We’re all going to be hearing a lot in the coming months about Philly’s tax amnesty program, slated to run for 45 days beginning May 3. It will be the city’s first amnesty since 1986, and cost $12.6 million to promote and operate.
Councilwoman Joan Krajewski first explained the idea in a Daily News op-ed back in August. She told the story of a grandmother in her district who fell behind on property taxes and couldn’t afford to pay the principal plus all the interest and penalties she’s since accrued. Philadelphians, Krajewski wrote, need the relief.
Of course, the city also needs the money. The amnesty is expected to generate $25-30 million in revenue after costs, and right now, Philly is owed approximately $1.2 billion in back taxes.
Philly isn’t the first locale to turn to an amnesty in hopes of easing fiscal woes. Cities like Phoenix and Los Angeles and states like Arizona and New Jersey instituted effective tax amnesty programs in 2009. In her op-ed, Krajewski cited the success of New Jersey’s program, which brought in more than $700 million in two months. And in a letter to the Daily News, City Controller Alan Butkovitz endorsed the amnesty by arguing that other cities had benefited from similar programs.
It’s Our Money decided to look at the design of these other recent amnesties to see what we could learn about Philly’s. We found that Philly has, in some respects, modeled its amnesty similarly to other successful efforts. But we also noticed that, unlike some other locales, Philly’s amnesty doesn’t allow participants to use a payment plan. It’s the only amnesty of the ones we looked at that will forgive property tax debt. And a close look at the other amnesties raises questions about whether these amnesties are generally intended for grannies like the one Krajewski cites. Details after the jump...
The Details
Here’s how Philly’s amnesty will work: Individuals and businesses who owed taxes as of June 30, 2009 can pay back their principal (generally about 2/3 of a tax debt) and half the interest in a single lump sum. The remaining half of the interest and all penalties will be forgiven. Although Philly normally offers a payment plan to people who fall behind on taxes, such plans won’t be part of the amnesty program. The amnesty applies to most city taxes; the sales tax will be included under a similar state amnesty, being run from April 26-June 18.
Phoenix’s amnesty, which brought in 40 percent of back taxes owed, was similar in many ways to Philly’s. It began in the spring, on Tax Day, lasted for two months and forgave delinquents of all penalties and half of interest owed.
But Phoenix allowed participating businesses to set up a payment plan under the amnesty, (about 25 percent did so). And the amnesty was only open to businesses – the city of Phoenix doesn’t tax property or income.
Like Phoenix’s, Los Angeles’ amnesty was only for businesses, not individual taxpayers (L.A does tax property, but the tax is collected by the Controller. The Office of Finance, which collects most other taxes, ran the amnesty). And like Phoenix’s, it permitted participants to enter payment plans.
As for states that have recently enacted amnesties: Arizona’s program generated approximately $32 million in revenue, and New Jersey’s brought in $746 million. Neither permitted payment plans. Both were open to individuals and businesses alike, though property taxes were not included (both states collect property tax at the local level), and the majority of revenue in each case came from corporate tax delinquents.
In Arizona, close to 1,000 individuals paid off $1.9 million in state income tax debt, says Sean Laux of the Arizona Department of Revenue. But that was only 6 percent of the total revenue generated by the amnesty. In New Jersey, approximately half of the revenue came from corporate business taxes, and a quarter from sales and use taxes. Only 12 percent of the revenue, about $89 million, came from individuals who paid off gross income tax debts, says Tom Vincz, spokesman for the New Jersey Department of the Treasury.
The Take-away
The basic design of Philly’s amnesty is comparable to other successful amnesties. Some of those amnesties included a payment plan, while Philly’s does not, and none forgave property tax debts, while Philly’s does. All of those amnesties were utilized primarily (or exclusively) by businesses.
Philly’s delinquents include 44,395 business accounts that owe a combined $302 million in business privilege taxes and 156,728 property owners who owe a combined $384 million in real estate taxes.
It’s Our Money thought the question of who will be using Philly’s amnesty was an important one to explore, especially considering how the amnesty was initially introduced.
We asked Councilwoman Krajewski’s office to connect us with a constituent who intends to take advantage of the amnesty, but they’ve been unable to do so (interested taxpayers call the office every day, we’re told, but none are willing to speak to the press). We’ve also reached out to several organizations that provide legal and housing services to low-income Philadelphians, but they were largely unaware that an amnesty is approaching.
We’re curious to learn more about people who plan to participate in the amnesty – how they got into their tax situation, and how much the amnesty might help. If you’re considering participating, whether you’re an individual or a business owner, we’d like to hear your story. Give us a shout at linderk@phillynews.com, or at (215) 854-5307.
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The property tax amnesty doesn't "generate money" because owners have simply stopped paying their property taxes. Look at the PICA data on monthly property tax payment revenue for the city. Since amnesty rumors even started, the revenue is down. Amnesty is used for hard to collect taxes like business taxes, where business can hide assets in bankruptcy proceedings. But in property taxes there is a simple, universal system of collection, only varying according to the degree to which municipalities tamper with it. The lien is placed against the property, and the property is foreclosed upon if the lien is not paid. The owner has the right to pay it as they see fit, refi, reverse mortgage, borrowing, but the option can't be to simply not pay for cheap votes, as City Council has allowed now for years. Why can't this grandmother get a reverse mortgage, for example? Does the press even know what that is? It is not going to generate revenue for the city to stall out and zero out payments, fees, and fines. It further subverts collections at the worst possible time. We have to be objective here. Grandma can pay her taxes with a lot of different options, and in reality, the average property tax debtor in Philly is not grandma. This is a bankrupt move for cheap votes by an inept City Council.— CleanupPhilly- There is a lot of blight that is empty houses, and vacant lots, and this property owes property taxes, and it can be sold at sheriff sale tomorrow. That is how to collect. Amnesty just keeps bad owners holding this property who will not pay, but just exploit the city's ineptitude. The city has to allow foreclosure of property tax debt again. There are properties in my neighborhood owned by people out of state who just don't pay their property taxes at all, and nothing ever happens. Those houses run down, never turn over, no one takes care of them, because the owners assume their going to be foreclosed upon. The city slows the economy of new in fill development by slowing property tax sheriff sales. The city needs this living tax base of people who pay without being taken to court at regular intervals at city expense to go into a payment plan. There's no way to "save" bad owners who don't pay. They couldn't afford these houses years ago. They can't suddenly afford them now. People have inherited properties that they could never afford to take care of, and the city tries to pretend this is working. It's not. It causes bad schools, bad city services, and shrinks the effective tax base. What will the press choose? Bad schools and high property tax delinquency? Or will we collect this money, pay down our debt service, and jump start the economy with an infusion of new infill development? Equality means equal -- everyone has to pay their fair share, equally, or rent.— CleanupPhilly
- The state obviously needs to take over all the revenue functions in the city. Property tax collection should be a state function, and that way local pols won't be able to subvert it for votes in a process that is unfair, and illegal. It's illegal to have such unequal enforcement. Every state taxpayer has to pay more to make up for Philly's lax enforcement. It is illegal to have some pay in full and on time, and some who are allowed for no specific reason to arbitrarily be allowed to not pay. This screams "sue me and take us over like you did the PPA."— CleanupPhilly
- The amnesty program is ridiculous if the City doesn't do hardcore enforcement and collection after the amnesty period ends.— HIG
- Lesson learned: There are some who likely do have legit financial hardships but playing by the rules and paying taxes is for suckers. Really one of the most adequately unreported issues in the US is how much income is shielded (illegally and legally through loopholes) and taxes avoided in the process.— MG77
- 1) tell granny to get a reverse mortgage 2) Phoenix - no property or income tax - we should all move there 3) no more breaks for people...we all pay - so should they— gogglespaisano
- Do us that pay in full and on time get any break, credit or relief? How about a police package on our cars-the same one the city controller has?— phillytwo
- This article leaves several unanswered questions: 1. Do cities that have amnesties see a dip in tax compliance after the amnesty? In other words, do people think, "Hey, if they had one amnesty, they'll probably have more. So I don't need to be too serious about this taxes thing"? 2. What evidence do we have that the city's records of taxes due are correct? News about the BRT, tax assessment policies, and general financial recordkeeping and projections by the city is not reassuring. Why should we believe that the city's projections are accurate, even if they do? 3. Who owes this money? You can't get blod from a stone. If these back taxes are mostly owed by shell companies that can never be tracked down, or by the poor, out-of-state grandkids of some elderly person who died 15 years ago, I'm dubious they're going to get collected.
- CleanUpPhilly: I'm serious when I say this: Why hasn't the Inquirer or Daily News contacted you about writing a blog or a column? Even when I disagree with you, your insights are more intelligent than 90% of the bilge that gets into the newsstand copies of these papers. (The other posters above aren't bad, either.)— J H
- I agree with J H - CleanUp - you either need to run for office or run a column in the inquirer - I'd pay just to see you go after the BRT, PPA, PGW, etc, etc, As for amnesty - it is just admitting how the system is run - if you pay your taxes, thanks, but otherwise don't bother, call your council member, and see what they can do. Perhaps 50% off the interest isn't as good as what the councilman can do ... hmmm for a cut.— BigBenFranklin
- Can't hire Cleanup - he'd make the rest of the 'writers' here look bad when they serve up a mild rehash of the policy statements given them by Council.— citylumberjack
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