Tax Collectors Must be Adequately Compensated - School Board Powers are Limited

by McNees Wallace & Nurick LLC
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[author: James L. Fritz]

Local school districts seeking to starve-out local tax collectors in favor of a centralized collection system have been rebuffed by the Pennsylvania Supreme Court and told that fundamental changes to the local tax collection system must be made by the State Legislature.  Telly, et al. v. Pennridge School District, et al., Nos. 68, 69 MAP 2011, August 20, 2012.

Two school districts reduced tax collector compensation by 69% and 79% respectively.  The tax collectors appealed, asserting that they could not provide statutorily-mandated services at the new pay levels.  One tax collector testified that she collected $25 million of taxes on 5,500 tax bills in prior year and was compensated $12,876.  The new pay level would have been $3,860.  The tax collector testified that her costs exceeded that amount.  Others testified to similar effect.

The school districts presented testimony that their taxes could be collected more cost effectively through a bank lockbox system or a commercial tax collection agency.

The Bucks County Court of Common Pleas ruled in favor of the tax collectors, finding that although boards of school directors are authorized to set tax collector compensation, the amount fixed must be reasonable.  The court noted that school districts have only the powers provided by state statute and that the Legislature would not have intended for school districts to use their power to set tax collector compensation as a means to eliminate the tax collector system which was, itself, established by action of the Legislature.

The Commonwealth Court reversed, holding that the school boards had acted within the broad discretion afforded by the statutory delegation of authority to set tax collector compensation.

The Pennsylvania Supreme Court overruled the Commonwealth Court, providing an ultimate resolution favorable to the tax collectors.  The Court, like the original trial court, noted that Pennsylvania’s local school boards have no inherent governmental powers and may only take such actions as are authorized by the Pennsylvania Constitution or are explicitly or impliedly authorized by statutes enacted by the General Assembly.  The Court ruled that the actions of the school boards in this case exceeded their authority because “the compensation rates were so low as to deprive the Tax Collectors of the ability to perform the duties of their elected positions ….”

While this case relates, in the first instance, to a question that only indirectly impacts Pennsylvania taxpayers, it does demonstrate that tax-related statutes cannot be interpreted solely on the basis of their language.  Rather, the proper application of tax laws often requires an understanding of the fundamental relationships between the branches and agencies of state and local governments, and a balancing of various related considerations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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