COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING COMMITTEE OF THE WHOLE - - - Room 696, City Hall Philadelphia, Pennsylvania Wednesday, November 13, 2002 2:25 p.m. - - - BILL 020115 - An Ordinance amending Chapter 19-2600 of The Philadelphia Code, entitled "Business Privilege Taxes," by eliminating the prepaid structure of the tax... BILL 020436 - An Ordinance amending Chapter 19-2600 of The Philadelphia Code, entitled "Business Privilege Taxes," by amending the definition of "Net Income"... - - - PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL L. CLARKE COUNCILMAN DAVID COHEN COUNCILMAN FRANK J. DI CICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - V A R A L L O Incorporated 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 (215) 561-2220 I N D E X BILLS 020115 and 020436 PAGE JONATHAN SAIDEL, City Controller ........... JACQUELIN JENKINS .......................... 38 SARAH CLARK STUART ......................... 40 JACK HUNTER ................................ 42 DAVID THORNBURGH, Economy League ........... 46 DENISE EARLEY, Chamber of Commerce ......... 63 JAMES CUORATO, Director of Commerce ........ 66 NANCY KAMMERDEINER, Revenue Commissioner ... 72 ROBERT HORNICK, PICPA ...................... 91 MICHAEL TOKLISH, PICPA ..................... 109 MATTHEW MELINSON, PICPA .................... 114 3 11/13/02 - WHOLE - BILL 020115, 020436
Good afternoon. This is the public hearing of the Committee of the Whole. I would ask Mr. McPherson to please read the title of Bill No. 020155.
Bill No. 020115, an ordinance amending Chapter 19-2600 of the Philadelphia Code, entitled "Business Privilege Taxes," by eliminating the prepaid structure of the tax, by clarifying the period to be used in computation of the tax, by requiring the payment of an estimated payment, by ensuring that gains form the termination of the business are subject to tax, by clarifying the treatment of calendar and fiscal taxpayers and by amending definitions of the tax, under certain terms and conditions.
Thank you. At this time, the Chair Councilwoman Brown who would like to make opening remarks.
Thank you, Madam President. This bill originated after I had a meting with various members of the Philadelphia community whom I respect for their tax expertise. These individuals set on the City Council Select 4 11/13/02 - WHOLE - BILL 020115, 020436 Committee on Business Taxes in the early '90s and produced a report that outlined a number of initiatives that could be implemented to improve the business tax structure in our City. I needed first to get a feel from them if there was any unfinished incomplete business. In particular, I was seeking a way to better assist emerging and start-up businesses in our City. One item that the all recommended was a change in the New Start Provision of the Business Privilege Tax. In short, this allows businesses to estimate taxes as opposed to getting whacked with double tax in their second year of operation. As I researched, did homework and reached out to others on this issue, I found overwhelming support for the change. City Controller, Jonathan Saidel, and his tax structure analysis report strongly advocated for these changes. And just last night, Tuesday, November 12th, the State House legislation authored by representative George Kenney passed unanimously, thus allowing Philadelphia to implement this important change. The possibility of getting this piece of legislation passed as a meaningful change 5 11/13/02 - WHOLE - BILL 020115, 020436 in our tax code that will not produce any negative impact on the General Fund is long overdue. In other words, this is a revolutionary. As we work with the Commission to develop a long-term plan for Philadelphia, I am pleased that we have the opportunity to take this positive step to improve the way we as a City treat new and emerging businesses. In closing, I would like to thank City Controller Jonathan Saidel, the representatives from the Administration, the Philadelphia Chamber of Commerce, and all of our you testifiers that are forthcoming for taking the time out of your demanding schedules to help us make the case for this positive and needed change in Philadelphia's business tax structure. Thank you very much, Madam President.
You're welcome. Thank you. Our first witness is Jonathan Saidel, the City Controller. Good afternoon.
Good afternoon, Madam President. Jonathan Saidel, City Controller of 6 11/13/02 - WHOLE - BILL 020115, 020436 Philadelphia, S-A-I-D-E-L. I come before you today to offer testimony on two bills: Bill 020115, which would take the local action necessary to eliminate the need for businesses to double pay their business tax privilege in the second year of operations; and Bill 8 020436, which would change the formal use to determine the net income portion of the business privilege tax to reduce the burden on firms that export goods and services beyond the City limits. I applaud Councilwoman Reynolds-Brown, Councilman Frank DiCicco and all of City Council for focussing attention on these issues. I support 020115. As you know, the Business Privilege Tax, the BPT, is essentially paid in advance. Unlike most taxes where taxpayers pay their liability based on last year's activities, taxpayers pay their BPT liability for the current year's activity. Because businesses pay the BPT a year in advance, that is 2001 return based on 2000 calendar year activity instead of 2000 return based 2000 calendar year, business must pay two years of BPT taxes in their second year of operation. If you find this confusing, take heart. 7 11/13/02 - WHOLE - BILL 020115, 020436 Most business owners and tax preparers find this terribly confounding and routinely make mistakes when complying with this aspect of our taxation system. Even if one understands how to comply, the notion that we are double taxing fledgling businesses is far from business-friendly in a city that has lost so many jobs in recent decades. As I recommended in my November 2001 tax structure analysis report, I advocated for City Council and the Pennsylvania General Assembly to make the necessary technical amendments to the enabling legislation for this City's Business Privilege Tax to make it retrospective tax instead of prospective tax and eliminate the need for businesses to double pay their Business Privilege Tax in the second year of operations. By eliminating the need for businesses to double pay their BPT in the second year, you will reduce the tax burden on new businesses by 50 percent for that crucial second year of operations. The City's Revenue Department believes that this change would be budget neutral so that we are making our City much more business friendly without sacrificing City revenue. In the long-term, 8 11/13/02 - WHOLE - BILL 020115, 020436 however, this change can benefit the City. Under the current system, when a firm goes out of business, there is no BPT due for that year which is their last year of operations. If the firm goes out of business before the calendar year is completed, it may be even entitled to a refund on part of the advanced payment. Thus, double taxing a business in its early years and foregoing tax revenues from its final year in the City when the business is either leaving the City as a profitable entity or generating significant income from disposal of its assets as it folds, causes the City to lose revenue over the long-term. By reversing the situation and taxing businesses in their final year of operations but foregoing the second-year double payment, revenues should actually increase over the long run. I continue to work with state legislators and am confident -- as was mentioned by Councilwoman Brown when I had asked Representative George Kenney who is a legislator for Northeast Philadelphia and is my legislator to put a bill in to Harrisburg which was passed 195 to 0 last night in Harrisburg, this enables this local Council to 9 11/13/02 - WHOLE - BILL 020115, 020436 make the substantive changes to the double taxation and therefore not have a conflict with State enabling legislation. I also support Bill 020436. As you know, the City currently uses multiple weighing factors to determine tax liability for the Net Income portion of the business Business Privilege Tax: Property, payroll, and double-counting of receipts.
Under this multi-factor apportionment formula, a business located wholly in Philadelphia with 50 percent of its receipts in the City would pay three times the amount as a suburban competitor with 50 percent of its receipts in the City. Similarly, because our tax structure punishes firms that are located in Philadelphia but have little or no sales in Philadelphia, our City continues to lose firms which are founded in Philadelphia but move out of the City when they become profitable. Because these businesses bring outside money into the economy and do not capitalize on local demand, they are important to the City's economic health. But, while some of these businesses find a competitive advantage in the City's work force or physical location, most could 10 11/13/02 - WHOLE - BILL 020115, 020436 find those same advantages in locations just outside the City or in other regions. Many industry sector representatives confess that the majority of manufacturing firms no 6 longer have a business reason to remain in Philadelphia. Technology firm representatives report that many technology-related businesses may incubate or grow in the City, attracted by proximity to world-class universities or entrepreneurial centers, but when they become profitable, executives and investors find little reason to remain in Philadelphia. By adopting a single-factor apportionment, these firms will see their taxes dramatically reduce and will choose to remain in Philadelphia, keeping their jobs and economic impact in Philadelphia. My office should have also distributed to Members of Council examples of what the tax burden is under our current legislation and what the tax burden would be on the two bills 020436 and 020115 if Council so chooses and the Mayor signs the changes that we're talking about today, which are significant. I think that when you look at the businesses that exist in Philadelphia today, once a 11 11/13/02 - WHOLE - BILL 020115, 020436 company that has high professionals using computer systems becomes profitable, they have the ability and portability, which means that they can just get on our expressway and move beyond City Line Avenue. When I began as a CPA so many years ago, companies had a high capital investment, such as Cross Brothers that was a slaughterhouse. You couldn't just pick up and move. But many of the companies that we're trying to attract and keep here are companies that can move from city to city, from city to region, from city to the suburbs. So I think that these two bills, and I applaud Councilman DiCicco and Councilwoman Blackwell and all the Members of Council that signed off, is a step in the right direction for us to begin to change the economic fabric here, keep those businesses here once they become profitable, and begin a process of bringing technology-based companies into Philadelphia that sell all over the world. Thank you, Madam Chair.
You're welcome. Mr. Saidel, you mentioned a chart. I don't know that that was distributed -- oh, here it is. Thank you. 12 11/13/02 - WHOLE - BILL 020115, 020436 Are there any questions of Mr. Saidel? The Chair recognizes Councilman DiCicco.
Thank you, Madam President. Good afternoon, Mr. Saidel.
In your testimony you obviously mentioned the fact that -- concerning Bill No. 020436 that it basically acts as a disincentive for businesses to either locate here or stay in the City. Do you have any knowledge of any companies that have either decided not to come in or maybe had been thinking of moving out or have moved out?
As you remember, Councilman, when we had those hearings on the tax analysis study that we did last year for many of the strategic alliance organizations that exist in the Chamber of Commerce, there was active testimony and we have dealt and certainly can get you a list of companies that once -- they stayed in Philadelphia until they became profitable. Once they became profitable and they had the portability of moving their employees, which in many cases are young, and 13 11/13/02 - WHOLE - BILL 020115, 020436 took their computers and either moved to suburban counties or to South Jersey, in many cases could move to different parts of the country because most of their sales did not necessitate that they be in Philadelphia since most of their sales were world-wide and certainly in the United States and Canada and Mexico.
If you could supply a Chair with a copy of those companies and identify the number of jobs that also left along with those companies.
The tax analysis, what the revenues, what the wage tax losses were.
It would be my pleasure. You know what's interesting is that when you look at the a technology-based company that has the ability to sell world-wide where the average employee makes about 15 times more than the average employee made on many of the capital intensive factories that existed if Philadelphia while you and I were growing up as young people in Philadelphia.
Has your office had any discussion with the Administration or the 14 11/13/02 - WHOLE - BILL 020115, 020436 Revenue Department since this bill was introduced back in June?
I believe -- Ms. Kammerdeiner is here. We always attempt to have relations with the Administration in relationship to what the cost would be and how we believe that whatever cost there is in the changing of the tax law is necessitated in the long run for us to keep businesses. There is an assumption on Bill 020436 which changes the multi-apportionment theory that the City is saying that will cost $11 million. We believe it's much less. Our revenues have gone up in the last number of months. But the reality is that that is based upon the fact assuming that no 16 business will ever live the City of Philadelphia from now on. What we have found is over a period of years, which is common knowledge, that businesses continue to leave Philadelphia once they become profitable and do not have to be here. A five-and-ten-cent store has to be in South Philadelphia, has to be in Northeast Philadelphia, has to be in West Philadelphia. But a company that sells its technological product all over the world, once it is established, does not need the burden of 15 11/13/02 - WHOLE - BILL 020115, 020436 our gross receipts tax nor burden multi-factor involved in our net income tax and can move across City Line Avenue, minutes from here, and not be 5 burdened with thousands of dollars of taxes. It 6 then becomes no reason for them to stay here because 7 their support staff can move, their company can move 8 because it's not capital intensive, and their sales 9 are located all over the world. 10
So the potential in reality actually is that if the $11 million was an accurate figure, we actually stand to lose even more money because more people will decide either not to come here or decide to leave going forward.
So in the long-term as opposed to the short-term -- you know, we take a hit for 5, 6 or $11 million, which is significant, I understand, but if we look at this thing over time going forward, the potential is even greater.
That's exactly right. If you remember the argument when Governor-Elect Rendell was the Mayor of Philadelphia, there was opposition from certain segments of Philadelphia 16 11/13/02 - WHOLE - BILL 020115, 020436 that we shouldn't reduce even a small amount of the wage tax. But the reality is that you have to become proactive as a government with a variety of issues to expand the economic base and the economic mix. If you stay stagnant, the world will pass you by. And though there may be an million hit -- 8 though the revenue streams have increased, the 9 City's revenues have actually increased on tax and 10 non-revenue sources -- the reality is that if we 11 stay stagnant there won't be any of these businesses here. And in the long run, we've got to do what's right for the future of this City.
Well, you talk about the wage tax debate during Rendell. We had one, as you know, this year, and the same was being said at that time, that if we continue to reduce the wage tax based on the original five-year plan that there was going to be a huge hole in the budget and police and fire and libraries are going to close and all that kind of stuff. But recently I read where there's actually been an increase in collections of wage taxes.
Yes. Most of the categories of the normal revenues streams have 17 11/13/02 - WHOLE - BILL 020115, 020436 increased in the last number of months, that's true.
In your professional opinion, do you think the fact that we have continued with the tax reduction that that has had any impact on those collections?
I believe it does. I believe it does. I believe from an impressionistic standpoint. I think that the fact that we are the only major City in this country that is proactively looking to restructure our taxing system and to reduce the tax burden here in Philadelphia gives people pause to think that they should stay here or give an opportunity to move here. And if we don't do that, then we're just going to sit here and wait until everybody moves to South Jersey, to the suburban counties, and many cases to Arizona and New Mexico and a variety of other places that are now becoming a metropolitan area for high tech industry.
I don't remember if it was article that I read. Do you happen to know what the increase in the wage tax is, what that number represents? Is that in your chart as well, what the increase in the wage tax collections have been since we continued with that wage tax 18 11/13/02 - WHOLE - BILL 020115, 020436 reduction? Ballpark number if you know.
I know it's about 2.6 percent. I don't know what that is in actual dollars. I do have -- based on first quarter of 2003 collections, the Controller's Office estimates that the City will collect at least million more 8 in taxes than were budgeted. Based on first quarter 9 in FY 2003 collection, the Controller's Office 10 estimates the City will collect at least $20 million 11 more in locally generated non-tax revenue. The 12 other one was tax revenue. 13 And those are the two main numbers when 14 we looked at revenues for non-collection numbers as 15 well as collection numbers, and locally generated 16 and non-locally generated numbers. 17
Thank you. I don't 18 have any further questions, Madam President. 19
Thank you. 20 At this time since the Controller is testifying on both bills, I would ask Mr. McPherson to please read the title of Bill No. 020436.
Bill No. 020436, an ordinance amending Chapter 19-2600 of the Philadelphia Code, entitled "Business Privilege 19 11/13/02 - WHOLE - BILL 020115, 020436 Taxes" by amending the definition of "Net Income" with respect to determining what portion of net income is properly attributable to the doing of business in Philadelphia and therefore subject to tax, and by making technical amendments, all under certain terms and conditions.
Thank you. The Chair recognizes Councilman Clarke.
Excuse me, Councilman Clarke. Just a moment please. Would you yield to Councilman Kenney for a moment, please?
Thank you, Madam President. I need to leave the Chamber for a few moments. If there are any amendments or final vote on either of these two bills, I would like to be recorded as voting aye in my absence. Thank you.
Thank you, Madam 20 11/13/02 - WHOLE - BILL 020115, 020436 Chair. Good afternoon, Mr. Saidel.
Mr. Saidel, I just want to ask a few questions. One, in your statement you talked about how some businesses choose to capitalize on a local demand. I'm assuming for the labor force. And you talk about a competitive advantage being in the City, but then you turn around and say that they can find this same or similar competitive advantages in locations outside the City. Can you explain that? I don't quite understand. It sounds like you're all over the place on that. If we have a competitive advantage inside the City, then I'm assuming it is competing with somebody else. Who?
Well, there are two things. One, what we have found is that when you talk about technology-based companies -- not companies like Cross Brothers which existed when I was a child which had capital intensive, they slaughtered animals for a living, those aren't companies that can leave automatically from a place like Philadelphia because they can't take a billion 21 11/13/02 - WHOLE - BILL 020115, 020436 dollars worth of equipment and move outside the City of Philadelphia. But many of the companies that we are attempting to attract and have attracted when they're in the embryonic stage, which means they're not making any money. They then stay here while they're not making any money, and then once they began to make money, they have the portability because if you have employees averaging $150,000 10 a year that you got from Penn, they can just pack 11 up, and anywhere from Philadelphia in 5 or 10 12 minutes you could be sitting across City Line Avenue 13 and not have to pay any of these taxes. 14
So our competitive 15 advantage is in the early years of the operation. 16
That's right. That 17 dissipates once they become taxable because if 18 they're not selling to anyone in Philadelphia, they 19 don't have to stay here like a five-and-ten-cent 20 store and many of the other companies that existed 21 when I was growing up. 22
Some of the 23 information that you give in your testimony talks 24 about what your office believes as a result of -- 25 I'm assuming you did some analysis. Is there any 22 11/13/02 - WHOLE - BILL 020115, 020436 information that shows trends towards these particular types of companies moving out of the City? Is there some detailed information on it? I mean, it's one thing to submit information with respect to testimony, but I'd like to see, you know, what are we looking at, the number of businesses who've opted to moved out of the City, are leaning towards that way, businesses that in fact have moved into the City. And I ask that because we are talking about the potential $11 million hit on the City's General Fund.
As soon as they get on the phone and talk to Computer Alliance and a variety of associations that have those numbers available. They had previously testified last year, but I don't think we gave you a detailed analysis of the different companies, but I'll certainly get that for you in the next couple days.
Can you? I'd really like to have it. 23 11/13/02 - WHOLE - BILL 020115, 020436
You had mentioned -- actually, I wasn't going to ask this question, but y you brought it up in your testimony after questioning by Councilman DiCicco. This issue with respect to the wage taxes, and you said what I believe to the case that we were the only municipality, large municipality, that reduced our taxes when my understanding is everyone else of comparable size has either increased taxes or eliminated their tax decrease package. Why is that? What do we know that other people don't know?
I think we're smarter and better than anyone else in the country.
I agree with that, but we like to have some substantive data to support that.
I can't speak for Seattle and Chicago, but we are the only major city in this country that has a surplus today. Of the major cities, we're only city that I think has continuous over a number of years been proactive at some level of restructuring our taxes and reducing taxes and 24 11/13/02 - WHOLE - BILL 020115, 020436 trying to be proactive. And I believe that these two bills are a continuation of the leadership of past and present and the Mayor's and Council leaders and Members of Council.
We're only major municipality that has a surplus or had a surplus?
With respect to the timing because, as you know, our economic times in earlier years were very strong and all the municipalities had surpluses, a substantial of them, and when say that we're only municipality that has a surplus, you're speaking as of today and you anticipate that we will continue to have a surplus?
I anticipate that we -- I anticipate that if we do the right thing and move forward next year and are proactive in more difficult times that I think that we'll be able to continue with the surplus and create an additional mixture of our economy that may leave. As things get more difficult, city taxes then play much more 25 11/13/02 - WHOLE - BILL 020115, 020436 of an important role in decision-making whether to stay in Philadelphia or not. And what I'm concerned about and those that will follow me is to make sure that those companies that once they become profitable, they become a world-wide corporation, will stay in Philadelphia and not use their portability to move across City Line Avenue for the advantages of being in suburban areas or South Jersey, or for that matter they can move to the Midwest where many of the companies are moving now because there are no taxes at all out there.
So your belief that we will continue to have such a surplus, maybe not as large, but surplus is speculative at best?
I believe that there is talent on the 2nd floor and talent on what was traditionally the 4th floor which is now the 6th floor, and people concerned throughout the government that will die rather than have a negative impact on the future of this City for our children.
So you believe that -- and you opened up this can of worms, Mr. Saidel.
I'm trying to be as non-political as possible here. 11/13/02 - WHOLE - BILL 020115, 020436
You believe that if we continue on a substantive tax reduction strategy/policy, both wage, real estate, business, we will continue to have a surplus?
I think that if we showed the leadership to cut where we can and to reorganize our government on a continuous basis and watch everything that we do, then we can make a future for everyone in this City. I think if we don't pass bills like these two bills today and hope to God that people will stay in Philadelphia or that someone will move into Philadelphia, then we give them no reason to have that option. Revenue knew them no reason to have that option. And I think that one of them is revenue neutral and the other one Revenue says will cast $11 million a year. I think on a $3 billion budget with revenue streams increasing that this is something that I advocate and something I hope Council will pass and the Mayor will sign.
Can you give me -- and you may not be in a position to respond to this -- any of the townships, counties in the surrounding areas, the metropolitan area, what they 27 11/13/02 - WHOLE - BILL 020115, 020436 have done with respect to taxes?
None of these particular taxes? There are no business taxes in any of --
None at all? MR SAIDEL: No. Some of them may have a small nominal amount. And the suburban counties are feeling the pinch because of the reality that they no longer can have a volunteer fire department. But their growth was created because they left Philadelphia. You know, when I was a child and you drove to Atlantic City or you drove into the suburban areas, it was all farm land. Willow Grove Mall, my four kids think Willow Grove Mall is part of Northeast Philadelphia, though I continually tell them it's not, that Franklin Mills is. All of those are responses to people leaving Philadelphia and, more importantly in this discussion, businesses leaving Philadelphia because they can take advantage of being in a metropolitan area but don't have to pay 28 11/13/02 - WHOLE - BILL 020115, 020436 for all the benefits necessitated by being located near Philadelphia. I just believe we have to remain competitive as best we can. And certainly, if something, God forbid, happens in a few years, we're adult enough to know that we have to make changes.
-- that the growth in the suburban counties, the surrounding counties has caused those municipalities, those townships to possibly rethink their taxing strategy because the reality is that there needs to be infrastructure improvement, there needs to be new property taxes assessments based on the fact that they have grown by leaps and bounds and realistically within the next few years there will probably be some tax increases in those surrounding counties?
Yes. I hope it will be. I hope there will be tax increases. I'm not running statewide, so I hope they tax themselves to death 29 11/13/02 - WHOLE - BILL 020115, 020436 and they come back into Philly.
I heard you were the Deputy Governor there for a few months.
Hey, I'm just going back across the street. If you look at the history of the suburban counties, many of our former Philadelphians moved there, but more importantly than that, from a business standpoint, businesses had an opportunity because of the increase of modern road structures that when you drive down City Line Avenue, all those office buildings only need to exist because they get the benefit of being located near Philadelphia rather than in Wyoming County where no one lives, but they don't pay for any of the services or the burden of the taxing structure that we have. When you look at the product coming out of our colleges and universities, which are non-taxable, by the way, one of the ways that we can keep those young people here -- and they do make quite more money than you and I did when we first entered the labor market -- is to keep these technical companies here, the technology companies here, the medical companies here that have the 30 11/13/02 - WHOLE - BILL 020115, 020436 ability to sell world-wide. And that resource from outside of Philadelphia, those dollars that come in are then spent in Philadelphia and I think in the long run these two bills will be beneficial to the future that you and I care about here in Philadelphia.
Okay. And you will get the information in terms of trends both leaving, coming, staying?
Thank you. The Chair recognizes Councilman Mariano.
Thank you, Madam President. Jonathan -- I can call you Jonathan, right?
Mr. Saidel, Jonathan, when I used to go play soccer at Lighthouse Field -- it's amazing you brought up Cross Brothers. We used to go past there and there 31 11/13/02 - WHOLE - BILL 020115, 020436 was a young featherweight by the name of Saidel that used to hit the sides of beef. Sylvester Stallone stole that idea for Rocky from him. Was he any relation to you? I think his name was Issy.
Jonathan, 020115 is revenue neutral like you just said. And the other one cost you estimate about $11 million a year?
You know what, I believe what Revenue is doing -- and certainly the Commissioner is here to speak herself. The assumption is, what would be the estimated direct loss assuming no businesses ever left Philadelphia. We all know that one of the reasons that we have to change our taxing structure is because businesses do leave Philadelphia. And if we can bring businesses in, we can keep those businesses that are here which 32 11/13/02 - WHOLE - BILL 020115, 020436 have left over -- trended over a period of time, then certainly that million is not an accurate 4 number, but it is an assessment, and an estimated 5 number as any other numbers. 6
So if I got these 7 estimates right -- and again they're only estimates; 8 may be high, may be low -- what you're basing your 9 synopsis on is that these businesses probably don't 10 really have to stay here; can I assume that? 11
So if they all got up and left, we wouldn't have anything to go for anyhow, but the Revenue Department is saying but if we do this, it would be 10, 11 million?
Their assumption is that assuming no one leaves what the cost is for the particular bill on the multi-factor, on that income. On the gross receipts on the double payment in the second year, you know, fledgling businesses that are open up for one year and then have to pay twice the amount of City taxes as anyone else the second year when that's the time that they really need the money; and at the end of 20 years, we give them a refund. What we would rather do is 33 11/13/02 - WHOLE - BILL 020115, 020436 just have them pay in a normal course of business and then if they owe money before they go out, they file a tax return and pay whatever the remainder is when they do go out of the business or leave the City.
So the money that the City wouldn't get that the Revenue Department is supposing they would get if everybody stayed and it was perfect, to the Revenue Department, that's a loss; they consider that a loss probably, right?
So basically, the one is revenue neutral so that's real easy. I'm trying to find a way with this -- we take a gamble with it and hopefully what we lose in the first couple years will be worth it because those businesses that we suppose will leave will stay here; is that what you're saying?
Yes, that they will stay here because the history has shown that they leave. If you look at many of the high tech businesses that are opening up and actually in part of your district, part of Councilman DiCicco district, Councilwoman Blackwell's District in the West 34 11/13/02 - WHOLE - BILL 020115, 020436 Philadelphia area where there are these embryonic companies opening up that are part of Penn, as long as they're not making money and they're getting a cash infusion from someone, they might as well stay here because we give them breaks on high tech. The moment that they begin making money and all their sales are located out of the City, in many cases outside the country, there is no reason for them to stay. And why I mentioned Cross Bothers is because you can't just pick a Cross Brothers up and move it.
But these companies could because they don't have the equipment.
That's right. You can take 15 young people with computers and tell them instead of driving to 15th and Locust or 38th and Spruce, you could drive across City Line Avenue to Bala Cynwyd.
Thank you. Are there any questions of Mr. Saidel. The Chair recognizes Councilwoman Miller.
Thank you, Madam 35 11/13/02 - WHOLE - BILL 020115, 020436 President. Mr. Saidel, Councilman DiCicco and Councilwoman Tasco and I were having a discussion earlier about why companies would do just what you just said, move across City Line Avenue. I'd like to know how is Montgomery County's gross receipts tax set up? What makes it different than ours? The situation you just described would not happen in Montgomery County, I'm assuming.
No. First of all, it's much lower than ours and the form is like a oneagreement. We tax on a multi-level based upon payroll, based upon property that's located in our county, based upon sales, and a variety of other ways. The formula is very complicated. And it comes out to almost 7 percent of net income. What we are trying to say in the one bill is that just look at gross sales, just look at sales. If a company has 100 percent sales outside of Philadelphia, every dollar that they bring in from a sale is a dollar that we don't have because it's not you or I going into a store in that same cycle and giving money. To tell you the truth, the suburban counties is will eventually have a taxing structure 36 11/13/02 - WHOLE - BILL 020115, 020436 probably not similar to ours, but it's becoming very costly to run Montgomery County as when you and I were younger -- certainly when I was younger, it was all farmland. But the people that have moved there and the businesses that have moved there are there because they're located near Philadelphia but don't have the tax burden of Philadelphia residents and/or businesses that are located Philadelphia. A company outside of Philadelphia that sells 50 percent of their sales to residents of Philadelphia pays almost percent of the tax burden of a company that's 13 located in Philadelphia and sells half of its sales 14 to residents in Philadelphia and the other half 15 outside the City. So if you were an economist or 16 you were their lawyer or their CPA, you have to 17 recommend just based on the numbers, why would you 18 be in Philadelphia if you don't have to be? 19 I think these bills will be an added 20 level that they can make a decision to stay here in Philadelphia. And I think we will continue to prosper and I think build up an economic mix that can sustain us during the good times and the bad times, which is the most important thing about a city. 37 11/13/02 - WHOLE - BILL 020115, 020436
Thank you. The Chair recognizes Councilwoman Tasco.
Madam President. I have to leave. I have appointment in my office. I'd like to leave my vote on Bill 020115.
And the amendment? I understand there will be an amendment.
Any other questions of Mr. Saidel? (No response.)
Seeing none, I would ask Mr. McPherson to please call our next witness.
Good afternoon. Please identify yourself for the record.
Good afternoon. My name is Jacqui Jenkins. 38 11/13/02 - WHOLE - BILL 020115, 020436
My name is Jacqueline Jenkins. I'm a native Philadelphian, business owner, and community activist. When asked to share my thoughts regarding the City of Philadelphia Business Privilege Tax, I felt compelled to assess the City's business environment. From my assessment, I raise the question, is there a privilege to being a business owner in a City that has been plagued by the following challenges: A 10-plus year decline in population, which means the City's consumer base is dramatic shrinking; a loss of major corporate headquarters, which means that the potential contracting relationship for Philadelphia-based corporations is dramatically declining; a compounded effect of City structural issues such as the fact that it takes 90 to 120 days to gain a minority certification status with the City. In business terms it takes approximately a quarter and a half to gain access to City contract as a minority vendor. The City's structural issues are combatted by the deterioration of the education 39 11/13/02 - WHOLE - BILL 020115, 020436 system that is failing to produce a talented labor force. Additionally, at the university level, the City is losing skilled professionals due to numerous issues created by the regions brain drain. Thus, business owners will be forced to retain talent outside of the region to gain access to a competitive work force. By recruiting outside of the region, business owners are forced to incur relocation and recruitment expense and provide a more competitive compensation package. I believe that the actions of Bill No. 13 020115 will assist business owners in the following manner: First, the bill enables the City to implement business taxes in a more clearer fashion. Thus, minimizing the confusion regarding business tax liabilities. Second, this bill attempts to address the cash flow burdens of business owners by eliminating the double tax of tax liabilities in the taxpayers third year of business. Bill No. 020115 is a move in the positive direction to provide incentive for business owners while the City is still attempting to 40 11/13/02 - WHOLE - BILL 020115, 020436 mitigate the challenges of the local economic environment.
Thank you. Are there any questions of Members of the Committee of Ms. Jenkins? (No response.)
Thank you very much for testifying. We appreciate your waiting to testify, too. Thank you. Our next witness.
Good afternoon. Thank you for inviting me here to testify. My name is Sarah Clark Stuart. I live in Philadelphia and I've worked here since 1995 and I became self-employed in the year 2000. I'm an environmental consultant and I have one client. I don't have any sales. I simply earn a salary and I get reimbursed for my expenses. I file my own taxes. And this past April, I was floored, shocked, to find out that I had to pay a doubling of my tax when I found my Business Privilege Tax return. It was a complete 41 11/13/02 - WHOLE - BILL 020115, 020436 surprise to me. There was little or no explanation in the forms, and there was no warning of this when I applied for a business license in the year 2000. I'm not a tax expert. But the policy baffles me. And I felt like as a business, which I am, I was being punished or at least considered untrustworthy that my taxes had to be escrowed until I ran out of town. So I just wanted to come here and say that I'm sure there are many ways that the Business Privilege Tax can be reformed to make it fairer for businesses. And I know it's an obvious fact that the City of Philadelphia needs employed professionals as residents. But these tax laws are a disincentive to self-employed professionals and entrepreneurs who want to live and work in Philadelphia. This is the first time since I lived here that I really felt like, why should I reside here? I can just live in the suburb, I'd be much better off than paying almost 10 percent of my salary as a tax this past year. So this bill would be a very good start to making the Business Privilege Tax a fairer tax for emerging businesses in Philadelphia, and I 42 11/13/02 - WHOLE - BILL 020115, 020436 heartily support the bill introduced by Councilwoman Brown and urge the City Council to pass it. Thank you.
Thank you very much. Are there any questions of this witness? (No response.)
Thank you so much for coming in to testify. Our next witness.
Good afternoon. My name is Jack Hunter. I live in Center City, and I'm a certified public accountant and a partner in the Philadelphia accounting firm of Howe Keller & Hunter. I'm a past president of the Greater Philadelphia Chapter, Pennsylvania Institute of CPAs, currently a member of Council, PIPCA. I serve on the Philadelphia Commissioner's Tax Advisory Committee and I'm a member of the Philadelphia Tax Bar State and Local Tax Committee. My remarks today are my own remarks, not those of committees that I 43 11/13/02 - WHOLE - BILL 020115, 020436 represent. I've long been concerned with the prepaid structure of this tax and have worked with the Philadelphia Department of Revenue since at least 1996 in an effort to change it. I believe that this change is needed for the effective administration of the tax. As you know, the Business Privilege Tax is imposed on the privilege of doing business in the City. It's payable on April 15th of the tax year. The taxes calculated currently for the privilege year of 2003 at the rate of .23 percent, 2.3 mills, of gross receipts attributable to sales made and services rendered in the City plus the 6.5 percent of taxable income attributable to business conducted in the City during the calendar year of the preceding year. This ordinance would change the base of the tax so the tax is calculated on the actual taxable gross receipts and taxable income of the tax year rather than on the preceding year. This will remove the complexities and inequities of the new start provisions. I understand that this aspect of the current law accounts for a significant amount of 44 11/13/02 - WHOLE - BILL 020115, 020436 correspondence between the City and taxpayers and results in the delay of the receipt of tax revenue and creates ill will among new businesses, as you just heard. The change will also require inclusion in the tax base of receipts and income of the final year which currently escapes tax. As Mr. Saidel pointed out or as you discussed, $11 million shortfall, I believe that a significant portion of that will be made up by the businesses that are taxed in their final year. Estimated tax provisions will equalize the tax receipts by the City in the year of change. They will be based on the tax paid for the preceding year and would not be required for the first year of business. The new provisions could become effective for the year 2002. And I would point out, as we heard earlier, that the State Legislature, the House, passed the ordinance last night authorizing this change. However, the legislation requires the City Council to pass this legislation or this ordinance prior to November 30th, so I would bring that to your mind. As we've heard, it's believed that this 45 11/13/02 - WHOLE - BILL 020115, 020436 change will be revenue neutral except for, of course, of final year. I strongly urge that the Council pass this legislation, and I look forward to seeing it passed. Thank you very much.
Thank you, sir. The Chair recognizes Councilman DiCicco.
Madam President, on second thought, I don't have any questions for this witness. Thank you.
Thank you very much, Mr. Hunter. Any other questions from Members of the Committee? (No response.)
Our next 46 11/13/02 - WHOLE - BILL 020115, 020436 witness.
Good afternoon, Madam President. I do have copies of my testimony.
Good afternoon. My name is David Thornburgh. I'm Executive Direct of the Pennsylvania Economy League here in Philadelphia. It's my pleasure to share a few thoughts with you today about some business tax issues you have in front of you. Let me begin with a little perspective on Philadelphia tax issues that I think is relevant to this discussion. Simply to point out that tax burdens at the regional level much more than at the national level or the international do in fact influence people's choices. When a family or business person asks a question, where should we buy our first house? Where do we want to raise the kids? Where do I want to start my business? Should I move the business? Local taxes are one piece of 47 11/13/02 - WHOLE - BILL 020115, 020436 the decision-making process. One of the things that is striking about this region with 239 municipalities and 67 school districts in the suburban Pennsylvania side and a hundred some municipalities in South Jersey, each with its own menu and level of taxes, is that people and business have lots of choices. They have many more choices than in other parts of the country, and that's what makes tax competitiveness much more relevant to this City than to other than cities across the country where people face more uniform taxation at the regional level. We know from previous discussions, from all the data that we've collected, that Philadelphia is one of the most highly taxed locations in this region, both for businesses and for families. I won't put you through all the math again, but that's established fact. The difference in tax burdens between the City and a typical suburb are high enough that they have affected people's decisions. How do we know? All of the research points in that direction and survey after survey of public opinion comes to the same conclusion. When we try to figure out what to do 48 11/13/02 - WHOLE - BILL 020115, 020436 about it, how to level of playing field, of course, we get into lengthy and complicated issues about City revenues, City budgets and the impact of City taxes on family income and family wealth. I'm sure we'll have ample opportunity to discuss those issues in the work of the Tax Commission, and the Economy League looks forward joining that debate. In the meantime, you have before you a number of proposals that have been made for sometime that could improve the City's competitive position without much impact on City revenues. It's those proposals that I'd comment on. First is Bill No. 020436, a proposal to change the Business Privilege Tax apportionment formula for the net income portion of the BPT from the current multi-factor formula to a single factor of sals only. The current formula has the unintended effect of taxing firms located in the City more than firms located outside the City, even when both firms do the same amount of business within the city limits. If a Philadelphia-based firm makes 100 percent of its sales in the City, 100 percent of its revenues are subject to the BPT. If that same firm were located outside the City but 49 11/13/02 - WHOLE - BILL 020115, 020436 continued to make 100 percent of its sales in the City, only half of its revenues would be subject to the BPT. This tax differential may provide an incentive for those companies that can serve their customers in the City from a base outside the City to locate their businesses outside the City. This incentive will be particularly high for some business services firms. Conversely, if a Philadelphia-based firm makes most or all of its sales outside the City, say an investment firm with a national market, the current allocation formula means that at a minimum, half of its revenues will be subject to the tax, while the fir's counterpart located outside the City would face a minimal tax. 5 of its revenues subject to the BPT. 5 percent of its revenues would be subject to the BPT.
That is, the firm located in the City, adding to the City's wage and property tax base, would face a BPT 21 times higher than it would if it moved outside the City. The proposal in front of you, of course, 50 11/13/02 - WHOLE - BILL 020115, 020436 is to change the formula in a way that levels in a small, but potentially significant way, the playing field between companies located in the City and those not in the City. This proposal, to base the net income portion of the BPT on receipts only rather than on a combination of receipts, payroll, and property, can be viewed as an extension of the change enacted in the apportionment formula during the 1990s from equal weighting of the three factors, property, payroll, and receipts, to a double weighting of receipts in the formula. This change was made in response to a 1993 recommendation of the Select Committee on Business Taxes in order to give local Philadelphia-based companies some tax relief. What difference will this change make to the firm's decision about where to locate? In 2001, PEL hired Ernst and Young to develop a model of the impact of state and local taxes on the return of investments in expansion of businesses. This model calculates the reduction in the rate of return on an investment due to combined state and local taxes. This is termed the "effective tax rate" imposed by the state and local tax systems. 98 percent. 5 This model shows moving to a suburban Philadelphia 6 location would give this firm a lower effective tax 7 rate. 17 percent. 89 percent, significantly closer to its suburban competitors. Businesses make investment decision everyday based on very small differences in expected returns. It's not a huge difference, but for some kinds of firms does level the playing field versus their competitors located outside the City. In addition, based on '98 BPT returns, as we've mention earlier, the City's Department of Revenue estimated the impact on City revenues of this change at just over $10 million, a relatively small price for a change that will send a strong signal regarding a city's desire to keep businesses located in the 52 11/13/02 - WHOLE - BILL 020115, 020436 City. I would also comment briefly on Bill No. 4 020115 introduced by Councilwoman Blondel Reynolds Brown on February 28th. This bill addresses what I would think of as an oddity and a complexity in another piece of the BPT that has been identified a number of times over a number of years, that the BPT for the current year is based upon the prior year's activities causing a doubling of tax liabilities in a business' second year and allowing income and receipts in a taxpayer's last year to go untaxed. This problem and a solution were identified by the Select Committee in 1992, the City's Controller's tax structure analysis report last year, and was also discussed during Mayor Street's Tax Policy Transition Team, which I co changed. While a final change does, as we've noted, require state legislative action, it's important that the City proceed with its own piece of the change, and I urge you to support this long overdue change as well. Let me conclude by stating again that neither of these two provisions will re-draw the tax map in any dramatic fashion for businesses or individuals in this region. I sincerely hope that 53 11/13/02 - WHOLE - BILL 020115, 020436 the work of the upcoming Tax Commission along with the City's involvement in Governor Rendell's proposed state tax reform initiative will afford us those opportunities. In the mean time, we should pursue small changes that can remove barriers for businesses to start and grow in the City and that don't appear to have significant revenue consequences for the City budget. Thank you. I'd be happy to answer questions.
Thank you very much. Are there any questions of this witness?
I just have one quick question with respect to the Tax Commission. And I'm glad to see that you're going to play a key 54 11/13/02 - WHOLE - BILL 020115, 020436 role in that. We look forward to your good work. The issue with respect to when we should start referring bills to the Tax Commission, I know there have been a number of tax-related bills all across the business, real estate, wage. At what point do you anticipate or would you suggest that we start looking to the Tax Commission to actually deal with some of these issues? I mean, it seems like every other week we have a bill related to some sort of tax. And my concern is that at some point there will be nothing for the Tax Commission to review. I mean, at what point do you suggest we have a cutoff?
Well, Councilman, that's obviously a decision for Council to make. I guess my observation on these two bills is that these have been discussed and analyzed and solutions offered in some cases for the better part of 10 years, and in addition, neither would seem to have a significant revenue impact --
But you'll agree that things have changed over the last 10 years? I mean, you reference a 1993 discussion. I mean, it's a little bit different in the national economy and 55 11/13/02 - WHOLE - BILL 020115, 020436 similarly in the state and local economy.
So what we talked about years ago doesn't necessarily apply today. 6
I guess my suggestion 7 and testimony here is that the Tax Commission look 8 at major issues that have major consequences for the 9 city's competitive position and that we take that 10 opportunity to maybe learn some more about some things that we don't know about yet. My sense of these two proposals is that they have been well understood and digested over time and that in small but important ways could make a difference also don't seem to have extraordinary impact on City revenues. I guess that would be my take on these bills.
What about the question I asked. When you say tax issues that have broader implications, what are you talking about? I'm just trying to get a sense from your perspective since you will play a key role. When and in what role should the Tax Commission play in this whole issue?
Just maybe to revisit a 56 11/13/02 - WHOLE - BILL 020115, 020436 couple of issues from the spring. It's clear that the most significant and important aspect of this City's tax structure relative to other cities, relative to the rest of the state is the wage tax, reliance on the wage tax. That's one, I think, significant piece that ought to come back up. I think the recent discussions property taxes and assessments, I suspect, will get some space on that agenda. And then I think the third piece that I mentioned in our testimony is our Governor has pledged a very focussed short-term look at state tax reform issues, and I think it's got to be clear from the City of Philadelphia exactly what we would like to see come from that and, in fact, put our proposals forward to contribute to that state tax reform effort.
Should that come from the Tax Commission or should it come prior to the Tax Commission? I mean, right now I understand there's actually a rush to do something --
I think there are timing issues on both things that are not yet clear. I'm don't know the Governor's timetable for his tax 57 11/13/02 - WHOLE - BILL 020115, 020436 work. And I think the timetable for the Tax Commission is still clearly being put together. Let me just say, the more the two can be aligned, I think, the better, because this suggestion was made this spring often that the only way that the City could deal tax competitiveness challenges was in the context of state-wide tax reform. So with the possibility of state-wide tax reform looming, seems to me we'd be well served to contribute to that.
Thank you. The Chair recognizes Councilman Ortiz.
Mr. Thornburgh, given the nature of the changing world economy that we have and the fact that we're never going to become the manufacturer center that we were in the first half of the last century and the nature of today's businesses, which are very transferable and movable, how does a City such as ours remain competitive if we want Silicon Valley type of situation or industries to develop with national headquarters here but that most of their businesses are done either national or worldwide? And how does the tax 58 11/13/02 - WHOLE - BILL 020115, 020436 structure that we currently have impact on those revenues in a negative fashion and when do we need to begin doing in order to become competitive with the Californias and San Diegos and Boston that is enacted legislation along these lines?
Well, I think those are among the most significant questions we can address in these issues. Just controllers testimony earlier, I think one principle that we need to adhere is to recognize this City's great strengths and advantages and recognize when our tax policy gets in the way of taking advantage of those very unique characteristics. And here I guess I'm really talking about this quality of this place, whether that's the quality of life in our neighborhoods or the quality of life in our downtown business environment. We've got to find ways of getting out of the way so that families and individuals and businesses can, in fact, enjoy those advantages without being unduly constrained by the tax picture.
So when the Controller says that he differs with the City Revenue Department and the cost of the one bill that may cost in terms of revenue $11 million, that it 59 11/13/02 - WHOLE - BILL 020115, 020436 might be less, what you're saying is in order to grow you've got to gamble?
In order to be competitive you've got to take the risk.
The point was made earlier that many companies that used to have to be in Philadelphia because of plant and equipment or natural resources no longer have to be.
But even the law firms, I mean, the law firms could just move across the --
Even law firms. So we've got to understand what's important to them and we've got to focus on those that are more mobile, those that have more choices. And we've got to try to make sure that we're not making the choice for them through our tax policy.
Councilman Ortiz, are you finished with your questions?
The Chair recognizes Councilman Goode. 60 11/13/02 - WHOLE - BILL 020115, 020436
Thank you, Madam President. Good afternoon, Mr. Thornburgh.
In your estimation, if a company is thinking about moving out of Philadelphia would the successful passage of legislation affect that decision at all?
You know, my short answer is yes, I think it would make a difference in particular circumstances. Many of these tax --
I'm actually talking about in terms of general -- we talk a lot about the competitiveness of the City and lack of competitiveness. If a company for all the reasons that our tax structure is not competitive and for other reasons they may not want to stay in Philadelphia, they're actually considering moving, does passing this legislation actually affect that 61 11/13/02 - WHOLE - BILL 020115, 020436 decision for them in any way? I understand that not passing this legislation may serve as a disincentive. But passing this legislation actually serve as an incentive for them to stay in the real world?
I think this would -- passing this legislation would be an advantage to those companies that are located here but selling elsewhere who find advantage because of labor force, the transportation access, the kind of companies that the Controller referred to that are not neighborhood grocery stores but in fact are selling to the rest of the world and bringing that money back here, I think that would be an advantage.
But in the he real word, it probably doesn't keep anyone here?
Well, you heard from two business people today, admittedly talking about the other bill, for whom our tax process and policy does, in fact, make a difference.
Right. I believe it would make a difference to particular firms in 62 11/13/02 - WHOLE - BILL 020115, 020436 particular circumstances.
But in general, any company that's thinking about moving, this piece of legislation, if passed, doesn't really impact their decision, doesn't really keep them here? This is removing disincentive, it's not actually creating an incentive to stay.
Point of order. Councilman, there are some other people who are going to testify I think to answer some of those questions that would be more specific as to a company or companies that are nearing end of leases that are looking at this as a possible reason for either staying or not staying. So I think they may be in better position. I understand the question to Mr. Thornburgh, but I think they may be able to answer some of those questions as well.
I will wait for their testimony. Thank you, Mr. Thornburgh.
Thank you. Are there any other questions from Members of the Committee of Mr. Thornburgh? (No response.) 63 11/13/02 - WHOLE - BILL 020115, 020436
Thank you for your patience. We appreciate your coming in to testify.
Good afternoon, Madam Chairman and Members of the Committee of the Whole. For the record, my name is Denise Earley. I'm Director the Public Policy for the Greater Philadelphia Chamber of Commerce. I come here today in support of Bill 17 020115 which would streamline the reporting requirements by eliminating the need for businesses to simultaneously file and pay their second Business Privilege Tax obligation. As you are aware, the Business Privilege Tax is currently paid in advance, making it a prospective tax. This bill would make the BPT a retrospective tax which is more business friendly and less onerous on the taxpayer. The Chamber has always supported 64 11/13/02 - WHOLE - BILL 020115, 020436 legislation that moves the business agenda forward, thereby improving the economic climate of the City and the region. We believe Bill 020115 will do just that. The Revenue Commissioner has informed me that this bill is revenue neutral and will have no impact on the budget when implemented. Again, the Chamber supports this bill 9 and would like to see more bills that help the business community escape from the stronghold on burdensome taxes introduced. We applaud the sponsor of the bill, Councilwoman Blondel Reynolds Brown, and stand ready to work with each of you on major tax reform in the City. I am also here to support Bill 020436. Philadelphia currently uses multiple waiting factors to determine tax liability for the net income portion of the Business Privilege Tax: Property, payroll, and double counting of receipts. Under this multi-factor apportionment formula, the business located wholey in Philadelphia with 50 percent of its receipts in the City would factor 100 percent of its property, 100 percent of its property, 100 percent of its payroll, and 100 percent of receipts. Because of the apportionment 65 11/13/02 - WHOLE - BILL 020115, 020436 formula, the city business pays a higher tax burden than the suburban business when both businesses have an equal sales presence in Philadelphia. Under the single factor apportionment, this system would be dramatically simplified, as all businesses would be taxed on the percentage of gross receipts generated within the City. The apportionment factors of property and payroll would be eliminated from the formula. And since this would reduce taxes for Philadelphia business, it would encourage them to stay in the City. The recent election produced a mandate to chang the City ay Charter by creating a tax Reform Commission. This Commission, to which the Chamber will have representation, will convene shortly to prepare a report for recommended tax reform by November 2003. This bill and others like it are small but significant steps in accomplishing major tax reform and send the right message to the business community. Therefore, the Chamber supports Bill 24 020436 and thanks the sponsor of the bill, Councilman Frank DiCicco, for his leadership on this 66 11/13/02 - WHOLE - BILL 020115, 020436 front. Thank you for this opportunity.
Thank you. Are there any questions from Members of the Committee of Ms. Earley? (No response.)
Thank you very much. Our next witnesses are the Revenue Commissioner and Director of Commerce. Maybe they would both come to the table at the same time. Good afternoon. Kindly identify yourself for the record and proceed with your testimony.
Good afternoon, Madam President. My name is James Cuorato, I'm the City Representative and Director of Commerce for the City of Philadelphia. I appreciate the opportunity to testify. And I am testifying in support of Bill No. 20 020115, which will provide positive changes to the City's Business Privilege Tax. I have submitted a short statement in support of this bill which I would ask be entered into the record, and I will just briefly summarize my testimony, Madam President. 67 11/13/02 - WHOLE - BILL 020115, 020436 The City Controller, I thought, did a very good job of explaining the positive impacts of this bill and the Revenue Commissioner will also be, in her testimony, providing some very clear examples of how this will benefit businesses in the City. From my perspective as Director of Commerce, I would just like to say that the current filing requirement adds to the perception that the Business Privilege Tax is burdensome and unfair to the City's small and struggling businesses. The changes proposed in this legislation would clarify and in many ways simplify the filing and payment of the City's principal business tax. By bringing this tax filing process into conformance with those of most other city, state, and federal tax filings, this bill allows us to respond positively to some of the criticisms aimed at your business tax structure. It is important that we make every effort to streamline the City's tax structure if we want to create an environment conducive to business investment and growth. The new and start-up business that would benefit most from this proposal are the very businesses that we must encourage if the City is to prosper in the future. 68 11/13/02 - WHOLE - BILL 020115, 020436 The changes to the Business Privilege Tax being proposed today will help to reinforce the message that Philadelphia is a great place to grow your business. Bill No. 020115 allows us to make the Business Privilege Tax easier to understand and thereby more accessible and equitable to the business community, therefore, I urge passage of Bill 020155 and would like to thank Councilwoman Blondell Reynolds Brown for both inviting me to testify today and also for her introduction of this legislation which would help us a great deal. Thank you.