Philadelphia's old tax habit dies hard

As City Council considered taxes and spending last week, one resident held up a sign urging officials to collect from delinquents before they raise taxes again. ED HILLE / Staff Photographer
As City Council considered taxes and spending last week, one resident held up a sign urging officials to collect from delinquents before they raise taxes again. ED HILLE / Staff Photographer
Posted: June 21, 2012

Philadelphia's past two mayors, Ed Rendell and John Street, understood that the city's historical pattern of raising wage and business taxes was a major reason it had lost half its jobs. Their steady, cumulative tax cuts, though small, sent a message that Philadelphia was going in the right direction. For more than a decade, the city got more competitive, and it started to grow.

But over the last three years, under Mayor Nutter, real estate taxes have been increased twice, and businesses have absorbed a 100 percent increase in water and sewer fees. Now they are facing a substantial hike in the city's use-and-occupancy tax, which City Council was scheduled to vote on today. Both large and small businesses pay the use-and-occupancy tax, and in most neighborhoods, the increase would come on top of eventual real estate tax increases under the Actual Value Initiative.

For some businesses, the proposed use-and-occupancy tax hike would completely undo the benefits of the tax reductions of prior administrations. Has anyone considered that the tax has to be raised so much partly because there are so few business left in the city to share the burden?

Coincidentally, two recent Inquirer stories raised questions about government efficiency. One was positive, noting that court reforms have captured more revenue for the city. In contrast, the other report revealed that the city Revenue Department has been unable to collect $515 million in delinquent property taxes.

How is it equitable to increase taxes on some even as the city's tax-collection officials prove incapable of performing their most basic function? I have tried for three years to educate, support, and supply the city's Revenue Department with information and techniques to collect taxes from rogue operators in my own industry, parking, but to no avail.

The Actual Value Initiative is right for the city in that it aims to correct inequities in property valuations, and I applaud the Nutter administration's leadership in advocating it. But its decision to seek $94 million more for the School District at the same time, and to try to get half of it from businesses, is perplexing.

The real estate tax is broad-based, paid by all types of property owners, business and residents alike. Use-and-occupancy taxes are paid only by a narrower group of businesses that are tenants, excluding hotels and apartment buildings. Many of these tenants will also bear the burden of their landlords' increased real estate taxes through higher rents.

For the parking industry, all this comes on top of recent increases in the parking tax. For office tenants, use-and-occupancy and business-privilege taxes add almost a 30 percent premium to do business in the city as opposed to the suburbs.

Dramatically adding to that burden would hurt every business in the city, push more jobs into the suburbs, and build higher barriers to growth in Philadelphia.

Robert Zuritsky is president of Parkway Corp.

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