Today, we posted an IOM editorial that lays out some of the big questions about the upcoming debate on tax reform. The editorial, which praises Councilman Green and Councilwoman Sanchez for challenging the conventional wisdom on taxes, does repeat one piece of orthodoxy:
Unprofitable business are still on the hook to the city. The city has attempted over the last few years to correct this outrage by gradually eliminating the receipts part of the tax, and reducing the net income (profits) portion.
We're not usually in the business of disagreeing with ... ourselves. But we've been thinking about this, and we're wondering if it's really an “outrage” that unprofitable businesses have to pay city taxes. This is one of the biggest arguments for continuing on the current path of eliminating the gross receipts portion of the Business Privilege Tax (since you pay taxes on gross receipts whether you earn or lose money), and it's certainly an argument that connects with people on an emotional level, since it seems unfair to tax businesses that aren't profitable.
But this logic falls apart if we assume that the main point of taxes is to pay for services provided by city government. Unprofitable businesses rely on city services just as much as profitable ones. That means they should pay their fair share in taxes, regardless of whether a company is making money.
For example, restaurants located in Philadelphia are required to follow a number of health and safety regulations. To ensure compliance, the Health Department sends out inspectors. That costs city taxpayers money. The same is true of L&I. Its inspections keep Philadelphians safe, regardless of profitability of the business involved.
Unprofitable companies also rely on the most basic services from government. If an unprofitable business is robbed, the police will still investigate the crime. The same thing can be said about the Fire Department. Shouldn't all businesses pay for this kind of protection? City residents and property owners are expected to pay part of the bill.
Look, we understand the emotional appeal of the argument that a business shouldn't pay taxes if it's losing money. But we don't think that way about any other types of taxes. People are required to pay property taxes, even if their home has lost value. We all pay the same amount of sales tax, regardless of our financial situation. And, while only people with jobs pay the wage tax, the payment is made regardless of other factors like debt or assets. Why should businesses be different?
For more on the BPT -- especially if you don't get what all this talk is about -- check out the Committee of Seventy's In the Know on the issue.