Business Leaders, Mayor Clash Over Taxes in Philadelphia
BY Melanie Brooks
Mayor John Street is expected to block reform of the city's business-privilege tax, which critics say unfairly targets small businesses.
Jan. 18, 2006--Despite protest from local businesses, Philadelphia Mayor John Street has pledged to veto new legislation designed to reform the city's business-privilege tax, which would be his fourth such veto in two years.
Citing budgetary concerns, Street has vowed to veto the bill on Jan. 24. It was introduced by Councilman Michael Nutter, and passed on Dec. 22 by a vote of 9 to 6. The City Council needs 12 votes to override a veto.
Critics complain that Philadelphia is the only big city in America that has a business privilege tax, which taxes gross receipts and net income. They oppose the tax because it is calculated on total sales -- regardless of whether a company posts a profit or loss -- making it especially difficult for new and growing businesses that operate with thin margins.
"Unless you are a news business that is going to make money real soon, you're going to be in trouble," said Brett Mandel, who runs Philadelphia Forward, an advocacy group that focuses on policy and tax reform. Mandel describes the business-privilege tax as a job-killing tax that has contributed to the loss of more than 250,000 jobs over the past three decades.
Mandel was part of Philadelphia's Tax Reform Commission that was created by local voters in 2002 to draft a tax reform plan. The commission spent almost a year and $500,000 in taxpayer funding to come up with recommendations to reduce the and ultimately eliminate the 6.5% business-privilege tax rate by 2015. The commission also suggested two payment dates for the tax, to ease the burden of the current once-yearly payment.
As part of an ongoing campaign, Philadelphia Forward has posted a link on its website, that allows residents to e-mail Street's BlackBerry, with a slogan that reads, "Put Your Views In The Palm Of His Hand And Tell Him To Sign The Tax Reform Bill!"
"I have thought about moving out of the area," said Cassandra Hayes, owner of Bodacious Gift Promotions, located in West Philadelphia. Hayes complains that the sheer amount of paperwork that comes with the business-privilege tax costs her money and keeps her from spending extra money on software and new telephones.
The business-privilege tax "puts the burdens of city operations on small businesses," said Hayes.
In a survey conducted during the last week of November, the Greater Philadelphia Chamber of Commerce found that 80% of Philadelphia residents would like Street to sign the new bill to reform the business-privilege tax; 66% said they believe tax cuts would keep businesses in the city while bringing new businesses into the area.
Though Street has promised to veto the new business-privilege tax reform bill, he has said he is not opposed to tax reform in general. This past November, Street announced a new "conditional forgiveness policy" for paying property taxes that will remain in effect until May 2006.
"This is very much in the same spirit as a tax amnesty program and, hopefully, will yield millions of new revenue dollars for the city," Richard Barnes, communications manager for the Greater Philadelphia Chamber of Commerce, said in a Nov. 17 meeting.
Robert Inman, a finance professor at the Wharton School, which is based in Philadelphia, said that Street will not sign the most recent tax legislation because it does not support his constituency in the older and predominantly black neighborhoods of North and West Philadelphia.
"The Mayor is doing a balancing act," Inman said, explaining that the business-tax cuts would primarily benefit the middle-income class of the city, while lower class workers, who make up only about one-eighth of business owners in Philadelphia, would lose funding in their neighborhoods.
Despite the mayor's stance, Mandel said his group will continue to push for reform. "We're not going away," he said. "The only things that are going away are businesses and jobs."