Butkovitz joins Nutter in opposing Council business-tax revamp

City Controller Alan Butkovitz on Tuesday joined the Nutter administration in opposition to a City Council proposal that would radically alter the city's business-tax structure.

In anticipation of a hearing before the full Council on Tuesday, Butkovitz called a proposal by Council members Maria Quiñones Sánchez and Bill Green a dangerous "experiment" that could cost jobs without replacing them. Their bill would scrap established plans to eliminate the business-privilege tax on gross revenues and instead focus on eliminating the tax on profits.

"Unless we want to continue building stuff on the other side of City Line Avenue, we have to stop taxing profitability," said Green.

Butkovitz, as Nutter administration officials did in a policy briefing Monday, questioned whether such a dramatic change in tax policy - one that would hurt certain sectors and help others - could be responsibly crafted before the end of the year.

He compared it to changing traffic laws to require driving on the left side of the road.

"Nobody does major policy changes like this," Butkovitz said.

The Council sponsors say they want to pass the bill before it gets caught up in the budget process, which is usually in full swing by early March.

"We think it will generate significant economic growth in Philadelphia, help small and locally based businesses, and create a more equitable and efficient tax system," Quiñones Sánchez and Green wrote Monday to the Greater Philadelphia Chamber of Commerce, which has raised a litany of questions and concerns over the bill.

Finance Director Rob Dubow said he recognized as laudable the goals of the bill - to encourage profitable businesses by not taxing profits, to simplify the city's famously complex tax system, and to encourage firms to move into the city.

But Dubow said the negative tax implications for sectors such as wholesalers, construction, hotels and restaurants, the hospitality industry, and HMOs were a concern, and it was hard to predict how those industries would react, whether by cutting jobs, raising prices, or moving out of the city.

"It ends up being a fairly unpredictable move with unpredictable consequences," said Alan Greenberger, the city's commerce director and deputy mayor for planning and economic development.

Predictability is what businesses rely on, Butkovitz said, and Tax Reform Commissions in 2003 and 2009 recommended targeting the gross-receipts tax portion of the city's business taxes for extinction by 2025 while still preserving the net-profits portion.

After years of consensus on the issue, Butkovitz said, suddenly changing the structure would lead to uncertainly that it could be altered again in any given year. While the tax shift would help manufacturing, the biggest beneficiary would be law firms.

"We decided to build an economy for lawyers," Butkovitz said, but he predicted there would be no restaurants for them to eat in.

The General Building Contractors Association and the Greater Philadelphia Hotel Association have openly opposed the bill, though representatives from each are in discussions with the Council members.

Quiñones Sánchez and Green hope to soften the impact on builders with an amendment to address an existing concern about being repeatedly taxed at different stages of the development process, but the Nutter administration has questioned the legality or the practicality of making exceptions for certain industries.

Quiñones Sánchez said the amendment for the construction industry would solve a fairness problem that needs addressing with or without the bill, which she conceived in May 2008 as a way to capture tax revenue from companies headquartered outside Philadelphia.

"I think we're in a good place," Quiñones Sánchez said Tuesday. "We're going to ignite entrepreneurship in the city."