate was actually two percent. However, she did not want to stay at the two percent rate if it meant overpaying.

“They’re not going to be calling me on the phone going, ‘Hey Mar, guess what? We owe you some money. And by the way, the right thing to do is get it back to you with interest.’ That’s not going to happen,” Howells said with a laugh.

“The deer caught in the headlights”

Howells went to the city’s tax office to get some answers.

“There was confusion of which tax I was referring to,” Howells said. She said the people working in the tax office kept talking about the city’s local services tax, which you pay if you work in Harrisburg. But Howells wanted answers about the earned income tax.

“That was on the first floor,” Howells said. “Then they sent me to the second floor. It was kind of like, you know, finding the deer caught in the headlights.”

Howells then went to the solicitor’s office. Someone told her she’d get a call with an answer.

“I never got a phone call from anybody,” Howells said. “I had to go back over to that office at least three times.”

Eventually, Howells did get a call. But she wouldn’t call what she got an answer.

“They said that ‘the plan was continuing to move forward,'” Howells said. “And I just said, ‘What does that mean?’ Like, he was just over the weekend sitting at his house and he decided, ‘Oh, I got this phone call and yeah, we’re going to keep it?’ So I was just really confused and I just figured it needed somebody bigger than me to figure out what this is.” 

That’s when Howells called ABC27.

“Are we not paying enough, or are we paying too much?” Howells asked. “And who’s got the answer? I don’t know. That’s why I want you to find out.”

The cost of confusion

Online searches of state agencies and tax collectors showed Harrisburg’s EIT was still listed as two percent for 2017. However, City Council’s website listed that two percent as expiring in 2016.

Harrisburg ordinances had no mention of extending the tax increase; neither did City Council meeting minutes.

“Confusion always costs a lot of people money in trying to figure out what’s going on,” Widener Commonwealth Law School tax law professor Michael Hussey said.

Hussey said Act 47, Harrisburg’s status as “financially distressed,” allowed City Council to raise the EIT in order to keep the lights on. But he also said there needs to be a current ordinance or some kind of binding action to keep that rate in place. Otherwise, the old rate of one percent would kick in.

Either way, it’s important for people to have a clear understanding of what their tax rate is in any given year.

“A tax system that we don’t have confidence in undermines many other things that we do,” Hussey said.

Harrisburg offers answers and changes

ABC27 called the city offices. When no one called back, ABC27 showed up at a City Council meeting and spoke with Council President Wanda Williams and Solicitor Neil Grover.

“It is still at the two percent mark,” Williams said.

Both Williams and Grover said a court-approved modified recovery plan extends the two percent earned income tax rate through 2018.

ABC27 checked back with tax expert Michael Hussey, who reviewed the plan. He said it appears to legally extend the increase.

The mention of an earned income tax extension is half of a sentence in an 111-page document, and City Council did not explicitly announce an extension to the rate increase.

Williams said City Council communicated with local businesses, but could probably do more to communicate with the people who live in the city, starting with the website.

“We should be trying to update that as we presently speak now,” Williams said during the interview, “because I was not aware that we were still [listed] at the December date of 2016, so we will try to make sure we modify that.”

If you want to know where your earned income tax money is going, Solicitor Neil Grover says you don’t need to look very far.

“They want their trash picked up, they want police to show up when they call, and they want the fire department to be there,” Grover said, referring to people who live in the city. “That’s why it’s an important issue for them.”

So, what now?

What will happen to the earned income tax rate when the increase expires in 2018? Harrisburg leaders say they don’t know.

The way things stand now, once the city sheds its label as “financially distressed,” Council would lose the power Act 47 provided that allowed the EIT increase.

“We are going to be lobbying the legislators at the Capitol and also the courts to see if we can keep that extension,” Williams said,  “because if we don’t, we’re going to lose between 11 and 13 million dollars of revenue.”

“Which would mean, you know hard cuts for police, fire, sanitation,” Grover said. “That’s what the reality of that would mean.”

The city is also considering the possibility of home rule, which would require voters to pass a referendum.

Being under home rule means a city, borough, or township can only act in ways specifically authorized by state law. Home rule municipalities can act in any way except where prohibited or limited by state law, which would allow Harrisburg to keep the EIT increase.

“[Otherwise,] cities can only do what the state authorizes tax-wise, and our hands are tied,” Grover said.

Pennsylvania has more than 70 municipalities under home rule, including Carlisle, Lebanon, Allentown, Altoona, Johnstown, Pittsburgh, and Philadelphia.

Lessons learned

“I just feel that it’s unfortunate that, you know, as a resident, we can’t just walk into that building and get the information without having to go to these lengths,” Mary Howells said when ABC27 went back to her with the information from Harrisburg.

Howells hopes this story inspires change on the part of city leaders and awareness on the part of people who live in the area.

“I’m thrilled to death that you guys were able to do this,” Howells said. “Just to bring it to light so that people do know that there are things going on that we have a right to know what it is going on because it’s our money being used.”

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