THE 411 ON THE BPT: HOW BUSINESSES GET TAXED

By BEN WAXMAN

IN LATE JANUARY, Mayor Nutter announced that Verizon Communications would be moving 403 jobs from one of the company's suburban locations to downtown Philadelphia. It was an early success for an administration that says growing Philadelphia's tax base is a top priority.

Now, Nutter is trying for another victory that he believes will attract more companies to Philadelphia: eliminating the business-privilege tax. Here is a quick guide to this complex and sometimes controversial issue.

Last year, Philadelphia collected nearly $410 million by taxing companies that do business in Philadelphia. Businesses pay a percentage not only of their gross receipts — all the money generated from sales inside the city — but also their net income, or what's left as profit after expenses. The gross-receipts portion of the tax is levied regardless of profitability. This means that a company could be losing money and still be required to pay a hefty tax bill.

The tax is particularly hard on businesses that are both located in and do a large amount of sales in Philadelphia. As illustrated by our chart below, companies situated outside the city actually pay less than their urban counterparts in taxes on sales made inside Philadelphia.

Nutter believes the BPT is a major factor that encourages companies to locate outside the city. His budget calls for gradually eliminating the gross-receipts portion of the tax over the next eight years and reducing the rate of the net income tax by half a percentage point by 2013.

Cutting the BPT has not always had such strong support from the mayor. As city councilman, Michael Nutter introduced a bill in 2004 to repeal the tax; Council approved it, but then Mayor John Street vetoed it...four times. Street said he was concerned about how to pay for city services with less revenue. Nutter was unable to get enough support on Council to override the veto, but made the repeal a centerpiece of his successful mayoral campaign.

Brett Mandel, executive director of Philadelphia Forward and enthusiastic advocate for repealing the BPT, told a Council hearing on Feb. 27 "that changes to the job-killing business-privilege tax would go a long way toward improving the city's ability to encourage entrepreneurship and foster job creation."

Not everyone agrees. Stan Shapiro, testifying at the same hearing, said, "It is highly questionable that business-tax cuts have any net benefit compared to the revenue shortfalls they create."

Ultimately, it's a question of priorities. Are tax cuts the best way to create jobs in Philadelphia or should we spend more money on city services?

Go to the "It's Our Money" blog to speak your piece.

Ben Waxman reports on the budget for "It's Our Money," a partnership between the Daily News and WHYY that will be explaining and covering the city budget for citizens. He can be reached at waxmanb@phillynews.com.