Love Philly? So do we. Let’s be friends. Sign up for the Billy Penn newsletter today.
A big tax increase for tens of thousands of Philly’s smallest businesses is causing consternation and drawing urgent calls for a fix.
Jeanine Stewart, a therapist in Center City, said the city tax bill she paid last month soared $8,000 or 60% compared to last year, largely because of a huge jump in her Business Income and Receipts Tax (BIRT) bill.
“It is absolutely crushing and absurd,” she told City Council during a budget hearing Wednesday. “As a result, I’m looking at moving my practice outside of Philly, and I have a tour of an office in the suburbs scheduled for today. So are many therapists across the city.”
Last year, the Parker administration ended an exemption for the first $100,000 of earnings from the BIRT after a court challenge. About 75,000 small businesses, independent contractors and gig workers suddenly had to come up with money to pay much higher tax bills, the city estimates.
The tax hike was a hot topic among members of the public who testified at the hearing, as was a proposed $1-per-trip rideshare tax and other new levies Mayor Cherelle Parker is asking council to approve before the end of June.
Without a change, the BIRT will have “chilling effects” on solo practitioners in Philadelphia, clinical psychologist Karen Eselson Belding said. She said her BIRT tax skyrocketed from $1,213 to $14,774.
“The young professionals I counsel, many of them are simply going to move their businesses outside of the city, rather than continue to pay these taxes,” she told councilmembers. “Older professionals like me will close our businesses early.”
Could a revised BIRT exemption pass muster?
Speakers urged councilmembers to pass a bill sponsored by Councilmember Mike Driscoll that would establish new BIRT exemptions for sole proprietors and single-member limited liability companies.
Driscoll has said his bill was reviewed by the city’s Law Department and he believes it will comply with state law.
However, the new exemptions could run afoul of the state’s Uniformity Clause, as the old BIRT exemption did, and face another legal challenge. The clause says a tax must be applied at the same rate on everyone who pays it.
It’s also unclear whether council will vote on Driscoll’s legislation, which supporters call the LIFT bill.
“All I’m asking for is that we can get a hearing,” said business consultant Jigar Mehta, a leading advocate for the bill. “We just want to talk about it, and if from there, God willing, with God’s grace, we will be able to move forward, maybe they’ll vote and we’ll give some relief to these folks.”
“We’ll make sure you get a hearing,” Councilmember Isaiah Thomas said.
Mehta said low-paid workers who have side jobs are being hit hard by the lost exemption, as are those who lose their full-time positions and become independent contractors.
“These independent workers, they don’t have access to unions. They don’t have a voice out there. I can tell you from personal experience, it’s been very difficult to get people organized,” he said. “If you want to talk about diversity, this is the most diverse group of Philadelphians you can find.”
A pile of narrow business tax hikes
Parker has proposed a nearly $7 billion city budget for the 2027 fiscal year that starts July 1. It does not include increases in property tax rates or broad-based business levies, other than the revised BIRT. But it does depend on a number of new, narrowly tailored business taxes.
Online retailers like Amazon and Walmart would pay a new retail delivery tax of 25 cents per delivery, excluding orders that are solely food, baby products, medicine or medical devices. If approved by City Council, it would raise $15 million to patch potholes and speed up road repaving.
The city would simultaneously expand the sales and use tax to cover residents’ purchases from online businesses based outside the city. That would raise $1.5 million annually.
Two of the mayor’s tax changes would go toward helping the financially strapped school district. The $1-per-ride tax on Uber and Lyft would raise $48 million, and a higher tax on cell phone towers would bring in another $2.4 million.
Uber and Lyft have been advertising and lobbying against the rideshare tax. They argue it would disproportionately affect working-class residents, while the administration cites census data showing that lower-income people make relatively light use of rideshare, and says the companies can absorb the tax.
Several councilmembers have said they won’t vote for the tax in light of the district’s unrelated move to close 17 schools, including Robeson and Lankenau high schools.
Regressive, or a tax on “record profits”?
Activists and residents offered widely varying opinions of the rideshare tax Wednesday. Some rued yet another increased cost for living in Philadelphia, while others praised the effort to prevent cuts to educational programs.
Combined with the BIRT increase, the rideshare tax leaves families feeling “squeezed,” said Nada Mays, a dietitian who owns her own business. “I don’t think that the Uber and Lyft companies are going to absorb the fees, unfortunately. I do think it’s going to come down to the drivers. I do think it’s going to come down to us as patrons.”
“Instead of taxing wealth, we are being asked to support a regressive Uber tax that working families will feel immediately, even though it does nothing to solve the structural deficit of our schools,” said Madison Nardy, executive director of 215 People Alliance, an economic justice advocacy group.
Supporters included caterer David Simms, who said residents should get behind Parker’s effort to bolster public education. “The tax is needed to help save the jobs of our school district personnel,” he said. “I would rather tax the large companies that are raking in record profits than have the residents of Philadelphia get a property tax increase.”
Bicycling advocate Stan Horwitz also praised the per-ride charge, saying it would reduce use of Uber and Lyft. “More Philadelphians will travel via bicycle, thus making safe streets an even higher priority,” and increasing support for more funding of the city’s Vision Zero traffic safety program, he said.
Parker has also proposed a 2% increase in the hotel tax, which the administration said would bring in $20 million a year to expand homeless shelters and services.
Max Ray-Riek, an organizer with National Union of the Homeless, voiced support for the tax, while urging the Office of Homeless Services not to use the new revenue to run inhospitable shelters.
“We are encouraging council to approve the hotel tax and expanded budget for OHS on the condition that OHS invest in permanent housing, not expanding the shelter system,” he said. “Congregate housing is more dangerous, with most shelter residents reporting they fear for their safety due to conflicts between residents, mistreatment by staff, theft and unsafe physical conditions.”
The tax is vigorously opposed by the city’s tourism organizations, which sent a letter to councilmembers Tuesday urging them to vote it down. The proposal “will make Philadelphia less competitive” as it works to bring conventions and conferences to the city, they wrote.
