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Mayor Cherelle Parker’s plan to boost city revenues via a series of narrowly tailored business tax hikes mostly fell through this year, with City Council rejecting proposed new levies on Uber trips, hotel stays, and deliveries by Amazon and other companies.
Yet the amount of tax that businesses are paying the city is nonetheless considerably higher than it was a couple years ago, due in part to an increase in tax bills on small businesses.
Last year the city ended a decade-old exemption to the Business Income and Receipts Tax, often referred to as BIRT, for the first $100,000 in earnings, in response to a legal challenge. BIRT revenues subsequently jumped, countering earlier Finance Department projections that they would stay roughly flat or even decline over several years.
BIRT payments totaled $680 million in 2024, according to city budget documents. In 2025, after the rule change, they surged to $752 million. The Finance Department estimated they would reach $779 million in 2026 — about $115 million or 25% higher than the agency had previously projected.
In 2027, they’re expected to jump again, to $806 million.
Payments could be growing for multiple reasons, like increased profits among real estate investors who pay the tax. BIRT is “highly volatile and can fluctuate significantly year to year,” per a city budget document. But a chunk of those new dollars come from small businesses that had previously paid little or no BIRT, and were suddenly on the hook last year for several thousand dollars in added taxes.
The amount of their combined BIRT payments is unclear, but likely measures in the tens of millions. The city did not respond to a request for the figure.
The administration sought to blunt the impact of the change on small businesses by budgeting $38.5 million a year for expanded business assistance programs. Those include a $5 million grant program, free tax preparation services and the hiring of more assistance staffers.
But advocates for the affected businesses — which include a range of sole proprietors and gig workers, from therapists to Uber drivers — say the assistance efforts are no substitute for a proper fix. They’re calling for passage of a council bill that would allow one-person businesses to avoid paying BIRT.
The administration has raised objections to the measure, and it has yet to get a hearing in City Council.
The increase in assistance programs “was not a solution. No one thought that was good enough to move the needle,” said Jigar Mehta, a business consultant who helped write the bill. “This is a system failure, right? It’s a structural change that needs to occur. The scale is too big, and there needs to be a change in the tax system.”
‘Most of their income goes away’
Mehta and other advocates say the change is desperately needed because many small businesses can’t afford BIRT, to the point that some are moving out of the city or closing shop.
One solo-practitioner clinical psychologist told council in May that her BIRT bill skyrocketed from $1,213 to $14,774 and she was thinking of retiring early. In addition to levying BIRT on all earnings, the city requires some businesses to pay a second year’s estimated tax in advance, temporarily doubling their BIRT bills.
Philadelphia therapists have been at the forefront of the push for a new exemption, in part because they’re already being hammered by growing competition from AI-driven therapy services, said Mary Harris, a single mom in West Mount Airy who is a therapist and small landlord.
“They were already struggling, and then this thing happened on top of that,” she said. “People who might have been able to support their family on a $125,000- or $150,000-a-year therapist income were already down to $70,000 or $80,000, and now there’s [another] $5,000 right off the top.”
The reimposition of the BIRT tax on all earnings also came as a blow to independent workers like lawyers, consultants, daycare owners, mom-and-pop landlords, and lower earners such as food truck operators, rideshare drivers, and musicians, Mehta said. Many hadn’t had to pay the tax since the exemption was created in 2014.
“Someone making $50,000, their taxes increase close to $1,600. That’s one month’s rent. Then the following year, when you think about the estimated payments, it’s almost $3,200,” he said. “Someone that makes less than a living wage, those are the folks that get hit really hard, because this is most of their income that goes away. This thing could spiral you down to homelessness.”
Ruth Conviser, a therapist who started the Facebook group Philadelphians for BIRT Reform, said members have met with most of City Council to lobby for passage of the legislation.
They met most recently with Councilmember Jamie Gauthier and staffers for Council President Kenyatta Johnson, and have a meeting scheduled with Councilmember Cindy Bass, she said.
Wrestling with uniformity
The city dropped the exemption in response to a lawsuit from Zoll Medical, a Massachusetts medical-device company that does business in Philadelphia. The company argued the exemption violated the state’s Uniformity Clause, which prohibits different tax rates for taxpayers who are part of the same class.
Amid concerns that a court loss could force the city to refund billions of dollars of past BIRT payments, its attorneys settled the case and asked council to end the exemption.
With help from tax lawyers, Mehta crafted a bill that aims to create a narrower, legally defensible BIRT. The measure, which Councilmember Mike Driscoll introduced in November, would redefine the class of businesses subject to BIRT to exclude sole proprietors and one-person LLCs who are “natural persons” — that is, not corporations.
“I would confirm that the bill as written does satisfy the Uniformity Clause,” the city’s chief revenue lawyer Frances Beckley said at a March council hearing.
Mehta estimates the new law would cost the city less than $30 million a year. That’s largely because people who no longer pay the tax will as a result lose a BIRT credit that lowers their Net Profits Tax, or NPT, resulting in a bump in those payments.
When the old exemption was in effect, smaller businesses didn’t pay the BIRT or get the credit, so they’re already accustomed to paying the full NPT.
However, city officials have raised concerns about Driscoll’s bill. Anyone who has a qualifying one-person business would be exempt from paying BIRT on all of their earnings, not just the first $100,000. That could include millionaire consultants and landlords, for example. If their numbers grew, so would the city’s revenue losses, Beckley warned.
“Whatever the revenue projections are today, people are not stupid. If you show them that this form of corporate organization is going to be tax-free, amazingly, there are going to be twice as many people in that form of organization next year,” she said. “So the revenue estimates you get today are a floor, not a ceiling.”
Mehta said it’s possible some people would reorganize their businesses to avoid paying BIRT, but he argued that federal tax law, business lending standards and other factors would limit switching. For example, a real estate developer with partners or investors would likely remain on the hook for BIRT, and other types of big earners typically become corporations to avoid hefty self-employment taxes, he said.
“I don’t see this mad rush of people rushing over to change their tax status,” he said. “They’re going to get audited like you wouldn’t believe.”
Still, it’s unclear when council might bring up the bill and hold a vote. It didn’t happen this past spring, during budget season, possibly because councilmembers were focused on the fight over school funding and the doomed Uber tax, Mehta said.
But he and Driscoll said they’re confident the measure will eventually become law.
“I remain committed to advancing this legislation because it is designed to provide meaningful tax relief for Philadelphia’s small businesses and help make our city a more competitive place to invest and grow,” Driscoll said in a statement. “We expect to move the bill this fall and are encouraged by the support we have received from our council colleagues.”
