The problem with big companies' business taxes in Phila.

Yesterday, It’s Our Money recommended that Occupy Philly make official demands for change — and not just from the feds, but from city and state officials, too.

One thing we think they should demand is business-tax reform. We stated, “Under the current system, big companies like Home Depot and Wal-Mart pay no business-privilege taxes on their profits, because they're based outside of Philadelphia, and the tax applies only to profits earned by companies headquartered here.”

The more we looked at it, we more we realized that wasn’t exactly right.

It’s more like this: Under the current system, big companies like Home Deport and Wal-Mart can pay little or no business-privilege taxes on their profits — by recording their profits in other places, where business taxes are lower. They are technically required to pay a business-privilege tax on profits earned in Philadelphia whether or not they’re based here.

Economist Mark Zandi put it this way in the Inquirer last year:

“It is much easier for companies to avoid paying taxes on profits than on sales. Some businesses set up shop in Delaware, where taxes are low, booking profits there while selling their products and services in the city. Moreover, profits are harder to accurately measure and easier to manipulate than are sales. Anything that simplifies the tax code is likely, therefore, to produce greater compliance and more tax revenue.”

Councilman Bill Green and Councilwoman Maria Quiñones-Sanchez introduced a bill last year to reform the business-privilege tax. Council members are expected to take up the issue again this year.

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