On November 14, 2011, Philadelphia Mayor Nutter signed two new bills into law that will drastically change the Philadelphia Business Privilege Tax (BPT). These changes are designed to attract more businesses to the City of Philadelphia and to decrease the tax burden for those businesses that are already located in Philadelphia.
The first bill exempts new businesses from Philadelphia Business Privilege Tax and all business-related license fees for the first 2 years of operation. For purposes of this bill, a “New Business” is defined as a business that becomes subject to Philadelphia Business Privilege Tax in Tax Year 2012 or later, and was not subject to Philadelphia Business Privilege Tax during the five tax years preceding Tax Year 2012. Therefore, an existing business that is not subject to the Philadelphia Business Privilege Tax because it is not currently engaged in business within the City of Philadelphia would be eligible to qualify as a “New Business” for purposes of this exemption if it becomes subject to Business Privilege Tax in Tax Year 2012 or later by engaging in business in Philadelphia. There is an employment requirement included in the definition of “new business”. From the 12 month anniversary of becoming subject to the BPT through the 18 month anniversary the business must have three full time employees working in the City who are not family members. From the 18 month anniversary to the 24 month anniversary the business must have six full time employees working in the City. Beginning in 2014, this bill also eliminates the Business Privilege License Fee for all businesses.
The second bill signed into law by Mayor Nutter makes several changes to the both the gross receipts and net income portions of the Philadelphia Business Privilege Tax. The bill phases in an exemption of gross receipts beginning in tax year 2014 with a $50,000 exemption and increasing to an exemption of $75,000 in 2015 and $100,000 for tax years 2016 and thereafter. The gross receipts tax rate, which was originally scheduled to be phased out over the next 10 years, will now remain at the current rate of 1.415 mills for Tax Year 2012 and all years thereafter. This second bill also phases in a non-refundable single factor sales apportionment tax credit to the net income portion of the Business Privilege Tax. This credit will fully implement single factor sales apportionment for tax years 2015 and thereafter. For 2013 and 2014, the Philadelphia Department of Revenue will determine an allowable percentage of the credit that is “fiscally prudent in light of the City’s budget needs.” This phase-in of single sales factor apportionment means that, by 2015, businesses located in Philadelphia will enjoy the benefit of paying the net income tax portion of the Business Privilege Tax based solely on sales within the City. In addition, the phase-down of the net income tax rate to six percent will be slowed down and will finally reach 6 percent for tax years 2023 and thereafter.
It should also be noted that the mandatory estimated Business Privilege Tax payments for any given tax year must be calculated without taking into account any of these changes.
Should you have any questions on these changes to the Philadelphia Business Privilege Tax, please contact your Marcum LLP SALT professional.