Philly’s Tax Deliquents Need to Pay Up

Before Mayor Nutter raises taxes again, he should collect the hundreds of millions of dollars owed to the city.

The Mayor has proposed another tax increase this year. (And in his proposed legislation he wants City Council to approve another tax increase for next year too). Philadelphians aren’t happy about more tax increases, but if we are not going to increase taxes and we are unable to become more efficient, where can we find the money to run city government? If we can at least collect what is already owed, we can generate millions.

The City of Philadelphia is owed hundreds of millions of dollars in uncollected taxes, fines and fees. All the while, overtaxed residents and employers pay some of the nation’s highest tax bills. If the Mayor has his way, those tax bills will continue to rise, but they don’t have to.

There is no mystery in why so many do not pay their fair share. Some Philadelphians cannot afford to pay their tax bills. Others simply have no fear of facing consequences for not paying. In a city with such a high poverty rate, there is definitely a can’t-get-blood-from-a-stone element to pursuing those who are not paying their bills, but Philadelphia falls far short of other cities when it comes to making those who owe, pay.

In his 2011 award-winning series, A Deluge Of Deadbeats: The Delinquency Crisis, reporter Patrick Kerkstra detailed how the City of Philadelphia fails to collect what it is owed: nearly $500 million in Real Estate Taxes. With more than 110,000 delinquent properties, Philadelphia has many, many more tax deadbeats than other comparable cities—New York has twice as many properties but fewer delinquencies than Philadelphia; Boston has a delinquency rate of 3.4 percent while Philadelphia’s is 19.2 percent.

The situation has gotten worse, not better in recent years and is not limited to Real Estate Taxes.

Every dollar collected for the School Income Tax (on various classes of unearned income) and the Liquor Sales Tax (on retail sales of alcoholic beverages at restaurants and clubs) goes to the School District to fund the education of Philadelphia’s children. But, our schools lose out on millions of dollars each year because of lax tax-collection efforts. I last examined Liquor Sales Tax collections when I worked for the City and found that Philadelphia did not collect the tax from about one-third of the establishments that should have been paying. When a similar tax was being considered by Allegheny County, the fact that Philadelphia did not aggressively collect this tax was actually offered as a selling point for enactment, as backers suggested that many establishments would not have to pay up.

The total amount of annual School Income Tax revenue is ridiculously low considering the estimated amount of unearned income in Philadelphia’s economy. Anecdotally, many Philadelphians do not even know this tax exists and accountants have confessed to me that some advise their clients that this tax is practically voluntary given the City’s ineffective collection efforts.

The much-reviled Business Privilege Tax (or whatever it is called now that we have renamed it) obligates every firm that does business in Philadelphia to pay a tax on receipts and net income. But, many companies—especially suburban firms— just don’t pay. Essentially, if a business delivers its goods into Philadelphia or performs its services in Philadelphia, it should pay the tax. Want a fun game to play? Find a truck from a suburban company delivering wares in Philadelphia and call the City Revenue department to see if the firm is paying what it should. Chances are good that it is not.

City collections of fines and fees for misdeeds like sanitation violations are similarly weak. It’s almost as if we don’t want to generate the revenues. If collection efforts are much more bark than bite, we will not only do little to discourage homeowners and business owners from violating rules and regulations, but the City will go without millions that should be collected to fund City activities.

So, before the Mayor and City Council go ahead and raise taxes (again) this year—and next year—they should step back to promote better collections. Before Philadelphians who actually do pay taxes and comply with City regulations endure yet another increase, we must do more to collect from those who do not.