The chairman of the Dover Township Board of Supervisors recently asked if it's feasible to do away with the municipality's mercantile and business privilege tax.

The short answer is yes — but cutting businesses a break could cause a hike for other taxpayers, such as property owners, according to local tax expert.

Dover Township supervisors would have to create a new revenue stream if they want to kill its mercantile and business privilege tax, Dover Township manager Laurel Oswalt said.  Without it, there would be nearly $340,000 less in revenue collected next year.

A municipality that eliminates the tax could in the long have to increase property tax millage rates to fill that gap, according to K.C. McCleary, deputy director of the York Adams Tax Bureau. 

Local governments have used the mercantile and business privilege tax, which applies to any sale or service provided in the taxing district, for decades.

However, in 1988 the state enacted a law that froze the rates, McCleary said. 

Dover Township Supervisor Chairman Steve Stefanowicz recently asked Oswalt if it's feasible to eliminate the tax, which the township has been collecting since 1983.

The tax generated approximately $266,000 for Dover Township in 2011. More than five years later, as of August 2017, the township's mercantile and business privilege tax revenue is $332,800, according to Oswalt, and the township expects to collect $330,000 in 2018.

Changing township regulations and an improving local economy are reasons for the increase, Oswalt said. Those tax dollars are deposited into the township's general fund and pay for operational costs or general needs, she said.

New regulations: While supervisors aren't allowed to change the set levy rate from year to year, they can adopt new regulations on how to collect it, McCleary said. 

He suggested the state allow municipalities leverage to reopen their ordinances to either increase or decrease the tax rate. If a municipal body voted to remove the tax, it would have to wait for state lawmakers to change the law in order to be able to impose it again, McCleary added. 

According to the Pennsylvania Institute of Certified Public Accountants, the mercantile and business privilege tax collections make up about 5 percent of the total tax collected by the municipalities levying it.

And, the institute reports, "only about 10 percent of local Pennsylvania jurisdictions" have the tax.

York County municipalities collect an estimated $10 million to $12 million annually, McCleary said.  

The 11 York County municipalities that impose the tax, according to the York Adams Tax Bureau, are: Conewago, Dover, Manchester, Spring Garden, Springettsbury, West Manchester and York townships; Hanover, North York and West York boroughs; and York City.

Too many taxes: Tim Hockensmith, who owns T&C Custom, a custom motorcycle shop on Carlisle Road in West Manchester Township, said he’s hired an accountant to manage his finances. He said local taxes are too confusing.

“We pay enough in taxes,” Hockensmith said. “Why do I need to pay an additional tax that I don’t even know what it’s for?”

The money he pays in mercantile and business privilege tax, he said, would otherwise be spent on growing his business. York County municipalities that exercise the tax collect from 0.0001 percent up to 2.00 percent on gross receipts.

"I would expand or purchase more and better equipment," Hockensmith said. "I'd hire another person. We constantly get hit with these little extras."

The mercantile and business tax was initially created to help reduce burdens of school and municipal property taxes, but it was coupled with other local taxes, McCleary said.

In Springettsbury Township, which collects $1.9 million annually, the mercantile and business privilege tax is considered an “integral part of the revenue structure that supports municipal operations,” township manager Ben Marchant said. The tax was adopted there in 1961.  

"If this tax were to be done away, an alternative revenue source would be necessary to take its place in order to maintain the services that the municipality provides," Marchant said.  

Balancing the books: Nail Central owner David Bui, whose shop is in West Manchester Township, said he doesn’t mind paying the tax because it’s “about balancing the books” for local services.

"I'm coming from an area where there is always traffic, and taxes are through the roof," said Bui, who grew up in Philadelphia. "This is an area where you can breathe. You can begin and invest here. The opportunity is here because this area is just starting to develop."

Montgomery, Chester and Bucks counties in eastern Pennsylvania, as well as the city of Pittsburgh in the west, rely heavily on the mercantile and business privilege tax, McCleary explained. Municipalities in those areas collect close to $20 million every year, he said. 

“This is not a one-size-fits-all tax,” McCleary said. “It’s a complicated issue and a complicated tax to administer. It can be rather cumbersome to impose it.”

Editor's note: This story has been updated to correct an error. Municipalities cannot adopt new regulations that expand what is considered taxable under the Mercantile and Business Privilege Tax.

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