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May 20, 1960

The Municipal Income Tax

The development of the municipal income tax is, for the most part, a post World War II phenomenon. In 1940, Philadelphia enacted a local income tax and with it developed the initial local income tax pattern which has served as a model for other municipalities adopting the tax. Seven of the 41 large cities (Washington, D.C. excluded) with 1950 populations over 250,000 (Philadelphia, Pittsburgh, St. Louis, Cincinnati, Columbus, Toledo, and Louisville), currently use this revenue source. Philadelphia is the only city exceeding one million population that imposes the levy. Population aside, the number of municipalities levying the tax exceeds 440.

The tax itself assumes a variety of forms and many variations of legal and popular names are used to describe it; for example, earnings tax, payroll tax, wage tax, earned income tax, wage and income tax, occupational license tax, gross license tax, income and net profits tax, and income tax. Taxation experts generally agree, however, that its general characteristics would be best described were it titled a “gross earnings and net profits” tax.

The tax is most commonly a low flat-rate tax on the earned income of individuals and the net profits of businesses and professions. An employer withholding system is almost always used as a collection device. Inter-jurisdictional tax crediting or reciprocity arrangements have been developed and are commonly used to cope with potential problems of double taxation. The experience of other large cities indicates that the tax can be economically and effectively administered and is a productive source of revenue.

May 20, 1960

The Municipal Income Tax

The development of the municipal income tax is, for the most part, a post World War II phenomenon. In 1940, Philadelphia enacted a local income tax and with it developed the initial local income tax pattern which has served as a model for other municipalities adopting the tax. Seven of the 41 large cities (Washington, D.C. excluded) with 1950 populations over 250,000 (Philadelphia, Pittsburgh, St. Louis, Cincinnati, Columbus, Toledo, and Louisville), currently use this revenue source. Philadelphia is the only city exceeding one million population that imposes the levy. Population aside, the number of municipalities levying the tax exceeds 440.

The tax itself assumes a variety of forms and many variations of legal and popular names are used to describe it; for example, earnings tax, payroll tax, wage tax, earned income tax, wage and income tax, occupational license tax, gross license tax, income and net profits tax, and income tax. Taxation experts generally agree, however, that its general characteristics would be best described were it titled a “gross earnings and net profits” tax.

The tax is most commonly a low flat-rate tax on the earned income of individuals and the net profits of businesses and professions. An employer withholding system is almost always used as a collection device. Inter-jurisdictional tax crediting or reciprocity arrangements have been developed and are commonly used to cope with potential problems of double taxation. The experience of other large cities indicates that the tax can be economically and effectively administered and is a productive source of revenue.


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