Tax overhaulers now say they'll work with Nutter

A bill to turn the city's business-tax structure on its head is dead for now, as its Council sponsors agreed Tuesday to instead work with the Nutter administration in the hope of preserving at least some of their ideas.

A critical Council committee hearing scheduled for Wednesday has been postponed indefinitely, and Mayor Nutter has scheduled an afternoon news conference instead.

In a letter to City Council members Bill Green and Maria Quiñones Sánchez Tuesday, Nutter's chief of staff, Clay Armbrister, outlined the areas of agreement that the two camps would collaborate on.

Those include finding a way to exempt the first $100,000 of a company's sales from taxes and close loopholes that allow national corporations and out-of-town companies to avoid paying city business privilege taxes even as they do business in Philadelphia.

Green and Sánchez had hoped to vote the bill out of committee today. Green would not comment. Sánchez could not be reached.

The Council members proposed a radical detour from the city's chosen tax-reform path. The current tax-cutting schedule would eliminate the gross-receipts tax - levied on a company's sales, even if it is not profitable - by 2022. The current rate is $1.42 per $1,000 of sales.

The schedule now in place would also reduce the current 6.45 percent tax on net income - a company's profits - to 6 percent over the same period. Businesses and reformers have argued that the net-income tax targets firms better able to pay.

Green and Sánchez want to flip that formula, arguing that their proposal would shift a large chunk of the tax burden to companies based outside the city while attracting healthy, profitable companies here. They would nearly quadruple the gross-receipts tax over five years and eliminate the net-income tax.

Of the $368 million in business-privilege taxes collected in the last fiscal year, about 75 percent was taken from company profits, or net income, and 25 percent from sales, or gross receipts.

Over two days of hearings Nov. 30 and Dec. 1, accountants testified that non-Philadelphia corporate entities can legally shift their profits out of Philadelphia and circumvent the net-income tax. The gross-receipts tax, on the other hand, raises revenue from every transaction of that company in the city.

But the bill would hurt certain industries while helping others, which raised concerns about certain job losses offset by only theoretical job gains. Nutter, City Controller Alan Butkovitz and the Greater Philadelphia Chamber of Commerce worked against the measure.

The hospitality industry in particular opposed the bill for the extra taxes it would pay, though the hearings revealed that only out-of-town hotel companies would take a hit.

It did not help the bill's case that law firms would benefit most.

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