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JumpStart 2014: Doing Business in Philadelphia

Philadelphia Corporate Tax Rate
Philadelphia Corporate Tax Ratewww.youngphillypolitics.org

Philadelphia, the original capital of these United States is trying to shift along with the Federal government to supporting the economic engine of this country which is small businesses. Small businesses are trying to sustain themselves and each other by implementing technology!

Young Philly Politics, http://youngphillypolitics.com/files/uploads/PowerPoint%20re%20BPT%20--%209-30-10.pdf, reported in September on 2010, that under current law:
•  the gross receipts portion of Business Privelege Tax (BPT), currently 1.415 mills (0.1415%), is scheduled to be eliminated in 2022;
•  the net income portion of BPT – now 6.45% and paid primarily by Philadelphia-based businesses – will be reduced only 0.45% to 6% over same time period;
•  combined with the state-level corporate net income tax of 9.9%, businesses based in Philadelphia would still face an income tax burden of nearly 16%, one of the highest in the country.

It has been observed in the Young Philly Politics report that :
•  the 2003 Tax Reform Commission noted that “businesses and residents can move within a region to avoid paying high local taxes while still enjoying many of the region’s benefits.”
•  This analysis was echoed in the 2009 report of the Mayor’s Task Force on Tax Policy and Economic Competitiveness, which observed that “[t]ax savings from moving to a lower cost community in the same region no longer means losing one’s labor force, customers, or suppliers.

Fox Rothschild LLP (http://www.foxrothschild.com/newspubs/newspubsArticle.aspx?id=4294970773) reports, "On Nov. 14, 2011, Mayor Michael Nutter signed legislation intended to provide relief to Philadelphia businesses subject to the city's business privilege tax. In follow-up legislation, the name of the BPT was changed to business income and receipts tax. The BPT has long been viewed as an impediment to Philadelphia's economic growth and sustainability since it often results in Philadelphia-based businesses paying a significantly higher amount of tax than similar businesses located outside of the city. The presence of a taxable activity in the city for purposes of the BPT is essentially a factual determination made on a case-by-case basis. The city has been extremely aggressive in determining what constitutes the presence of a taxable activity in Philadelphia for purposes of imposing the BPT. The BPT has two components — a tax on gross receipts and a tax on net income. For this purpose, "receipts" is defined to include cash, credits or property received from conducting any business or by reason of the sale or leasing of goods or the provision of services. Receipts from the sale of goods delivered to a location regularly maintained by the purchaser outside of Philadelphia are generally not counted as receipts subject to this component of the BPT.
With respect to the net income component of the BPT, alternative methods are provided for the calculation of such net income. Only that portion of net income attributable to doing business in Philadelphia is subject to this component of the BPT. This methodology utilizes a three-factor test that measures the amount of business property located within or outside of Philadelphia, the amount of the payroll attributable to employees located within Philadelphia or outside Philadelphia and the amount of gross receipts attributable to activities within or outside Philadelphia.
Beginning in 2014, taxpayers will be able to exclude the first $50,000 of gross receipts from the gross receipts component of the BPT. This exclusion increases to $75,000 in 2015 and to $100,000 in 2016 and thereafter. A deduction is also provided for the pro-rata portion of net income attributable to the gross receipts exclusion. It is anticipated that these exclusion amounts, when fully phased in, will result in a significant number of small and startup companies being exempt from any tax liability under the BPT
."

To encourage businesses to operate in Philadelphia which subjects the business to the BPT tax, the usual lifetime fee of 300 has been eliminated as of January 1, 2014. Hopefully, by the print of this article the website has been updated so the license can obtained online! The business.phila.gov website (https://business.phila.gov/Pages/BusinessPrivilegeLicense.aspx?stage=start&type=all%20business%20types&section=Licensing%20%26%20Regulations&BSPContentListItem=Commercial%20Activity%20License%20(formerly%20Business%20Privilege%20License) reports "A Commercial Activity License is required for all businesses operating in Philadelphia. This includes businesses that are located outside the city limits but do some or all of their business activity in the City. Also, if you receive payment for work and an employer does not pay wage taxes on your behalf for that work, you are considered a Sole Proprietor and treated as a business by the City of Philadelphia. You are required to apply for a Commercial Activity License to work as a Sole Proprietor in the City.
Prerequisites:

  • Federal Employer Identification Number or, if you do not have employees and are a sole proprietor, a Social Security Number
  • A City of Philadelphia Tax Account Number
  • The Pennsylvania State Sales and Use Tax Number is a prerequisite if your business collects sales tax from your customers.

To obtain a license online:
If you already have a City of Philadelphia Tax Account Number, and need only the Commercial Activity License, apply online @ https://secure.phila.gov/LI/Licenses/
In person: Visit the Department of Licenses & Inspections at the Municipal Services Building, Public Concourse Level, 1401 John F. Kennedy Boulevard."

Though the license is free, different activities still require a permit. Examples include "Construction/Renovation, Alterations Permit, Art Commission, Certificate of Occupancy
Cooking Extinguishing Systems, Demolition Permit, Fire Suppression System Permit
Foundation Only Permit, Lawful Occupancy Sign, Mechanical Permit, Modular Construction (Residential) Permit, New Construction and Additions Permit, Sign Permit, Tank Permit, Electrical Permit, Mechanical Permit, Installing Fire Safety Systems, Cooking Extinguishing Systems Permit, Fire Certificates - These certificates are for those in the Sprinkler fitters and installation trades., Fire Suppression System Permit
Laundry - Air Permits Businesses are required to obtain pre-construction permits prior to installing certain equipment that creates or controls air pollution, Parking Garages and Lots - Any parking garage that is below ground or enclosed must have a mechanical ventilation system to make sure that the garage does not develop dangerous levels of carbon monoxide., Plumbing Permit - Plumbing permits are required by the City to assure that plumbing installations are performed by licensed personnel and that the installations are in compliance with City and State Codes., Certificate of Rental Suitability- This certificate is required of landlords who wish to rent a property to new tenants., Tobacco Retailer Permit and Information - The City of Philadelphia requires all tobacco retailers to obtain permits for the retail sale of tobacco products and certain other products containing nicotine. and Waste & Towing - Dumpster, Hazardous Material"

Now you are ready to do business using technology in Philadelphia!

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