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...
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 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 firstname.lastname@example.org, or at (215) 854-5307.