Tax break sunsets on Jan. 1; Philadelphia IT companies don't answer call to testify in City Council

BYLINE: Athena D. Merritt

A 6-year-old law that has given information technology companies a break on the gross receipts portion of Philadelphia's business privilege tax will expire this month.

Businesses who failed to step forward and fight for its preservation will notice the loss come April 15, when their 2006 taxes are due and also when they project the cost of 2007 taxes and can't use the credit, an official for City Councilman James Kenney said.

The Greater Philadelphia Chamber of Commerce, which worked with Kenney to get the law enacted, said it was told by the city Revenue Department that about 170 firms take advantage of the tax break. When City Council recessed this month, leaving behind legislation introduced by Kenney in October that would have extended the tax break for another five years, the chamber had yet to find even one company to speak on its behalf.

"If people aren't interested in pursuing this, I'm not going to drag them through the coals," said Denise Earley, director of public policy for the chamber. "I would like to do this on behalf of the industry, but nobody is showing a lot of interest at this point."

The chamber has reached out to businesses and numerous organizations, including the Eastern Technology Council, to no avail. Phone calls by the Philadelphia Business Journal to the technology council, as well as to Innovation Philadelphia, which was formed by Mayor John F. Street to spur the growth of tech companies, were not returned.

To gain City Council support for the extension, Kenney said he must provide witnesses that can speak to its benefits; the chamber alone is not enough.

"I need some down-on-the-street-type of testimony to convince my colleagues that extending it is the right thing to do," Kenney said. "Many of these companies have high startup costs and don't always turn a profit in the early years, and because of the daunting nature of the gross receipts tax (which taxes businesses whether they make a profit or not) we didn't want them to go out of business before they could turn a profit."

Companies not exempted paid a 6.5 percent tax on net income and 0.1665 on gross receipts under the city's business privilege tax this year. A proposal by Street, sponsored by City Councilwoman Jannie Blackwell, will lower the gross receipts portion to 0.154 percent next year and 0.1415 the following year. A complete waiver of the gross receipts portion of the business privilege tax makes Philadelphia more attractive to tech firms, which typically can settle anywhere, said Paul Mathison, owner of the consulting firm PJ Mathison.

"It's because [they] can locate anywhere that Philly should be particularly sensitive to this bill," Mathison said. "If this were allowed to expire, as the word gets out, it sends a bad message that Philadelphia is not friendly to tech companies."

City Council will reconvene Jan. 23 for the mayor's budget address. However, it will not return to session until Feb. 1. For the extension to happen, a public hearing would have to be held on the legislation, it would have to be voted out of committee, be given two readings and then approved by the majority.

"Maybe there's a reason," Kenney said of the apparent lack of interest by IT companies in his proposal to extend a tax break that would benefit them. "A lot of times business people don't want to be in the spotlight making these requests, but I do think it's helpful to get real life stories of struggle and why this would be helpful."