• When will Act 7 of 2007 take effect?
• Why was the name of the tax changed from the emergency and municipal services tax to the local services tax?
• Does Act 7 define ‘income from all sources” for purposes of the low-income exemption?
• Do we need to amend our emergency and municipal services tax ordinance? If so, by when?
• What if a municipality wants to enact a new local services tax or increase its existing tax?

• Is it necessary to notify any state agency if a municipality plans to adopt the local services tax?
• If a municipality does not notify DCED that it has adopted the tax, can an employer be penalized for not withholding this tax?
• Are there any restrictions on the use of the revenue from the local services tax?
• Must a municipality do anything else to comply with Act 7?

When will Act 7 of 2007 take effect?
January 1, 2008. Municipalities should be planning and budgeting for the changes in the tax now to be ready in time.

Why was the name of the tax changed from the emergency and municipal services tax to the local services tax?
Because some people assumed the tax would be used to fund emergency medical services providers, voluntary donations to these providers declined after the tax was first enacted. The name change is intended to address this problem.

Does Act 7 define ‘income from all sources” for purposes of the low-income exemption?
Yes. The act defines “income from all sources” as the total earnings and net profits from all sources within the municipality for the calendar year in which the local services tax is levied.

Do we need to amend our emergency and municipal services tax ordinance? If so, by when?
Even though the rate will not be changed, all municipalities that have enacted a new or increased emergency and municipal services tax since December 1, 2004, and where the combined rate exceeds $10, should re-enact their existing ordinance to reflect the new local services tax provisions by December 31, 2007. Municipalities that adopted the former occupational privilege tax of $10 or less before December 1, 2004, and have not changed the tax rate and do not plan to change it now do not need to take any action.

What if a municipality wants to enact a new local services tax or increase its existing tax?
If a municipality wants to levy a new local services tax, it must enact an ordinance by November 30, 2007, to be effective by January 1, 2008. If a municipality wants to change the rate, it should also adopt a new ordinance by November 30, 2007, and notify DCED of the change by December 1, 2007.

Is it necessary to notify any state agency if a municipality plans to adopt the local services tax?
Yes. The municipality must notify DCED of any new increased local services tax by December 1, 2007, for this change to be recorded in DCED’s Official Register. The Official Register will be released on December 15 for taxes which must be withheld on and after January 1 of each year and on June 15 for taxes which must be withheld on and after July 1.

If a municipality does not notify DCED that it has adopted the tax, can an employer be penalized for not withholding this tax?
No. Municipalities can only require employers to withhold the local services tax if they have notified the department that they are levying the tax so that DCED can list the information in the Register for Earned Income and Local Services Taxes (Official Register). However, employers may voluntarily withhold an unlisted local services tax.

Are there any restrictions on the use of the revenue from the local services tax?
Yes. Act 7 requires municipalities to use at least 25 percent of the tax revenue for emergency services, including police, fire and ambulance protection. The remainder may be use for road construction or maintenance, property tax reduction, or property tax relief through the implementation of a homestead or farmstead exemption.

Must a municipality do anything else to comply with Act 7?
Yes. Municipalities levying a local services tax must adopt regulations consistent with the Local Taxpayer Bill of Rights and Act 7 for the processing of refund claims for anyone who overpaid the tax. A municipality is only required to refund an overpayment of $1 or more, and refunds are not subject to interest if made within 75 days of either a refund request or January 30 of the year the tax is paid, whichever is later.