How Business Taxes Compare

The Headlines Say It All...

"City Tops In Business Tax Burden"

Philadelphia Business Journal

"Thinking About Where To Set Up Shop?

On the whole, you wouldn't rather be in Philadelphia after all."

As the Tax Reform Commission determined, Philadelphia taxes are too high, Philadelphia taxes what other places don’t tax, and Philadelphia taxes are unfair.
 

Philadelphia’s high taxes make us uncompetitive. Most other cities, and most of the jurisdictions surrounding Philadelphia, do not impose the taxes we do, so we are set apart in a bad way.
 

Too often, firms and families focused on the bottom line decide that they do not want to be in Philadelphia.

In 2003, the Tax Reform Commission laid out the cold, hard facts…

Philadelphia’s High Tax Rates

Philadelphia’s tax rates are substantially higher than those of other major cities and nearby suburban municipalities. Since the mid-1990s, the City’s Five-Year Financial Plan has acknowledged that Philadelphia’s unusually high tax rates make it difficult for the city to compete with other jurisdictions in attracting and retaining businesses and residents. In 1996, the City began a program of annual, incremental cuts in the Wage Tax, Earnings Tax, Net Profits Tax, School Income Tax, and gross receipts portion of the Business Privilege Tax. In the past seven years, income-based tax rates have been reduced by over 10 percent and the rate of the gross receipts portion of the Business Privilege Tax has been reduced by over 35 percent. However, the city’s taxes remain among the highest in the country.  Numerous credible studies have concluded that Philadelphia businesses, residents, and workers shoulder an unusually large tax burden.

• In the District of Columbia’s annual report on tax burdens in the large U.S. cities, Philadelphia is consistently ranked as one of the highest taxed cities in the nation. The overall 2002 state and local tax burden on a Philadelphia family earning $25,000 per year is calculated to be the third highest out of 51 cities included in the report. For families at higher income levels, up to $150,000 per year, Philadelphia’s rank never falls below fifth out of 51 cities.
• A 1998 study by Vertex, Inc., a state and local tax research and software firm, found that Philadelphia’s business tax burden was the highest among 27 major U. S. cities. The study estimated the combined federal, state, and local tax liability of a representative service company with $15 million in gross revenue and $1.5 million profits. In terms of local business taxes, Philadelphia’s tax burden ranked fourth out of 27 cities, behind only New York City, Chicago, and Cleveland. While the overall business tax burden in Philadelphia in 1998 declined by 2.15 percent from the 1993 estimate published in a previous Vertex report—more than any other city—the overall tax burden in Philadelphia in 1998 remained the highest among the 27 comparison cities.
• A 2000 report by the New York City Independent Budget Office concluded that Philadelphia’s local tax effort in 1997 was $6.84 per $100 in taxable resources. Only New York City had a higher local tax effort by this measure.
• The city’s tax burden is extremely high compared to its own suburbs. A 2002 study by economist Robert Inman of the Wharton School of the University of Pennsylvania found that the combined state and local tax burden of a typical Philadelphia resident in fiscal year 2000 was 14.4 percent of income. The combined tax burden in the city’s Pennsylvania suburbs was only 9.0 percent of income.
• The City’s Wage Tax and Business Privilege Tax rates are well above typical rates in other cities and local suburbs, as shown in Figure 4.1. The City’s resident Wage Tax of 4.4625 percent exceeds the average local resident income-based tax rate in other cities by 462 percent and the average local earned income tax rate in the 240 municipalities in the western suburbs by 499 percent. Philadelphia’s 6.5 percent tax on business net income exceeds the average rate in other cities by 907 percent. The City’s tax on business gross receipts of 2.1 mills exceeds the average of other cities by 348 percent and the suburban average by between 500 and 775 percent, depending upon the industry.