Both sides air arguments at Council hearing on biz taxes

An eight-hour hearing yesterday on radical business-tax legislation proposed by two freshman City Council members featured passionate testimony from the bill's "winners" and "losers."

What's not yet clear is whether Council members Bill Green and Maria Quinones-Sanchez will emerge as winners. The committee hearing on their ambitious proposal was to continue today, with a vote expected this afternoon.

Green and Quinones-Sanchez want to shift the business-tax burden from the net-income tax, which taxes profits, to the gross-receipts tax, which taxes sales. They argue that the legislation - which would exempt the first $100,000 in sales - would benefit Philadelphia-based companies and small businesses.

The Nutter administration has attacked the proposal, saying that it would harm certain job-creating businesses, like construction and hotels. For 14 years, the city has been reducing the gross-receipts tax on the long-held principle that it's unfair to tax businesses that don't make a profit.

Yesterday's testimony seemed to bear out both sides' arguments, with small-business advocates and manufacturing firms favoring the bill, and hotel and construction trade groups opposed.

It was not clear if Green and Quinones-Sanchez had the votes to get the bill out of committee.

Green and Quinones-Sanchez argue that the current tax setup penalizes city-based firms because the tax on profits applies only to businesses headquartered in Philadelphia.

"We are unapologetically saying there has to be winners and losers," Quinones-Sanchez said. "We are choosing Philadelphia-based businesses."

During the hearing, accountant John Kostenbauder explained how a firm could legally avoid paying the city's net income tax - by setting up an additional office outside the city, paying out profits as bonuses or setting up a holding company in Delaware.

In his prepared testimony, which he was to deliver today, city Finance Director Rob Dubow says the administration has not been able to verify that a gross-receipts model would shift the tax burden to more out-of-town firms. Instead he notes city data shows that the shift would raise taxes on 61 of the top 100 firms in Philadelphia.

Responses to the legislation varied by business sector:

Several construction groups testified against it. Walter Palmer III, president of the General Building Contractors Association, said the change would damage the construction trade in the city, which he described as low margin. He said that an amendment to ensure that one construction project would not be subject to duplicate taxes would not do enough.

"No amendment is going to change the fact that construction in this city is barely profitable in the best of years, so reducing a profits tax and increasing a receipts tax will always be harmful to the construction industry," Palmer said.

Testifying on behalf of auto dealers, Anthony Tigano, chief financial officer of the Chapman Auto Group, a car dealer with three locations in the city, testified that the bill would provide a tax cut.

"We can use these funds to hire more workers in the city and purchase more goods and services inside Philadelphia," Tigano said. "The current tax structure creates a disincentive for profitable businesses to headquarter and stay in the city."