When Philadelphians think about why their city is ruined with a high degree of poverty, frequent public safety crises and city services often with a lack of city, business income and admission taxes may not be better for many.
But to hear some people inside and around the city hall, reforming or eliminating the Unique Business Tax of Philadelphia, known as Birt, may be the key to revitalizing the city.
This hypothesis will be strongly debated this spring, thanks to a report issued by the Philadelphia Tax Reform Commission on Tuesday, convened by City Council President Kenyatta Johnson, seeking the elimination of the tax over the next eight years.
»Read more: No tax on businesses? The Tax Reform Commission in Philadelphia is seeking a major change
Commission-a pro-business group with appointed by Mayor Chereelle L. Parker, Council, City Controller Christy Brady, and local trade chambers-pretensions that getting rid of BIRT is needed to provide relief for large and small businesses, increase fuel work and Philadelphia’s economic potential. Opponents of tax cuts, especially progressions and municipal trade unions, have already begun to oppose that the city should focus on increasing its income to improve services and protect local tax cash from possible cuts of federal funds under President Donald Trump.
Love it or hate it, Birt will be a major issue of debate as Parker and the Council negotiate the future budget of the city, which comes into force July 1. Here’s what you need to know about Philly’s business tax.
Who pays Birt?
Businesses that make $ 100,000 or more in one year from transactions within the city pay the tax.
In a study published last year, Pew Charity Trusts found that about a quarter of city businesses meet that threshold. The study analyzed Birt returns from 2017 to 2021 and found that on average 35,500 firms paid the tax per year during that time.
The average tax bill for businesses undergoing BIRT was $ 1,315 during the study period.
How much income brings Birt?
BIRT is projected to bring $ 617 million to the city budget of $ 6.7 billion, according to the latest quarterly city manager report.
Business tax is the third largest source of city tax revenue after pay tax, which brings $ 2.6 billion, and the property tax, which is expected to produce $ 930 million for the city this year.
Why do people call it a ‘double tax’?
Birt is often criticized as a “double tax” because there are two ingredients and many businesses have to pay both.
First, companies have to pay 0.1415% of the value of their gross receipts, or sales, even if they did not earn that year. Companies that have a profit, or net income, must also pay 5.81% of their profits.
This makes Philadelphia very unusual. Many cities have no business tax, and almost all those who have only one form of taxation.
“Philadelphia is one distant one, and everyone knows it because it has two ingredients,” said Jonathan Liss, a former official of the city’s income department who now teaches at Drexel University and Villanova University.
Over the past decade, city politicians have worked to continuously reduce the net income of BIRT – from 6.5% in 2007 to 5.81% now – while leaving the level of gross receipt taxes since 2008.
The commission seems to have similar advantages because it recommended that lawmakers first eliminate the net profit tax, then work to reduce the salary tax, and finally surround again to reduce and eliminate the gross acceptance part.
How did Birt started?
The origin of the current version of Philadelphia’s business tax stands in the early 1980s, when President William J. Green III was trying to get the Philly’s fiscal home in order to follow a spightion of expenses led by his predecessor, his leader Frank L. Rizzo.
Green initially raised some taxes to balance the books, but received a reaction from the business community. So he asked his critics to come up with a better plan and formed the Business Tax Committee, which included the Chamber of Commerce and other business groups.
To that point, Philly can only tax gross corporate bills due to a state law banning the city from copying state taxes, including a state tax on net income. But the city’s leaders persuaded Harrisburg to give them the green light to tax both gross and net income, leading to the creation of the Birt tax in 1985, at the beginning of President W. Wilson Good Sr.’s Administration.
The Business Tax Committee looked at the net income tax as a better policy than the gross receipt tax because it applied only to businesses that returned a profit and could afford to pay it. The committee expected the city hall to come out of the gross admissions, according to a 2003 report with an early repetition of the Tax Reform Commission. But that has never happened, and Philly has had a double tax on businesses since then.
How do you want the Tax Reform Commission to eliminate Birt?
To follow the recommendations of the Tax Reform Commission, council members and Parker will have to agree on a series of steep annual abbreviations at the net income rate. The commission proposed three possible hours to lower the rates over the next five years.
The less aggressive option, which would last longer to eliminate the tax and reduce the rate from 5.81% to 4.96% to five years, would reduce Birt revenue by $ 417 million during that time.
More aggressive would completely eliminate the net profits in five years, and would cost the city nearly $ 1.4 billion lost income during the period when the tax is DRUDA -Plus plus at least $ 464 million a year after that.