PHILADELPHIA (KYW Newsradio) — Philadelphia Mayor Cherelle Parker’s administration has doubled down on its decision to eliminate a business tax exemption that has saved thousands of small businesses from having to pay the tax.
The exemption, which has been in place for more than 15 years, excludes the first $100,000 of income from the Business Income and Receipts Tax (BIRT). Mayor Parker announced last month that she intended to end the exemption because of a lawsuit that claims it violates the state constitution’s tax uniformity clause.
Her position was criticized by members of City Council and the Tax Reform Commission’s Advisory Committee, which called removing the exemption a “reverse Robin Hood.” At least 75,000 small business owners, who’ve never even filed a return, would have to start paying it.
But at a news conference Thursday, City Solicitor Renee Garcia reaffirmed that the city intends to settle the lawsuit rather than fight it.
“If you create a threshold and tax people above it and not below it, you are violating the Constitution, and it doesn’t matter that everybody gets the same exemption. What matters is the effective tax rate,” Garcia said. “A decision requiring a retroactive remedy could have serious consequences for the city, including sanctions, including reimbursements of hundreds of millions of dollars.”
Opponents of ending the exemption remain unconvinced.
Public interest lawyer Jon Stein told KYW Newsradio that there is a good chance the city would win the lawsuit, and even if it lost, he argues, there is no chance a court would impose retroactive remedies, as previous state Supreme Court decisions have ruled those out.
“There would be no downside to the city appealing and a major upside for tens and tens of thousands of small businesses,” Stein said.
Ending the exemption is expected to generate $30 million in new revenue. Parker has said the city will use all of the money to help small businesses with filing the tax and other services.
Philadelphia City Council must ultimately make the decision. It would have to pass legislation repealing the exemption.