As we said when we wrote about property taxes, we believe in a fair, equitable tax system - and have to wonder why it seems so hard to achieve in Philadelphia.
Business taxes are no exception. Right now, the city collects two taxes on business: taxes on profits (net income) and taxes on sales (gross receipts). The lion's share of revenues to the city comes from taxes on profits. And the city taxes only sales that are made within the city. That means that small local companies that do most of their business in the city can pay far more than big companies that have many non-city sales, and that can write down their profits to reduce their tax burden.
Councilman Green, who met with us last week, proposes changing to a tax based entirely on gross receipts and eliminating any taxes based on profits. This broadens the tax base, and means that all businesses pay their fair share. It is simple to administer, difficult to evade and easy to audit. And it eliminates the advantages that companies based elsewhere have of transferring profits - and their tax obligations - out of the city.
The shift is radical, since it would mean a tax hike for some industries, and it's been hard to persuade people to make it. A few pieces of the plan, though, have been implemented. Already, Green championed, and Mayor Nutter signed into law, an exemption for taxes on the first $100,000 of gross receipts, which is a boost for small businesses and entrepreneurs, and a sales-allocation formula that taxes only revenues and profits generated in the city itself, reducing costs for companies selling products and services outside the city.
We, the People's Editorial Board, were pleased to see a plan that appears to meet the standards of fairness and transparency. But we also know it isn't enough. This city needs a top-to-bottom look at all the taxes we pay. That has been done twice in the past 10 or so years, with two commissions charged by two different mayors reviewing the city's tax structure.
This week, Pew is releasing a report on the overall tax burden faced by the city's workers and property owners, and compares that burden with the taxes in the region. It's time to use this information, along with the business-tax proposal, to make real tax reform happen.
