Mr. Cuorato are you giving any testimony on the other bill 17 that's listed, Bill No. 020436?
Revenue Commissioner Kammerdeiner will be presenting the Administration's position on the other bill. I was here solely to testify on 020115. 69 11/13/02 - WHOLE - BILL 020115, 020436
Thank you. The Chair recognizes Councilman DiCicco.
Thank you, Madam President. On that same not, Mr. Cuorato, although you won't be testifying, do you have any opinion of this as the Commerce Director what impact it may be having on businesses, attracting businesses, keeping businesses going forward?
Councilman, I think that the bill would be advantageous to us in retaining businesses in certain circumstances, and I think the City Controller outlined situations where it does present problems for us. And I can also tell you that in my visits to various businesses throughout the City, that issue has come up. So I think it would be helpful. I think the Revenue Commissioner, as I said, will give the City's position on Administration's position on the bill.
I think I know what that position will be. I'm asking you as the Commerce Director who has a lot of interaction with, not only existing businesses in the City of Philadelphia, but potential businesses when they 70 11/13/02 - WHOLE - BILL 020115, 020436 look at that huge chart of what the cost of doing business in our wonderful city is all about in terms of taxes. Do you have an opinion as the Commerce Director -- and I hate to put you on a spot, Jim, but we get paid a lot of money to do this. Actually, you get paid a little more than we do. But anyway, what is your opinion?
Councilman, any measure that reduces the tax burden on businesses helps me do my job in a better fashion. I was put in a similar position earlier this year when we had the debate over continuing the reductions in the wage tax. I, on the one hand, have to consider the fact that I am a part of this Administration and that there are budget parameters that have to be taken into consideration. On the other hand, I will tell you that any way that we can continue to reduce taxes certainly makes my job easier and is more advantageous in making us competitive.
Would it be fair to say as the Commerce Director whose job it is to promote commerce, promote business in this City, that when you go to a potential company who is thinking about considering moving into the City to 71 11/13/02 - WHOLE - BILL 020115, 020436 do business when you have the tools that say Philadelphia is getting its act together, we are slowly but surely reducing our wage taxes, we are addressing the tax bill that Councilwoman Blondell Reynolds Brown and Councilman Wilson Goode introduced today by making it simplified, those are good tools to have. So any type of reduction it's safe to say in the long run should result in an increase in businesses moving into our city and retaining business that are currently here; is that a safe assumption?.
Thank you. Are there any other questions of Mr. Cuorato? The Chair recognized Councilwoman Blackwell.
Thank you, Madam President. My question is for Commissioner Nancy Kammerdeiner. Am I in order now?
Okay, I'll wait. Thank you. 72 11/13/02 - WHOLE - BILL 020115, 020436
Thank you. Are there any other questions of Mr. Cuorato. (No response.)
Seeing none, the Chair recognizes Commissioner Kammerdeiner.
Good afternoon President Verna and Members of City Council. My Nancy Kammerdeiner. I'm the Revenue Commissioner City of Philadelphia. I'm please to be here today to support Bill No. 020115. This bill will amend Chapter 19-2600 of the Philadelphia Code, and we've heard a lot already this afternoon about the provisions of the bill. So I won't go into a lot of detail. You have a copy of my written testimony, and I would ask that that be considered as part of the record. Let me just note a couple of highlights from it. When the Business Privilege Tax was first enacted by City Council, it was considered to be a vast improvement over the General Business Tax and the Mercantile License Tax that it replaced. Although that may be hard to believe today, it was really considered to be an improvement. It wasn't 73 11/13/02 - WHOLE - BILL 020115, 020436 long, however, until one aspect of the legislation proved to be confusing and even onerous. And we've heard both members of the business community and other observers testify about some of the problems with that. The fact that the tax paid in advance and the requirement for filing two returns for two tax years in the second year of operation of a new business has been really at the center of this confusion. That often translates into a business filing only one return in that year when two are actually required. And the Department of Revenue, as a result, issuing a considerable number of non-filer notices and ultimately the Law Department files code enforcement complaints in court that carry a fine as much as $5,000. No one really benefits from that kind of situation: The taxpayers confused and unhappy; the Department of Revenue and Law Department both spend significant staff time and resources attempting to explain these tax requirements and pursuing non-filers who've simply not understood the requirements. And so we look forward to implementing the provisions of the bill. We think that the 74 11/13/02 - WHOLE - BILL 020115, 020436 changes in the Business Privilege Tax, making it a retrospect tax instead of a prospective one, will help to reduce this confusion, make the tax less onerous for all, make it clearer to file, clearer to enforce, and generally be an improvement in the way we handle this tax. There have been many comments about this being revenue neutral. We do look at this as a tax that will be neutral in both the tax year and the fiscal year because of the use of estimated payments in terms of the filing so that we can keep this as close to a revenue neutral situation as possible. And it's with that in mind that we support the legislation. It has been mentioned several times today that there's State enabling legislation that's required in order to implement this. And I believe there was also a mention that that legislation, as it was approved buy the House yesterday, includes a provision that this body must approve of the local implementation legislation by the end of November for us to put the new changes into effect for the tax filing in April of 2003. If your approval would come after that date, it would go into effect in the 75 11/13/02 - WHOLE - BILL 020115, 020436 subsequent year. And so with that in mind, not only do I support the approval of Bill 020115, but I would ask that you suspend the rules in order to have the approval prior to November 30th so that we can put this in place for taxpayers as soon as possible. That completes my testimony on that bill. Would you like to have me go on to testify on the other bill at this time?
With regard to Bill 14 No. 020436, the Administration has carefully reviewed the provisions of the bill and feels that it's unable to support this proposed legislation. And let me detail some of the reasons for that. In some other context, and has been mentioned by others today, the Tax Reform Commission has recently been approved by the voters, and we believe that this should be the forum for consideration of Bill 020436, that it should not be considered in isolation here. We support the basic goals of this legislation which we understand to be to discourage existing firms from leaving the City 76 11/13/02 - WHOLE - BILL 020115, 020436 of Philadelphia, to make relocation into the City more attractive, to encourage new businesses to locate here and to equitably tax the activity of non-resident businesses. But we believe that this legislation should be considered in conjunction with other measures which might be proposed to meet these same ends. And we do that for a couple of reasons. And those relate to the language of the Bill itself. In particular, I'm concerned that the bill, as drafted, doesn't really meet the objectives that I have stated and that we believe the bill is intended to meet. It does attempt to simplify the net income apportionment formula by deleting the traditional three-factor formula that includes receipts, property, and payroll as the primarily apportionment language and inserts in its place a single gross receipts factor. The definition of net income that's presently used in the Philadelphia Code and that would be deleted here is extracted directly from the State enabling legislation. Merely changing the wording in the code without corresponding change in the enabled legislation will create legal confusion since the language in the state enable legislation is the controlling 77 11/13/02 - WHOLE - BILL 020115, 020436 language. However, even if the State enabling language were amended, I question whether the bill, as drafted, would accomplish what was intended. In making this change, the bill introduces a new concept of cost of performance to determine where the gross receipts are to be allocated. The cost of performance concept actually weakens the effectiveness of the proposed single-factor formula. It shifts the allocation determination from where the gross receipts are generated to where the costs to generate the receipts are incurred. Under generally accepted accounting principles, cost of performance includes all the costs directly involved in generating the receipts. Wages, depreciation, property taxes, interest, materials, et cetera. These costs bring property and payroll back into the calculation but in an indirect fashion. In addition, under this concept, the jurisdiction in which the highest proportion of cost of performance is incurred gets 100 percent of the allegation of the gross receipts. Under the current three-factor formula, all factors are prorated proportionately. In addition to replacing the primary 78 11/13/02 - WHOLE - BILL 020115, 020436 apportionment language, the bill would delete he language that provides for the application of an alternative apportionment method when and if the statutory formula does not satisfy the specific situation. It is this language that permits the Revenue Commissioner to promulgate other methods of apportionment by regulation and approve exceptions based upon the unique circumstances of a taxpayer. Since no allegation formula will satisfy every possible situation, there must be some way to provide an appeal process and a fair apportionment for taxpayers adversely affected by the statutory requirement. Indeed, fair apportionment is required under th US Constitution under both a due process clause and the commerce clause. This bill would also change the location for the imposition of the tax when the property is taken out of the City.
However, as with the definition of income, it would change language that is very specific the in the State enabling legislation. Under the language in the present code, any tangible property picked in the City by a firm's non-resident customer is subject to the tax. The new language would exclude from taxation any 79 11/13/02 - WHOLE - BILL 020115, 020436 transaction when a non-resident customer takes physical possession of an item and takes it outside the City. This would diminish the revenue generated by the tax from non-resident customers of businesses in the City. The Department of Revenue looked in the concept of a single-factor formula a year or more ago. And this is where the $11 million or $10 million that's been mentioned several times this afternoon comes in. To do this, we used the Business Privilege Tax returns for 1999 that were filed using the three-factor formula and we recalculated them using only the gross receipts factor. Although there were some individual winners and losers among the filing taxpayers, we found that on balance the BPT revenue to the City in that year would have been $11 million lower had the single-factor formula been in place. This estimate was done without the cost of performance concept and the change in location for taxation that were introduced in this bill. We expect City greater if though fact toward into the analysis. Before I close, I'd like to come back to the statement I made earlier about the introduction 80 11/13/02 - WHOLE - BILL 020115, 020436 of cost of performance concept the a single-factor formula and that it would not produce the result intended. And I said then that this would occur because payroll and property would still be used in the computation and that 100 percent of the gross receipts would be allocated to the jurisdiction with the largest proportion of the cost of performance. I'd like to illustrate that with two examples that are really at the extremes, but they show what the potential impact of this bill could be. Under the present gross receipts rules, a company with one location in the City that delivers its entire product outside the City or renders all of its services outside the City would have 50 percent of its net income subject to the Business Privilege Tax. That same company under the concept proposed in this legislation would have 100 percent of its net income subject to the BPT because of the costs of performance took place in the City. I don't think that's what was intended. Under the present gross receipts rules, a company with one location outside the City that delivers its entire product into the City or renders 81 11/13/02 - WHOLE - BILL 020115, 020436 all of it services inside the City would have 50 percent of its net income subject to the BPT. That same company under the concept proposed here would have 100 percent of its net income excluded from the Business Privilege Tax because all of the cost of performance took place outside the City. Again, I don't think either of those extremes are what's intended. And it's for this reason that I really question that this bill does what was intended to do and what we would all like to see happen in terms of a fairness of apportionment. That completes my prepared testimony and I would be happy to answer any questions.
Thank you. Commissioner, please clarify how you're going to treat the final payment due for someone going out of business.
Every business would be required to file a return on April 15th of the year following the business activity. And, therefore, whether it's your first year or your last 82 11/13/02 - WHOLE - BILL 020115, 020436 year in business, a return would be required on April 15th of the following year. And we would taxing that final year of business that way. Today, if a business pays its business privilege tax on April 15th and goes out of business between then and the end of the calendar, not only would we not be getting another business tax return from them, but we might actually owe them a refund for that portion of the calendar year in which they no longer operated.
Can you tell us how you're going to treat taxpayers during the transition from the current tax methodology to the proposed changes?
Assuming that both this local legislation and the State enabling legislation are in place in time and that on April 15, 2003 we would be operating under the new rules. We would as a result of the transition language in the State legislation be considering the return that was filed in 2002 on April 15 as an estimated return for 2002. And they would file their final return for 2002 on April 15, 2003, making any adjustments in terms of the total tax due. They would either 83 11/13/02 - WHOLE - BILL 020115, 020436 have a credit or owe additional money based on their actual performance in 2002. They would at that time be paying an estimated amount for 2003 that would be equal to the amount that they owed for 2002.
Thank you. At this time the Chair recognizes Councilman DiCicco.
Thank you, Madam President. Good afternoon, Commissioner.
The last portion of your testimony where you referenced the intent of the bill, you certainly didn't think that the intent of the bill as it relates to the cost of performance -- I agree with you on that one. We actually have an amendment. My legislative assistant will hand you a copy of that. We recognized that as a flaw and we were prepared to offer an amendment. The amendment basically reads in that portion under Section C where it says "receipts," we would strike receipts other than the sale of tangible personal property re in Philadelphia if, Section A, the income producing activity is performed in 84 11/13/02 - WHOLE - BILL 020115, 020436 Philadelphia, or B, the income producing activity is performed both in and outside of Philadelphia and a greater portion of the income producing activity is perform in Philadelphia than in any other jurisdiction based on a cost of performance. So I am full agreement with you that that was a problem with the bill and obviously would have flawed the intent of the bill. That being said, with that amendment, would that change your opinion on the bill or at least the concept of what we're trying to attempt here today?
That flaw as you described it was something that was of particular concern to us because even though we understand the potential benefits down the road of a single factor formula, we felt that the cost of performance aspect that was introduced here would certainly not let us get us to that intention. And so, yes, that would mitigate the problems and issues. It would not remove the concern that we have about the initial cost, and we think this should still be weighed in comparison to other measures that might be used to both stimulate business and create a fairer tax 85 11/13/02 - WHOLE - BILL 020115, 020436 structure and would still want to see it go to the Tax Reform Commission for consideration.
But you also just said that you that this is a good opportunity because you think you could support the single-factor tax legislation going forward.
The potential is there. I think it needs som further study and comparison to other things that we might do to balance and create a fair tax structure, but there certainly strong potential here and know there have been a lot of supporters for the concept of single factor. And right now, there are opportunities for a business that feels that the three-factor formula is really not workable in their situation to appeal to the Revenue Commissioner for a alternative method. And we have a few businesses that are filing with an alternative methods that are single-factor on close to that.
Is it safe to say that then your department would be willing to work with my office and other members of City Council to work on this concept, at least, of the single-factor and come up with something that is more meaningful 86 11/13/02 - WHOLE - BILL 020115, 020436 and less problematic in terms of any budget issues that we may be faced with?
On that same note, in your testimony, and I think it may have been in the testimony of Mr. Cuorato or someone else -- and I know there's a question asked by my colleague Councilman Clarke as it relates to Tax Reform Commission. At the earliest, we're looking at a year from date before any recommendations, if any, that will come out of that the Commission and then we still have to figure out as a legislative body what bills we think are appropriate, what bills are not appropriate and then go through that whole public hearing process. So conceivably, we're looking at anywhere from 18 months to 24 months before anything that comes out of that Tax Reform Commission -- which, by the way, I supported and encouraged people to vote for. So we're approximately two years out before any of these bills may actually become a reality. You said that you would prefer that this bill in particular not be looked at in total 87 11/13/02 - WHOLE - BILL 020115, 020436 isolation and let that be a part of what the Tax Reform Commission is going to be looking at. I have a problem with that, again, for the reasons I just explained that we could be talking at a minimum of months, but more likely 12 to 24 months. And I 7 don't think as legislatures, as elected officials, 8 any of us are going to put any of our ideas and 9 concepts on hold just to wait for the Reform 10 Commission because we still don't know what will 11 come out of that Commission eventually. So I 12 personally will fully continue to look at opportunities that I think are going to be attractive and necessary tools that promote business opportunities in this City in terms of tax legislation. I don't intend to wait two years. And I'm not saying that you're asking me to, but when you mentioned this bill in isolation, I kind of get the impression that we should wait for all our bills, and that is something I'm not willing to do. That being said, I just asked you and I thin you indicated yes that you would be willing to work with my office the other Members of City Council and staff to talk about the single factor.
Certainly. We are 88 11/13/02 - WHOLE - BILL 020115, 020436 always willing to work with Members of Council.
My legislative assistant wants me to apologize for the lateness in producing the amendment, but we didn't get your testimony until today either so I guess we're kind of even on that.
I would just like to mention that with the rare exception of the other bill that we're looking at today which has the potential of being effective for the filing in 2003, we're really at the very closure of the window to effect the tax filings for 2003, and so we would be looking at 2004 even if we were doing this without the Tax Reform Commission. So I think we can and should look at this measure and any others in an orderly way with enough time to do something that's effective for the taxpayers.
And I appreciate that and accept that, but it goes to the question that my colleague Councilman Goode was asking of Mr. Thornburgh earlier. I think you will hear some testimony very shortly from individuals who will 89 11/13/02 - WHOLE - BILL 020115, 020436 testify that there is somewhat of urgency in respect to what some companies are contemplating as we speak whether or not to renew their leases in the next few months, I believe, is what the testimony will speak to. So again, no disrespect to the fact that we're going to wait for the Tax Reform Commission report or reports on various types of tax legislation, we do have -- and you will hear that shortly -- an issue that is approaching us relatively quickly. Thank you.
And even in the process of activities of the Tax Reform Commission, I would imagine we would learn an awful lot more about what can and might work. So I think even with a referral to that Commission, it doesn't necessarily mean that we have to wait until it concludes its activity for every single piece of legislation we look at.
Thank you. No further questions at this time, Madam President.
Thank you. The Chair recognizes Councilwoman Blackwell. 90 11/13/02 - WHOLE - BILL 020115, 020436
Thank you, Madam President. Commissioner, with respect to wage tax collections, what level of collections are we now for October and what do you anticipate for November and December?
I don't exact figures with me. And I'll be happy to share exact figures. But let me say that in general we have seen wage tax collections barely equal last year -- slight increase over last year's collections, but not of any real magnitude. And in some sectors when you look at various business sectors, we actually are seeing declines in wage tax collections year over year. And so there are some real signs of weakness there that are of concern as we look at what's happening both today and going forward. I'll be happy to provide some more detail to the Members of Council on that.
Thank you. The Chair recognizes Councilman Mariano.
Thank you, Madam President. Madam President, unfortunately, Council 91 11/13/02 - WHOLE - BILL 020115, 020436 business is going to take me out of the Chambers so I'm going to leave my vote yes for Bill No. 020115. Thank you.
Thank you. Are there any other questions of Members of the Committee for the Commissioner? (No response.)
Gentlemen, thank you very much for waiting. We appreciate your patience. Thank you. Good afternoon Madam President and Members of City Council. We're here to testify on Bill No. 020436. I am Robert Hornick, CPA, Chairman of the Pennsylvania Institute of Certified Public Accountants, its Greater Philadelphia Chapter on Local Legislation and Taxes. With me today are my colleagues, on my right, Michael Toklish, CPA; and on my left, Matthew 92 11/13/02 - WHOLE - BILL 020115, 020436 Melinson, CPA; both of whom are members of my committee and have a large range of experience with what we'll be discussing here today: The Philadelphia Business Privilege Tax. First, let me state that my committee can be relied upon to support legislation that is good for our clients, good for our profession, and good for our community. I want to underscore that it is the policy of the Pennsylvania Institute of Certified Public Accountants and the American Institute of Certified Public Accountants -- the national organization to which many of our members belong -- to strive for tax simplification wherever possible. I would like to compliment City Council on the recent support that they've given to continuing City wage tax reductions and supporting business-friendly legislation in general. As Philadelphia continues with its tax restructuring accomplishments, the City will be recognized as more and more business friendly, and that is a big step forward. With regard to the issue being discussed here today, our committee strongly supports changing 93 11/13/02 - WHOLE - BILL 020115, 020436 the present Business Privilege Tax income apportionment formula, which is based on the location of property, payment, and sales to a single-factor formula based on sales only. In fact, we've been meeting with various public officials supporting this change for almost two years. This change would be in accordance with a nationwide trend among states and cities. Today, I would like to ,A, restate and describe the problem; B, a suggested solution; C, and explain why the suggested solution will work and be most effect. The problem, A, is the current tax climate in the City of Philadelphia is unattractive for companies that are considering where to locate their operations. While taxes may not be the sole factor considered in businesses' decisions regarding location, they clearly play an important role. The Business Privilege Tax is widely perceived by businesses to be among the most onerous of Philadelphia's taxes. Modifying he current Business Privilege Tax apportionment formula in a manner which we suggest would be an important step in changing the perceived and actual tax advantages of 94 11/13/02 - WHOLE - BILL 020115, 020436 locating within Philadelphia. Let me give you an example to help everyone understand. I know we've gone through this a couple times, bear with me, we'll go through it a little again and I'll try and be short. Let us look at two identical businesses, one located within Philadelphia and the other located outside the City. Each business is exactly the same in the three factors, property, wages, and sales that are the three factors that are considered for the Business Privilege Tax income allocations. Under the present apportionment formula, the business located in Philadelphia will pay a greater amount of Business Privilege Tax than the identical business outside the City. And that fact is illustrated by the that attached page, Schedule 1. I trust everyone has a copy of our testimony.
Thank you. The disadvantage caused by this inequity encourages Philadelphia businesses to move out of the City. It discourages businesses from locating in Philadelphia. In instances of firms with offices both inside and outside Philadelphia, it promotes a 95 11/13/02 - WHOLE - BILL 020115, 020436 policy of keeping work associated with new business outside the Philadelphia office and actually moving work to the suburban office. The Business Privilege Tax formula as it stands today is a relic of our City's proud and industrial past, but that formula is now ill-suited for our service-based economy of today and it is impelling businesses to exit the City as a result. The suggested solution. The solution to this problem is to level the playing field so businesses inside and outside the City with identical business factors will pay the same amount of tax. This can be accomplished by changing the current Business Privilege Tax apportionment formula to a single-factor formula. Again, let me refer to the illustration attached which shows how two almost identical businesses fair under the proposed single-factor formula. You will not that that single-factor formula, each business pays the same taxes you would expect if a level playing field is created for all businesses whether they are in or out of the City. C, why the suggested solution will work and be most effective. To change to a single-factor 96 11/13/02 - WHOLE - BILL 020115, 020436 formula provides a strong incentive for existing businesses to remain here and an incentive to businesses to locate here. Putting the single-factor formula into effect means that in-city businesses will pay less tax and out-of-city business will pay more tax relative to what they're currently paying. That raises the question of whether the City would net more or less tax as a result of these outsetting increases and decreases. According to the Philadelphia Department of Revenue as you have just heard, maybe twice, which has worked with us in the studying this issue, the net tax change is projected to be an annual net loss of about $11 million in taxes. That projected loss is the result of an about $19 million in less revenue from Philadelphia-based businesses and about $8 million from outside-Philadelphia businesses. What has not been put into the mix is the projection of how many businesses will be kept in the City and how many new businesses will be attracted into the City. Those potential gains and losses obviously, as we discussed already, are a little more difficult to project with any certainty. More certain, however, is that if 97 11/13/02 - WHOLE - BILL 020115, 020436 Philadelphia keeps and attracts businesses, those businesses not only pay the Business Privilege Tax, but they also will pay the City Wage Tax, the real estate tax, the sales tax, and the Use and Occupancy tax, and as well, they will spend money locally on the needs of the business and the employees. The proposed single-factor formula change will also simplify the business tax. It will reduce the amount of time and effort that is expended by a business and its professionals to prepare the Business Privilege Tax return. In addition, upon ordered by the City, there would be easier documentation and verification. Now, Philadelphia businesses regularly consider costs they incur in doing business within City limits. The way the Business Privilege Tax is currently structured, it throws equation out of kilter. Businesses run the numbers and clearly see they will have significant tax savings by relocating outside the City. That fact is made crystal clear by the example we have presented. Businesses vote with their feet. And because they can see they can save by moving, they leave the City. Michael Toklish, here on my right, was 98 11/13/02 - WHOLE - BILL 020115, 020436 recently involved with such consideration for a substantial company presently located in the City.
Quite a number of other large businesses in Philadelphia are currently doing the same type of study as major 30-year leases in Center City expire within the next two to five years. Often, we CPAs are consulted to identified new business locations. Matthew Melinson, here on my left, for instance, gets calls on a regular basis inquiring about tax costs of doing business a Philadelphia. For businesses that have a choice right now, we generally cannot recommend Philadelphia as a site for a new business location. We certainly would prefer the City of Philadelphia to be a prime candidate for new business locations.
I apologize for interrupting. Thank you, Madam President. Madam President, I need to leave for other Council-related business, but I'm also aware of a quorum issue. I'd like to ask if the president would consider 99 11/13/02 - WHOLE - BILL 020115, 020436 temporarily recessing the hearing, moving into public, I'd like to leave my vote with regard to both bills, and then reconvene back into a public hearing to finish receiving the gentleman's testimony.
I certainly have no objection to that. (Public hearing adjourned.) - - - 100 COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC MEETING COMMITTEE OF THE WHOLE - - - November 13, 2002 - - - Public Meeting conducted by the Committee of the Whole, held in Room 696, City Hall, Philadelphia, Pennsylvania, on the above date, to consider action on the following: BILLS 020115, 020346 - - - 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 - - - 101 11/13/02 - WHOLE - PUBLIC MEETING
The committee go into the public meeting. The Chair recognizes Councilman Nutter.
Madam President, I wish to leave my vote with regard to supporting an amendment to be made to Bill 020115. I'd also like to be recorded as voting aye on the amended bill.
I think we're take everyone's vote at this time. Your vote will be recorded, Councilman.
Madam President, I think the amendment has not been --
Right. Councilwoman Brown, would you present your amendment, please?
Surely. Thank you, Madam President. I make a motion to amend the Bill 21 No. 020155. It has been circulated to all Members of City Council. (Duly seconded.)
It has been moved and seconded that the amendment be approved. 102 11/13/02 - WHOLE - PUBLIC MEETING All in favor will signify by saying aye. (Aye.)
The ayes have it and the motion carries. The Chair recognizes Councilwoman Brown.
Thank you, Madam President. I move that Bill No. 020115, as amended, be reported out of committee with a favorable recommendation, and a further recommendation for the suspension of the rules to allow for first reading. (Duly seconded.)
It has been moved and seconded that Bill No. 020115, as amended, be reported out of committee with a favorable recommendation, also a recommendation that the Rules of Council be suspended so as to permit first reading at our next Council Session. All in favor will indicate by saying aye. (Aye.)
Those opposed? (No response.) 103 11/13/02 - WHOLE - PUBLIC MEETING
The ayes have it, and the motion carries. At this time, the Chair recognizes Councilman DiCicco.
Thank you, Madam President. At this time I'd like to offer an amendment to Bill No. 020436, and as I've discussed with my colleagues, the purpose is only to do the amendment to the bill and I will hold the bill for further discussion with the Revenue Department and any other person who would like to be involved in that process.
It has been moved and seconded that the amendment be adopted. All in favor will signify by saying aye. (Aye.)
The ayes have it and the amendment has been adopted. And the bill 104 11/13/02 - WHOLE - PUBLIC MEETING will be held to the call of the Chair. This concludes the public meeting. (Public meeting concluded.) - - - 105 11/13/02 - WHOLE - BILLS 020115, 020346 (Public hearing resumes.) - - -
We will now go back into our public hearing. I am sorry to have interrupted you, but I know the councilman has other business to attend to.
Thank you, Madam President. Let me get back to my thought, and you may have done away with the rest of my talk, but I'll still continue here so you will have an idea that we have given it some thought.
As I was saying, we certainly would prefer the City of Philadelphia be a prime candidate for new business locations. If we can attract and maintain businesses because Philadelphia adopts business-friendly tax laws, of course the result will be a positive flow of tax revenue, jobs, and everything else that I call cascades from those. Now, this is important. Until this amendment was made, it's important to understand we 106 11/13/02 - WHOLE - BILLS 020115, 020346 strongly support the change to the single-factor apportionment formula, but we could not support the bill until it was amended with its present wording. The current wording, we thought, would be a major problem by creating a tax elite allowing large multi-location business taxpayers to easily manipulate the interpretation of the present wording before the amendment and those taxpayers could avoid paying thousands and millions of dollars in BPT. It also would have allowed the City to incorrectly tax certain other taxpayers. Specifically, the item that was amended, the cost of performance language, must be removed for us to consider that. Then we would expert support this bill. So now, I see that we will be able to. In conclusion, I wish to state that we believe in changing from the current apportionment formula to a single-factor formula based on sales and will significantly help the City retain and attract businesses. This change is a vote of confidence for the business development in Philadelphia, and it holds forth a potential of more business-friendly tax environment. We urge you to make that change. 107 11/13/02 - WHOLE - BILLS 020115, 020346 Thank you and that is my testimony, Madam President.
Thank you. Thank you very much for your patience. We appreciate your testimony. Are there any questions from Members of the Committee? The Chair recognizes Councilman Clarke.
Thank you, Madam Chair. I just wanted a quick request. Mr. Hornick, I'd just like to ask -- earlier we had had some discussions with the City Controller on getting some information as to trends. And I know by you having to deal with the money of the various companies, you have a real sense of the trends. I will ask that your organization help us put together some information that gives us an analysis on the trends of companies moving in and on out of the City based on this onerous tax. So would you be willing to help us on that?
Sometimes we're somewhat limited in government in terms of our ability to access certain information, so I ask you 108 11/13/02 - WHOLE - BILLS 020115, 020346 to help us with that.
Thank you. Councilman DiCicco, is your light on?
You testify as to some of your clients or companies that you do business with or know of who have leases that their 30-year leases are coming out. Could you be more specific as to the number of companies? Any specifics as to the number of employees who are currently employed in those companies whose leases are coming due? MR. HORNICK:: Well, I don't have the number of companies, but I will tell you the companies we're speaking about are significant size with hundreds and hundreds of employees. Michael, could you address that at all 109 11/13/02 - WHOLE - BILLS 020115, 020346 specifically?
Excuse me. If you don't want to mention the company's name, I can understand that. But if you can say, "Company X that employees whatever number of people," that would be helpful.
Sure. We do have client confidentiality restrictions. But there are probably at least 5 to 10 major firms in Center City Philadelphia, some of whom occupy entire office towers that are presently undergoing these studies as to how much, if not all, of their business enterprises they will move out to substantially reduce the City tax burden they currently have on their operations.
You cannot be more specific as to the number of employees? .
I've done a study for one that has 2000 employees in just one building. I know there are probably 5 to 10 similar other size companies.
They're all expiring 110 11/13/02 - WHOLE - BILLS 020115, 020346 within two to five years. B4t you couldn't move a firm that size in two years. The activity has to begun now.
To find the appropriate location and make the necessary legal documents for spaces and leases and et cetera.
Do you have any idea as to what the average salary of the employees who work in these companies may be?
I don't. A large firm like that could have -- if it's a professional firm, you would have highly paid senior executives making close to a million dollars or more a piece. You could have filing clerks and everything in between. But if it's a professional firm, it's mostly professionals and I would think they're making sizable salaries.
I think it would be 111 11/13/02 - WHOLE - BILLS 020115, 020346 helpful if I ca impose on you gentlemen, it would be helpful to the process going forward in our discussions with the Revenue Department and helpful to Council to look at the potential loss in terms of number of jobs, the amount of the wage tax that is related to those jobs going forward. Again, without being specific as to the name of the company. You can just say that there are four companies, five companies, whatever the amount of companies whose leases are due in the next two to five years and are reviewing their options, what the potential -- not to be overly dramatic about it, but to say these are people who are in fact in that category of potential companies who could leave City, may decide to leave the City as a result of some of the issues we're talking about today. If you can supply that to the Chair, that would be helpful.
Thank you. The Chair recognizes Councilman Ortiz.
Madam Chair, I stepped out of the room when the vote was taken. I'd like to be shown to be voting aye on Bill 020115 112 11/13/02 - WHOLE - BILLS 020115, 020346 and yes on the amendment to Bill two 020436.
Thank you. The record will so reflect your vote. At this time the Chair recognizes Councilman Goode.
Thank you, Madam President. Following up on Councilman DiCicco's question, are any of the firms, not referencing them specifically, that I've talked to about moving out of the City, have any of them specifically cited that if this bill, as amended, they would absolutely stay.
Not of this bill has been widely circulated thought that community yet.
So there is no one you know of if this bill is successfully passed, as amended, will stay? There's not one company --
There's not one company you can cite that if we pass this bill will stay?
I can't quote the names of my clients. 113 11/13/02 - WHOLE - BILLS 020115, 020346
Take a guess at how many companies you think might stay just from successful passage of this bill, as amended?
Of the major ones, I would say that they will all certainly move some small piece out under any circumstance.
But you don't know of any company that will actually just leave because of this particular matter?
Passing this bill would remove the majority of the benefit of them leaving. They would see no more benefit to going.
Councilman, if you recall, when I said the problem, I said taxes may not be the sole factor considered in business decisions, but regarding location, but they clearly play an important role. So we have to look at the situation where a firm considering whether to stay in Philadelphia is going to weigh a number of factors, and this is one of them, in my opinion.
I agree. But successful passage of this bill is not going to 114 11/13/02 - WHOLE - BILLS 020115, 020346 cause any company to stay.
I would like to add this comment that may be helpful. The corporate clients I have done this work for when they staying or going that have done this work for, when they wanted to consider whether they're staying or going, their first question was tax.
Excuse me, sir, you're going to have to identify yourself for the record.
I apologize. It's Matthew Melinson, I'm a CPA also here on behalf of the PICPA.
Councilman, I've done a number of these studies as well. I work in the state and local tax department in one of the big four public accounting firms, and I would state that at this moment I could not cite one business that would stay at this moment. But I bet you that if we dug hard enough we could probably nail a few down over a couple years span. Again, when these studies 115 11/13/02 - WHOLE - BILLS 020115, 020346 are done, they are done basically -- my experience at least, based on the tax law as it currently is. So we'll analyze a number of factors, obviously, amongst our primary factors being considered is taxes. And Bob and Michael's point is well taken. That's obviously not on the only factor. I wouldn't say it's as clear cut always as to whether a business will completely move out of the City or absolutely relocate all of its operations here. Some of the other factors that are considered are they're going minor expansion, where do they want to expand, in their Montgomery County location in their Texas location or in their Philadelphia location.
Let me ask a question. Since we're speaking anecdotally, let's limit the conversation to taxes. Let's say that the only reason for leaving or staying is actually taxes. Do you think that a business company you represent would actually choose to leave or stay based upon a successful pass of the legislation of based upon the fact that they think that this Council is actually going to be deliberative about comprehensive tax reform and look at the tax structure in general? 116 11/13/02 - WHOLE - BILLS 020115, 020346
Probably more the latter. But I believe that under the right facts and circumstances, you could come up with businesses, specifically technology type who are service oriented businesses, that could leave, not choose to expand -- however you want to describe it -- based on this bill passage.
So this bill is probably a good bill as a tax reform measure if it's part of broader package and part of a more thought-out deliberative process?
I would concur with that. I would also say, in my opinion, it's a good bill as a stand-alone.
Oh, I agree it's a good bill as a stand-alone. I'm speaking really in the context of anecdotally in terms of sending messages. How important is it to send a message tat we be more deliberative about reforming our tax structure?
I know our Governor-elect would say that it was highly important to him in terms of the wage tax reductions. And I guess that's a matter of one's opinion, but I believe 117 11/13/02 - WHOLE - BILLS 020115, 020346 serving some of my clients that it's fairly important from a perception standpoint.
Thank you. Are there any other questions of the witnesses before us? (No response.)
Thank you, gentlemen. Is there anyone else to testify on either one of the bills before us? Do you have any other witnesses that would like to testify? (No response.)
Seeing none, this will conclude our public hearing and our public meeting. I thank you all very much for your patience. (Council adjourned at 4:30 p.m.) - - - 118 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of November 13, 2002, were reported fully and accurately by me, and that this is a correct transcript of the same. RE: COMMITTEE OF THE WHOLE ___________________________ Lisa C. Bradley, RPR and Notary Public