As per Act 1, all school districts, except Philadelphia, Pittsburgh and Scranton, must give voters the opportunity to raise the local Earned Income and Net Profits Tax (EIT) or switch to a Personal Income Tax (PIT) at the May 15, 2007 primary election in order to raise revenue to fund local property tax reductions. The Radnor School Board will soon decide which kind of income tax voters will get to decide on, and at what rate. ( Act 1 FAQ from Pennsylvania Department of Education)

The Radnor Local Tax Study Commission (RLTSC) studied the possibility of shifting school district revenue from real estate taxes to income taxes. The school district will receive the same amount of revenue under either method – the only change is how the funds are collected from you, the taxpayers. The commission evaluated an increase in EIT or establishment of PIT tax.

EIT, Earned Income Tax, is primarily on wages and salaries, and certain business profits; PIT , Personal Income Tax, includes above plus income from most interest, dividends, capital gains and other “unearned” income. All income tax options being considered exclude pension and social security from calculating the amount of taxable income.

The RLTSC has presented its recommendation to the school board. The Commission recommended that if any shift were to occur, it would be towards PIT at a rate of .07. However, a majority of the Commission also agreed that Radnor taxpayers should vote NO to shifting school district revenue from real estate taxes to income taxes on the May 15 ballot.

The School Board was not legally required to follow the recommendation of the Commission but after more opportunities for public debate and Board deliberation, it found no reason to reject the Commission’s recommendation.

Three items will therefore appear on a ballot question in May 2007:

(1) The type of income tax proposed (personal)
(2) The income tax rate, stated as a percentage (.07)
(3) a property tax savings estimate that will apply to every qualified homestead.

Whether you personally gain under this plan – meaning that the reduction in the property tax is more than the amount you will pay in a new income tax – depends on your taxable income, income type, whether you have a qualified homestead, and whether you pay Philadelphia wage tax.

Generally speaking, if you earn more than $75,000 per year, and the District collects 40% of the tax, you will see a net increase in taxes. If you earn less than $70,000 per year, you will see a net reduction in taxes, provided you are have a qualified homestead.

For more on Eric’s position on whether the Township should approve the shift, here is an article Eric co-wrote which was published in the local papers Front-end May 15th Ballot Referendum.