Governor Rendell: Lower Sales Tax Rate Will Help Boost Auto Sales and Close Future State Budget Gap

Reducing Sales Tax to 4 Percent, Ending Most Exemptions Enhance Fairness

EAST NORRITON, Pa., Feb. 27 /PRNewswire-USNewswire/ -- Cutting the state sales tax will help boost auto sales and help close future state budget gaps, Governor Edward G. Rendell today told members of the Automobile Dealers Association of Greater Philadelphia.

"My proposal lowers our sales tax rate by a third, increases the fairness of our business and sales tax systems and helps our state avoid the financial crisis that we know is only 18 months away," Governor Rendell said. "We will eliminate special interest exemptions on items except necessities like food, clothing and medications, and increase fairness because every item not subject to the sales tax makes the tax on everything else far too high."

Under the Governor's proposal, the sales tax rate in Philadelphia will be reduced to 5.3 percent, from 8 percent; and to 4 percent, from 6 percent in the suburbs and remainder of the state, except Allegheny County where the new rate will be 4.7 percent.

Revenue generated by the sales tax change will be put into a Stimulus Transition Reserve Fund that could not be touched until July 2011 – after Governor Rendell's term of office has ended - to help cover the estimated $2.3 billion budget gap that will result from the end of federal Recovery funding.

"A year from now, when more than $2 billion in Recovery Act funds are gone, I will no longer be Governor, but I can see it coming and I know if we take action today, we can avoid a budget crisis then. Taking the long view will save legislators from enacting huge tax increases that will be inevitable in the coming years.

"Elected officials and pundits who suggest further budget cuts to make up for the ending of federal aid would be jeopardizing the kinds of state investments that made community revitalization possible," Governor Rendell said, noting that residents would save nearly $500 in taxes on the average new car purchased in the suburbs and nearly $650 in Philadelphia.

"If we want our state to continue to invest in our cities, great communities, and industries, we need to take the bull by the horns and get in front of this crisis."

When Pennsylvania's sales tax was adopted in 1953, the levy applied to nearly all tangible goods. Since that time, 74 categories of goods and services have been exempted through frequent amendments pushed through the General Assembly by special interests.

"For the average Pennsylvania family, the elimination of sales tax loopholes does not impact them one way or the other. But for auto dealers, retailers and related businesses, a lower sales tax rate will give them a stronger competitive edge," Governor Rendell said. "And businesses that have gotten a pass on sales taxes will now have to pay their fair share."

Reducing the sales tax will mean Pennsylvania's sales tax rate will be lower than the rates of Maryland, Ohio and West Virginia.

In addition to exempting food, clothing, and prescription medications, the Governor's proposal would leave in place the original exemptions for manufacturers that cover processing, agriculture, and machinery and equipment.

For more information, visit www.pa.gov.

Media contact: Gary Tuma; 717-783-1116

SOURCE Pennsylvania Office of the Governor