Friday, October 31, 2014
Inquirer Daily News

Philly tax wars: Will U&O hike shave AVI cut?

A "suspiciously" familiar number evaporates savings under Philly's new system

Philly tax wars: Will U&O hike shave AVI cut?

UPDATE: Justin DiBerardinis, aide to Philadelphia City Councilwoman Maria Quinonez-Sanchez and veteran of the Business Privilege Tax reforms, says his office has been reviewing city Use & Occupancy taxes and comparing the recent increase to the city's Actual Value Initiative reappraisals. He finds:

"The AVI windfall for Commercial and Industrial property owners (the types of property that pay U&O) is currently looking to be about 90 million dollars," even as "thousands of small neighborhood based commercial properties... are in line for big increases.

"In other words, big commercial properties are getting even a bigger break than that $90 million figure indicates.

"U&O brings in a TOTAL of 107 million dollars. thus a 20% increase can hardly be described as 'a wash'," from the city treasury's perspective, compared to the AVI changes. "For some payers it might be a wash, but in the aggregate, there is still a huge break for big commercial interests.

"As it stands now, the smaller neighborhood commercial properties who are about to take it on the chin with AVI will get double slammed on their U&O bills.

"In any event, we are drafting legislation to address this..."

EARLIER: William P. (Bill) Kilrain over at Tactix Real Estate Advisors read with interest last week's item in which busy CBRE broker Robert Fahey, after checking the newly-posted values for downtown office properties reassessed under Mayor Nutter's Actual Value Initiative (AVI), estimated Philadelphia's downtown office landlords are seeing their real estate tax assessments cut an average 20% thanks to the decline in office values in recent years.

20%, really? That's a "suspiciously" familiar number, Kilrain thought. "City Council raised the Business Use and Occupancy (U&O) tax last summer by how much? You got it: 20%," he told me.

"How prescient of them, no?"

That would mean the AVI reassessment, for those favored Center City landlords who are watching their assessments go down... is actually just a wash, once you figure in the U&O hike, right?

Right, at least in Center City, says Kilrain -- but it's worse in the outside neighborhoods, "who not only will pay the increased U&O tax," but will likely have to pay the increased real estate tax afflicting rising city neighborhoods under the new AVI.

Net: "the city actually stands to profit" from higher tax collections, as AVI critics had warned.

Is U&O tax really that high, compared to the real estate tax? They are surprisingly close for many properties, Kilrain affirmed. "I wouldn't call it a scientific study; I just used a few deals I'm familiar with." But, bottom line: Add the U&O hike before you subtract the AVI cut, and owners "may not experience a noticeable savings."

I checked back with Fahey, who says Kilrain is right in general, though actual numbers are still "conjecture" until the city sets new tax rates to go along with the new assessment.

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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