This week is National Small Business Week, when we recognize the contributions that these entities make to the economic engine of the United States. Most business associations, like our friends at the Greater Philadelphia Chamber of Commerce, the Center City Proprietors Association and the Independence Business Alliance, are all taking the time to recognize small business as the staple of American capitalism. Also during this week, we take the time to highlight some of the programs that make it easier for a small business to successfully survive or, in this case of this blog, launch. And, though there are many programs available from the federal government, there are also quite a few offered here in the City of Brotherly Love.
Last year, Philadelphia Mayor Michael Nutter signed a bill that gives new businesses in Philadelphia a two-year exemption from paying the Business Income and Receipts Tax (“BIRT”, formerly the Business Privilege Tax) and Net Profits Tax. Certain fees will also be waived for eligible new businesses for a variety of licenses and registrations, including the Commercial Activity License (formerly the Business Privilege License).
The program, known as “Jump Start Philly”, was created to attract entrepreneurs that would start new businesses and create new jobs in Philadelphia. Currently, Philadelphia imposes a 6.45% net income tax and 0.1415% gross receipts tax through BIRT. The imposition of BIRT, along with a required prepayment for the following year’s tax, can be a significant hit to the cash flow of a new business. The exemption gives entrepreneurs an opportunity to enter th.e Philadelphia market with a tax savings in the first two years.
In addition to the tax savings mentioned, the program exempts qualifying new businesses from the following license fees:
- Commercial activity license
- Amusement license
- Food establishment license
- Sidewalk café license
- Curb market license
- Street vendor license
- Sidewalk sales license
- Center City vending license
- Neighborhood vending license
- Newsstand license
- Handbill distribution license
- Weights and measures registration
- Waste collection and recycling licenses
- Towing license
- Auto repair shop license or permit
- Hazardous chemical license or permit
Please note, all businesses are still required to apply for applicable licenses, but eligible new businesses pay no fee related to the licenses.
To initially qualify as a "New Business" for the above tax and fee exemptions, the business must not have been subject to Philadelphia business taxes at any time during the five (5) tax years prior to starting business activity within Philadelphia. The New Business must also file a “New Business Waiver Application” with the Department of Revenue. A “New Business” does not include the following:
- A business affiliated with, or sharing substantial ownership or control with, a business that have filed a business privilege (or BIRT) tax return
- A business created through an ownership change of a business that has filed a business privilege (or BIRT) tax return, including, but not limited to:
- A merger, acquisition or reorganization
- The transfer of an existing business to a person who maintains the same or substantially similar business
- And the closing of an existing business and its subsequent reopening as the same or similar business
- A business formed for the purpose of evading or avoiding payment of taxes or fees
- A business primarily engaged in holding, selling, leasing, transferring, managing or developing real estate
To maintain “New Business” status, the business must meet certain minimum employee requirements. The business must have at least three (3) full-time employees by the first 12 months of the business and continuously through the 18-month anniversary of becoming a New Business. From the 18-month anniversary through the 24-month anniversary, the business must have at least six (6) full-time employees.
The employees must work at least 60% of the time in Philadelphia and family members (defined as a parent, spouse, life partner, child, sibling or relative-in-law) are not counted in determining if a business has met the employee requirement.
The Tax Warriors® at Drucker & Scaccetti are experts in working through the intricacies of Philadelphia tax law. Our presence in the City for nearly a quarter century has gives us extensive experience in minimizing state and local taxes for local businesses. We are deeply committed to keeping our clients informed of all of the city’s business development and attraction initiatives aimed at reducing their tax liabilities.
If you are not sure about how the “Jump Start Philly” program may impact your new business, click “Ask A Tax Warrior” below and one of our knowledgeable professionals will contact you. We are always prepared to help you with this or any other tax, finance or business-related matter.