Big changes coming to business taxes in Philadelphia

The Finance Committee of City Council approved a bill that would ultimately restructure business taxes in Philadelphia, serving as significant encouragement for companies to locate in the city.

PBJ explored the issue of businesses choosing to locate in the suburbs as a means of avoiding the high taxes in Philadelphia, finding that many companies felt the city was not business friendly.

Presented by Councilman Bill Green, the bill would alleviate the often burdensome business tax requirements in Philadelphia. Approved 6-2 after testimonies lasting four hours, the bill would switch the Business Income and Receipts Tax (BIRT) from a combination of net income (6.45 percent) and gross receipts (.001415 percent) to a gross receipts-only tax structure over a five-year period.

“It’s past time for Philadelphia to take the big steps necessary to really change the way this City is perceived as a business location,” Committee Chairman Bill Green said. “Eliminating the net income portion of BIRT is a critical first step, but laying out a long-term, coherent tax policy will give businesses the tax certainty they look for when deciding to open, relocate or grow.”

Councilmen Green’s office conducted a study which found that a hypothetical manufacturing company based in Philadelphia would pay 23 times more than its suburban competition under the current structure. Data provided by the Greater Philadelphia Hotel Association shows that hotels based in Philadelphia pay seven times more than non-local competitors.

“This is the sweet spot for recruiting businesses in Philadelphia,” Councilman Bobby Henon said. “We have a very high rate taxing a relatively small number of businesses, which winds up encouraging them to move to avoid paying the tax because their suburban competition doesn’t face the same tax burden.”

In 2012, the net income portion of BIRT accounted for roughly 75 percent of the City’s $388 million in business tax revenue. Before the recession that figure was $438 million in 2007, but it's an improvement from the 2010 low of $356 million. Switching to the gross receipts system should provide stability and more predictable revenue for the city.

The bill also provides tax credits for fresh food retailers and a small reduction in the City’s parking tax rate. The next round is expected on Thursday, with the legislation going before the full Council. Final passage could be expected as soon as the first session of the new year on January 23.

Source: Philadelphia Business Journal