NEW AMENDMENT TO TAX COLLECTION LAW -AN ADDED LAYER OF PROTECTION AGAINST FRAUD FOR MUNICIPALITIES AND TAXPAYERS

On October 30, 2017 Governor Wolf signed into law Act 38, Rep. Ryan Mackenzie’s legislation designed to reform the local tax collection system.  This new law specifically prohibits checks that are collected by a tax collector from being made payable in the name of an individual.

Prior to the new law, tax collection rules did not specify how taxes were to be paid, leaving it to individual tax collectors to determine how checks were made payable and to what account the tax money was to be deposited. This means a tax collector could have a taxpayer write a check in only the tax collector’s name and then deposit it into his or her personal bank account.  Unfortunately for some taxing bodies, a minority of tax collectors took advantage of this loop-hole in state law and deposited tax payments into their own personal accounts.   The total amount referenced by Rep. Mackenzie in support of his legislation was in excess of $1.8 million dollars.

To address any ambiguity, Act 38 prohibits checks being made payable in the tax collector’s name only.  Checks are to be made payable in the name of the tax collector as well as stating the office, title or position; or simply designating only the office, title or position of the tax collector, and must then be deposited into a separate bank account used only for tax moneys.

Act 38 also amends the required notice of taxes.  The notice will direct the taxpayer as to whom the payment must be made, including reference to the bank account established for collection.

Act 38 becomes effective on January 1, 2018 and tax collectors are given 60 days to open accounts and transfer money that has been previously collected into accounts for purposes of tax collection only.

School districts and municipalities must work with their local tax collectors to ensure implementation of these account safeguards and required notice provisions.  If a tax collector is currently administering an account that meets the criteria of Act 38, no change to the collection process is necessary.  All required changes must be implemented no later than Friday, March 2, 2018.

If you have any questions as to any of the provisions outlined above, please contact one the attorneys of the Education Law team of MB&M.