Philadelphia Businesses Face Different Tax Rates Depending on Size, Industry and Operations

Businesses in Philadelphia face different tax rates depending on their size and industry. Large businesses pay a 7.1% effective tax rate, while small businesses pay 3.2%. Even smaller businesses pay less than 1%. The effective tax rate directly impacts profits, according to Ginsberg. For BIRT, the median effective tax rate is 3.5%.

Different industries have varying effective tax rates due to their unique operations and the city’s tax structure. Wholesale trade businesses have the highest effective tax rate at 6%, while real estate companies pay 2.1%. This discrepancy is because of the city’s unique net income and gross receipts tax structure, which differs from most cities where taxes are imposed on one factor, not both.

Combining BIRT and Net Profits Tax contributes around 16% of the city’s revenue. Certain industries like nonprofits, health care, and social assistance have different tax brackets, despite employing 24% of the city’s workforce. Despite this, the health care sector only accounts for 5% of BIRT revenue. Professional, scientific, and technical businesses are the largest contributors to BIRT revenue at 25%.

In contrast to last year’s slight lowering of the BIRT tax rate by Philadelphia City Council and Mayor Jim Kenney’s administration, there are no plans from the new administration under City Council and Mayor Cherelle Parker to provide similar relief to businesses in Philadelphia.