4 things to know about the Philadelphia Tax Reform Commission

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After a year of research, hearings and deliberation, the Philadelphia Tax Reform Commission convened by City Council last February shared its recommendations publicly for the first time.

Among the more than a dozen recommendations, the commission proposed eliminating the business income and receipts tax over a 12-year period, reducing the city wage tax below 3% and raising the minimum wage to $15 an hour.

The suggestions come as Mayor Cherelle Parker and City Council are beginning the city’s budget process for the upcoming fiscal year. It’s the third commission to review the city’s tax structure, as it previously did in 2009 and 2003.

For decades, the city has relied upon the city wage tax and business taxes to support programs and services, but some economists and the commission suggest shifting toward real estate and property taxes.

But Philadelphia would be unable to levy a different property tax rate on commercial buildings and single-family homes because of an obscure state law known as the uniformity clause.

Under former Mayor Jim Kenney, the business income and receipts tax rate declined slightly. Mayor Parker has not proposed any changes yet.

Who is on the commission board?

The 15-member commission is composed of appointees chosen by Mayor Cherelle Parker, City Council President Kenyatta Johnson and City Controller Christy Brady, in addition to representatives from six local chambers of commerce. Venture capitalist Richard Vague and consultant Matt Stitt are co-chairs of the commission.

What is the Tax Reform Commission proposing?

While the commission made a litany of suggestions, members asserted that none of the changes would require cuts to city services if implemented.

The commission advised the city to eliminate the business income and receipts tax over a 12-year period while creating a new fund for businesses to jump-start the economy with a portion of the tax cuts.

Additionally, it recommended reducing the city wage tax below 3% as one way to attract residents and grow the job market.

The commission claims that it will add between 31,200 to 93,200 more jobs to the city over a five-year period, depending on the severity of the tax cuts, and instead shift the tax base from business and wage taxes to real estate.

The commission also recommended raising the minimum wage in Philadelphia to $15 an hour by advocating for state lawmakers to allow the city an exception to the federal minimum of $7.25 an hour.

The group also advised the city to reduce its use and occupancy tax for parking lot and garage operators and increase street parking rates.

A 20-year property tax abatement to encourage commercial building conversions from offices to other uses was also suggested.

What’s the current tax rate?

Everyone who works within city limits pays wage taxes. Philadelphia residents pay 3.75% of their income in local taxes, while non-residents who commute to the city pay 3.4%.

Homeowners pay property taxes of 1.39%, which is split between the city and the school district. On a single-family home worth about $250,000, that’s a tax bill of about $3,400 each year.

Business owners pay the business income and receipts tax, which is both 5.81% tax on net income and 1.415 mills on gross receipts of a company. In addition, businesses pay the net profits tax of 3.75% for city residents and 3.44% for non-residents.

Small businesses who earn less than $100,000 in gross revenue are already exempt from the business income and receipts tax.

How does the city’s tax structure compare to nearby communities?

There are county taxes on worker wages in Bucks, Chester, Delaware and Montgomery counties, but it’s less than 1%. There are no business income taxes on net income in the nearby suburbs.