Support in Council for business tax increase seems to be fading

TIMES ARE HARD enough for small-business owner Mario Zacharjasz, who heads an office-supply company in Kensington, but he fears that an added burden may be on the way.

Last week City Council gave preliminary approval to a budget plan that includes a 19 percent increase to a business tax known as the use-and-occupancy tax, which would raise $20 million for the school district. Council also agreed to delay a controversial property-tax overhaul proposed by Mayor Nutter and raise property taxes to get the schools another $20 million.

"It's a burden on us," said Zacharjasz, president of 503 Corp. with 13 employees. Under the plan, his bill for that tax would increase by more than $400 to $2,594. "We're trying to serve the community, the Latino community, the city. I don't know how the city can continue to attract new businesses as the costs go up."

The plan could get final approval Thursday, and business leaders and organizations have been lobbying hard against the proposed business-tax hike, which would hit 29,000 businesses in Philadelphia. But sources said that support to increase the tax is fading. If that plan loses backing, it's unclear how much money the school district would get.

"I'm not voting for it," said Councilman Jim Kenney, who said he wasn't comfortable with providing that funding permanently to schools and was concerned about raising a business tax. "I don't think small, medium and large businesses at this time in our economy need to be hit that way."

Raising this tax was first suggested by Councilman Bill Green after his research showed that commercial and industrial properties could get a tax break under Nutter's plan to shift to a tax system based on market values, known as the Actual Value Initiative (AVI). Supporters thought that an increase to the use-and-occupancy tax would give homeowners some relief. If AVI isn't happening, Green said, there's no justification for the increase.

"I was considering it in the context of a move to AVI," Green said. The proposal would mean "a [19] percent tax increase on businesses at a time when we want them in the city and [creating] jobs," he said.

The use-and-occupancy tax goes entirely to the school district, bringing in an estimated $100 million annually, said Tilahun Afessa, director of policy for the Department of Revenue. Under the proposal, the use-and-occupancy tax, which taxes the square footage of the business portion of a property, would jump to 5.5 percent of the assessed value of the space used by a business.

"If you add up all of the different taxes, it makes it harder for sure," said Zacharjasz.

The budget proposal also includes the third property-tax hike in three years. Two property taxes billed as temporary would be made permanent and AVI will be implemented next year.