Local Services Tax Statutory Authorization Explanation

Authorized by the Local Tax Enabling Act, the Local Services Tax (LST) is levied on the privilege of engaging in an occupation within a taxing district. It is separate and distinct from the Occupation Assessment Tax. In contrast to the Occupation Assessment Tax, the LST is levied on residents and nonresidents alike who work within the taxing body’s jurisdiction. The changes are effective for taxes levied in calendar year 2008 and forward.

LST is also distinct from the Per Capita Tax, which is a fixed amount levied only on those residing within the jurisdiction regardless of the amount of property they own or their occupation.

The current maximum statutory rate of the LST, non-distressed communities is $52, and is subject to sharing between municipality and the school district if both impose the tax. (Areas under ACT 47 rulings may enact the tax up to maximum rate of $156.00)

Exemptions

Section 2 of the Local Tax Enabling Act requires each taxing authority to, by ordinance or resolution, exempt from the LST any person whose yearly earned income and net profits is less than $12,000, if the rate of the LST imposed is more than $10 ($15,600 if tax is greater than $52.00). If the rate of tax is $10 or less, the taxing body may, but is not required to exempt a person who earns less than $12,000 in earned income or net profits. To receive an exemption, a person must annually file an exemption certificate with his or her employer and with the taxing body stating that he or she reasonably expects to receive less than $12,000 (or the exemption in place) in earned income or net profits in that year. The employer is to provide its employees with these certificates. If the person does receive more than $12,000/$15,600 in earned income and net profits during the year and after filing his/her exemption certificate, he/she will be liable for the full amount of the tax.

Additionally, a person who served in any war or armed conflict in which the United States was engaged, received an honorable discharge and as a result of such service was left blind, a paraplegic, a double or quadruple amputee or has a service connected total one hundred percent permanent disability declared by the United States Veterans Administration (or its successor) to be a total one hundred percent permanent disability is exempt from the LST. Likewise, any person who serves as a member of a reserve component of the armed forces and is called to active duty during the tax year is exempt from the tax.

For more information on the Local Services Tax, please click here.

Situs

The situs for the Local Services Tax is the actual location where the individual taxpayer works. It is not based on where the headquarters of the employer is located or where the payroll checks are prepared.

If a taxpayer works in more than one job or occupation in more than one political subdivision during the tax year and is subject to more than one Local Services Tax, the Act establishes priorities of liability. The situs of the tax is the place, or places of employment; therefore, no taxing district may levy this tax as though it were a kind of per capita tax. It is intended to be a tax on persons gainfully employed. Priorities for collection of the LST are as follows:

  1. The political subdivision in which a person maintains his principle office or where he is principally employed.
  2. The political subdivision in which a person resides and works if the political subdivision of residence imposes the tax.
  3. The political subdivision in which a person is employed, which imposes the tax, and which is nearest that person’s home.

If the combined rate of the LST exceeds $10.00, the place of employment is to be determined as of the day the taxpayer first becomes subject to the tax during each payroll period. If the combined rate of the LST is $10.00 or less, the place of employment is to be determined on the first day the taxpayer becomes subject to the tax during the calendar year.

The legislative intent as expressed in the law is that no person is to pay more than $52 (maximum is $156.00 in distressed areas) in any calendar year for LST regardless of the number of political subdivisions levying the tax where the person may be employed during a calendar year. A tax receipt showing prior payments must be accepted by all other political subdivisions.

Withholding

Taxing jurisdictions may require employers to withhold LST listed on the Register for Earned Income and Local Services Taxes maintained by the Department of Community and Economic Development.