Now that the city budget has been adopted and new tax-reform legislation has been passed by City Council and signed into law by Mayor Nutter, we can celebrate our collective achievements improving the city’s competitiveness and consider what more needs to be done to help the city attract and retain jobs and neighbors.
In 2003, the Tax Reform Commission reviewed the evidence that Philadelphia’s high and unfair taxes have contributed to the loss of a quarter of the city’s jobs and residents. The Commission saw that while other cities grew and the Greater Philadelphia Region grew, the city did not. After concluding that Philadelphia taxes are higher than competitor jurisdictions, Philadelphia taxes what other jurisdictions do not, and Philadelphia taxes unfairly; the Commission recommended dramatic reductions to the Wage Tax, phasing out the job-killing Business Privilege Tax, and making real estate taxation fair and understandable.
Click Here To View The Status Of The Tax Reform Commission's Recommendations
The Wage Tax will get its largest cut ever in July when the tax will fall below 4% for residents for the first time since 1976. Legislated cuts will then reduce it to 3.6% for residents and 3.25% for non-residents in 2013 while many surrounding jurisdictions are increasing their own taxes on wages and income. We are slowly making that mountain of a competitiveness gap into a molehill.
The newly enacted schedule to eliminate the Gross Receipts Portion of the job-killing Business Privilege Tax is remarkable improvement. The passing of this galling levy will be celebrated by entrepreneurs across the city.
While the first-ever cuts to the Net Income Portion are laudable, they are also modest, taking the tax down in increments to 6% in 2017. Given the fact that few local jurisdictions across the nation tax business profits, and none of Philadelphia’s neighboring jurisdictions has a tax on business profits, we obviously will have to continue these cuts for many years to attract and retain growing firms.
Finally, after enduring too much government inaction when it comes to Real Estate Tax fairness, Philadelphia Forward is poised to launch its lawsuit to compel the city to value properties fairly and accurately for tax purposes.
Since 2003, we have made remarkable progress toward implementing the recommendations of the Tax Reform Commission. Moving ahead, it is clear that we have partners in the Mayor’s Office as well as in the City Council Chambers to continue our progress. On the campaign trail, candidate Nutter offered these bold promises for tax reform:
- I will sustain the scheduled reductions in the Wage Tax to a rate of 3.25% for both residents and non-residents by 2015.
- I will establish a certain schedule for the gradual elimination of the Gross Receipts portion of the Business Privilege Tax over a five-to-seven year period and the gradual reduction of the Net Income portion of the BPT to the current rate of the Wage Tax.
- I will support a revenue-neutral move toward Full Value Assessment by the BRT for the purposes of the Real Property Tax matched by a proportional reduction in the millage rate by City Council.
- I will support a fair and accurate reassessment of property in the City to current market value with the provision that safeguards be in place (as proposed in my Better Housing Now Plan) that ensure no Philadelphian is forced to sell their home because of an increase in property taxes.
So, given our progress and the promise of more action from the city’s elected leadership, what more must we accomplish?
With regard to the Wage Tax, legislation is now in place to realize the goal of removing the fundamental barrier to growth represented by this dreaded levy. Now, we must carefully monitor our progress.
With regard to the job-killing Business Privilege Tax, the Tax Reform Commission recommended eliminating the tax, but if the Net Income portion of the tax will continue (at least for the foreseeable future), it is important to address some of the problems with the way the tax is imposed to allow firms to compete and grow in Philadelphia:
- Establish two estimated payment dates so taxpayers no longer have to assemble the cash to make their tax payment on one date.
- Base net-income liability solely on the percentage of a firm’s sales made in Philadelphia to remove the disincentive for firms with few Philadelphia sales to remain in the city.
- Grant unincorporated businesses a deduction for payments to partners and sole proprietors to eliminate the disparity that forces partnerships to pay a higher tax burden than their corporations.
- Lengthen the Business Privilege Tax net operating loss carryforward period from three years to ten years so that start-up firms are no longer discouraged from locating in Philadelphia.
With regard to real estate taxation, the city must complete a thorough and accurate reassessment of city properties so that the relationship between market value for tax purposes and true market values is uniform for all properties. The Tax Reform Commission drafted a plan to ensure that the city makes a smooth transition to a fair system; and offered measures protect vulnerable homeowners from rising Real Estate Tax bills:
- Phase in land-value taxation to decrease tax rates on structures and increase tax rates on land to encourage economic development and discourage speculation.
- Separate the property assessment and appeals process so the assessing agency does not judge its own work and establish a Taxpayers’ Advocate to represent taxpayers in real estate tax matters.
- Implement a property tax buffering program so that assessments are based on a rolling average to prevent spikes in Real Estate Tax bills.
- Have City Council sets tax rates after it knows the true assessed value of the city to replace the current system where Council sets tax rates before assessments are performed and increases in assessments result in increasing tax bills and fiscal windfalls for the city.
- Implement a quarterly payment plan so taxpayers who do not pay taxes through their mortgage companies do not have to assemble the cash to make their tax payment on one date.
- Create Real Estate Tax deferments so vulnerable homeowners can live in their homes today and pay their tax burden in the future when they sell their homes.
“Tax Reform Now!” is no longer a slogan in Philadelphia. It is a reality. But we cannot rest yet. Our hard-fought victories must still be complemented by additional, complementary improvements to overcome the barrier to growth still posed by Philadelphia taxes and to make Philadelphia a city that is a preferred place to live, work, and visit.