Home Rule Study Commission – Taxation Practices of Local Governments Under Home Rule

The content below is provided by the Home Rule Study Commission, not the City of Lancaster or the Sorace Administration. Learn more about the Home Rule Study Commission at https://www.cityoflancasterpa.gov/home-rule/.

Pennsylvania Economy League examined the local tax rate history of 82 Home Rule municipalities from 1999 through 2024, a period of 25 years. The rates of real estate (property), earned income, and real estate transfer taxes were reviewed for the frequency of changes and the range of amounts.

• Adoption of a Home Rule Charter does not change existing rates of taxes nor make it easier to raise tax rates by elected officials.
• The law allowing a Home Rule Charter form of government does remove the limitations on the rate of taxes used to fund government services.
• Removing rate limits allows for more flexibility in the sources of revenue to fund government services.
• Elected officials under a Home Rule Charter have the same responsibility to taxpayers to keep tax rates low and equitable to keep municipal services available.

Real Estate Property Taxes. Most Home Rule municipalities do not frequently increase property taxes during the review period.

• Since 1999, real estate tax rates were unchanged from the prior year more than 60% of the time.
• Increases did occur on average 23% of the time.
• Decreases happened in 14%. Decreases occurred both as real reductions in the tax rate but also may have occurred when the county completed a reassessment that required the municipality to adjust its tax rate.

Earned Income Taxes (EIT). Keeping the EIT rate the same year over year is more often the case than frequent increases or decreases.

• Most municipalities set the EIT rate once following a Charter adoption and generally do not increase the rate.
• Since 1999 on average the EIT rate was unchanged 89.7% of the time.
• Increases in EIT rates occurred an average of 6.4% of the time.
• Decreases in the EIT rate happened 3.9% of the time.
• Generally, the EIT rate was increased one time under Home Rule above the former statutory limits and largely remained at that level for long periods of time. 
• Reasons for this stability in tax rates is due to the natural growth of the EIT base which is a result of wage and salary growth that generally tracks with inflation.
• Because of this natural growth, municipalities do not have to frequently raise the EIT rate to generate more revenue unlike the property tax which usually requires an increase in the tax rate to increase revenue.

Real Estate Transfer Tax (RET). The RET is levied upon the sale and transfer of ownership of property. 

• As was the case with the other rates, no change in the rate is overwhelmingly the case (95.6%) than any increase or decrease. Increases in the RET rate occurred 3.0% of the time while 1.0% decreased since 1999.
• As was seen with EIT rates, once municipalities set the RET rate following a Charter adoption the rate is not usually increased.

Business Gross Receipts Tax

• The other significant tax levied by some cities is the Business Gross Receipts tax. The imposition of any new business gross receipts tax is prohibited after November 30, 1988, under the terms of the Local Tax Reform Act.

• As Lancaster did not impose the tax prior to 1988, it cannot now levy this tax, even under a home rule charter. 

Sincerely, 

Home Rule Study Commissioners 

PS: two local reporters have attended every Commission meeting. Consider reading their work, which is available to all with no subscription required. 

• LNP | LancasterOnline
• One United Lancaster

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