Business taxes coming into play this budget cycle?

There has been plenty of talk about the trash fee, property tax hikes and the levy on sugar sweetened drinks, but City Council is also quietly considering a massive overhaul of the city's business privilege tax

The odds are the job is too big and complex to get it done this budget cycle, given that council must deliver Mayor Nutter a balanced budget by the end of May. But there is an outside chance that the overhaul - which would eliminate the net income portion of the business privilege tax while sharply increasing the gross receipts portion of the tax - could become part of council's solution to the city's $150 million deficit.

The net income tax puts a levy on business profits. The gross receipts portion taxes businesses on their total sales.

First-term council members Maria Quinones Sanchez and Bill Green have been researching the restructuring for over a year, but so far there have been no public hearings and limited public debate over the still nascent proposal. Sanchez says the goal is to get big corporations that do business in Philadelphia but are not based here to pay more, while lowering the tax burden for small businesses that are headquartered in the city. National retailers would be hurt, but local firms - particularly service oriented industries like software developers, consultants and attorneys - would be winners.

Sanchez says the restructuring would prevent the city from missing out on $40 million over five years, beginning in 2014 when delayed business tax cuts are slated to resume.

"Those reductions will take $40 million of the table in gross receipts just from companies that are not based in Philadelphia, and who are not going to stop doing business in Philadelphia if we make these changes," Sanchez said. 

It's a huge transformation, and it is not at all clear that council will have the time to vet the idea thoroughly and get ample public input on the proposal before it passes a budget. Nor is it clear if the shift would occur all at once, or be phased in over time.

But Sanchez says council is at least interested in exploring the idea further.

"The other options are two very regressive taxes," Sanchez said, referring to the trash fee and soda tax. "If my council colleagues are comfortable passing something that may not be perfect, that we can fix in time, this may be part of the answer."

The restructuring would be sure to face significant opposition from elements of the business community, and indeed, the plan flies in the face of conventional tax reform wisdom in Philadelphia, which has long held that it is the gross receipts portion of the BPT that is most damaging to job creation.

Sanchez and Green think that conventional wisdom is wrong.

It remains to be seen if they will have enough time to convince their colleagues of that, not to mention Mayor Nutter who has long been a foe of the gross receipts portion of the BPT.

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