Glad to see some light shed on how business-unfriendly Philadelphia is, with their exorbitantly high gross receipts tax and city wage tax.
The city wage tax is responsible for the city's 40 year long population decline, and most people now do the reverse commute to neighboring counties, because no business owners in their right minds would begin or continue operations in philadelphia county. In fact, there's a good amount of large companies set up right across the city line. The net effect is you see shuttered store fronts and blight on nearly every street, regardless of how nice the neighborhood is.
And, of course, nobody in city hall understands this. The entire political scene in philly is entrenched, pay to play politics.
Don't get me wrong, if these taxes were making philly a great place to live, I wouldn't be bitching. If they had an amazing transportation system, the streets were nice and pothole free, the services provided were amazing, the homeless had a place to go, the police coverage was very effective, then sure, I'll pay for those great things. However absolutely none of that exists in philly, which makes living and starting a business in a neighboring county that much more attractive.
The wage tax is really obnoxious. I essentially took a pay cut just by taking a job in the city. As you say, it would be easier to swallow if things felt more like Sweden and less like Detroit.
Its not quite fair to complain about this though, since PA state income tax is relatively low (3% fixed). Pittsburgh has city taxes too, something like 1% for Allegheny county and another 2% in the city of Pittsburgh for schools (which non-residents dont have to pay). Even accounting for those taxes, you're probably still around what you would be paying in a lot of other states.
No, the issue is I went from working and living in the suburbs to working in the city. For doing that, I pay an additional 2% in taxes on top of my local (suburban) tax of 1%. The wage tax on non-Philly residents is ~3% and my local municipality will let me count that toward my local taxes. So, it really is a pay cut. It's not going to make me go broke, but it is infuriating.
I did factor it in when deciding whether or not to take the job. In the end, I calculated I would be saving a bit on federal taxes because I would be using regional rail instead of driving (and thus paying for transportation with pre-tax money). It was enough to offset the local taxes.
As I understand it the wage tax was sort of a punishment/band aid for white flight in the 70's and 80's, when companies workers started moving to the suburbs but working in the city, right? The resulting backfire - new business completely moving out of the city - apparently didn't drive much of a point home. I guess it does put money in the bank - at the expense of completely alienating the tax base...
So much of government in Philly is entrenched in a very defeatist / corrupt attitude that hangs like a dark cloud over everything. Honestly sometimes I think what Philly really needs is to have some fresh thinking imported from outside the city.
I agree with you that the wage tax makes the city less attractive to live in than the neighboring burbs. I chose to live in Conshohocken rather than Chestnut Hill/Mount Airy mainly because of the wage tax.
That being said, I do think that the Nutter administration realizes this issue. The problem is that if you cut the wage tax, you have to increase revenue generation from something else. The city is already has revenue issues, so a radical change in tax structure seems unlikely.
JunkDNA and dogas suggest that the taxes are high while the level of service is low. That suggests the problem isn't lack of revenue, but inefficiency due to bureaucracy, corruption, ineffective management or the like. It is almost never a solution to throw money at such a situation.
It seems you really don't object to Philadelphia's "exorbitantly high" taxes at all. What you object to is that these high taxes haven't turned Philadelphia's government into an effective deliverer of all the services that you wish it would provide, which if delivered would result in the city becoming an ideal place. Maybe (since you really don't object to paying "exorbitantly high" taxes) you'd back a proposal to raise taxes to allow achievement of this goal?
Id agree with that proposal if Philly taxes were lower than or on par with the national average, but the fact is philadelphians already shoulder one of the highest tax burdons in the US.
> Maybe (since you really don't object to paying "exorbitantly high" taxes) you'd back a proposal to raise taxes to allow achievement of this goal?
Why the assumption that raising taxes would result in better services? The experience in Philadelphia suggests otherwise, at least as far as Philadephia is concerned.
I most certainly do object to Philly's high taxes. I was merely making the point that you can't even point to decent city services as a positive for enduring high taxes (something you most definitely can do in some other high-tax areas).
My post summarized the post I was replying to (by dogas), highlighting the apparent contradiction contained therein: Philly's taxes are "exorbitantly high" yet dogas would be _happy_ to pay them _if only_ ...
And I added the absurd/tongue-in-cheek suggestion that maybe dogas would be interested in trying to see if _higher_ taxes would achieve dogas' ideal. I think I would have avoided the downmodding by annotating with <tic> to make this clear.
With an unreasonable policy like this and with the city demonstrating an inflexible attitude, it seems likely that there would be other unfriendly policies in place... I am glad I do not live in Philadelphia.
EDIT: Perhaps I was unclear in my comment below. I am by no means endorsing this law. I think it is unreasonable and I do not agree with it. However, that is a separate issue than the question of whether or not the law applies to bloggers trying to make money from their blog, given that the law was already in place. /EDIT
When I first started reading this, I was outraged. "This is a violation of free speach!" I thought, acknowledging that such a law restricts public writing and blogs to those who can afford it.
Then, halfway through the article, it finally clarifies the city's stance with this:
[...] the city requires privilege licenses for any business engaged in any "activity for profit," [...] So even if your blog collects a handful of hits a day, as long as there's the potential for it to be lucrative — and, as Mandale points out, most hosting sites set aside space for bloggers to sell advertising — the city thinks you should cut it a check.
So, the city requires a business license fee from anyone setting up shop to make money. And by putting ads on your blog, that's exactly what you're doing. This seems reasonable to me.
To the Philidelphia bloggers complaining that they have to pay a $300 licensing fee even though they only make $5-$20 per year from ads, I have some advice: remove the ads. It's not worth it. In fact, why would you undermine your blog's credibility [1] for a few measely dollars in the first place?
Cities charge fees for business licenses because traditional businesses require and tax city resources. They create traffic, they create additional overhead on utilities, sewers, and other municipal things.
A blog, however, does none of these things. It requires nothing Philadelphia-specific. You would have the same municipal overhead whether someone runs a blog or not.
It's not reasonable to tax anything that can potentially bring in money as a business. Do I have to get such a license to sell something on eBay or run a garage sale? What if I sell something on craigslist? It would make more sense to charge for any of these because they have more impact on municipal services than just running a blog because I at least have to transport the goods. A blog just requires a visit to a web page.
This is obviously a move of desperation on a group that Philly still believes can be marginalized without disruptive public outcry. If you told the people they couldn't have a garage sale without buying a $300 license from the city, they would freak out. Since blogging is still unfamiliar to most, Philly assumes they can take money for that without stirring up a ruckus. Someone should prove them wrong.
Just because the law applies equally to everyone, doesn't make it a reasonable law. It's dumb to charge every entity that brings in revenue a $300 license fee. From the sounds of it, this law applies to every kid who shovels snow or mows a couple of lawns in the summer. How about if you have a yard sale or sell your motorcycle through the classifieds? When does a person become a business? What this law ends up doing is encouraging people to lie about any minor sources of income they receive. Activities that are done primarily for pleasure should not be treated like businesses in the tax code. That's just unreasonable.
I think you misinterpreted my comment. I am in no way endorsing or agreeing with such a law. I agree with you, it is unreasonable.
However, that is a separate question from the one this article addresses, which is that, assuming this law does indeed exist, does it apply to bloggers who attempt to make money from their blog? Now I haven't read the law itself, so who knows. But if it exists, then it sounds to me like it does in fact apply to them.
Likewise, if a person in Philidelphia sets up a consulting business, I'm sure they are required to pay this fee as well, even if they take a loss the first year, in which case they would have made even less than these bloggers.
The township I used to live in charged $20 for yard sale permits.
And yes, it was enforced. The cops used to drive around every Saturday morning during the summer and issue $50 fines for anyone running an unlicensed yard sale.
It's weird that your solution is to not make any money at all. Isn't the correct solution pretty easy to implement too? Just make the licensing fee apply only after you've met minimum revenue requirements (like $10000 or something).
That is by no means my solution. I agree that this law is unreasonable. However, if the law exists, then it sounds like it does apply to bloggers just as it applies to anyone else trying to start a business in Philidelphia (in this case, by start a business, I mean try to make money).
Note however, that the people in this article did not disagree with the law and set out to protest it. They merely had no idea that they had to pay Philidelphia's licensing fee for making money before they tried to make money. And unfortunately for them, ignorance of the law does not beget exemption.
Repeating an old comment of mine from Marginal Revolution:
I forgot to mention that excessive regulation also makes it impossible to be sure you have satisfied them, as someone else pointed out in respect to the number of laws on the books, "`Ignorance of the law is no excuse' is a sick joke", because it is literally impossible to be informed of all possible legal/regulationary requirements. Does any one remember the problems Clinton had finding a Federal judge who hadn't accidentally broken the law about withholding taxes for child care workers.
> Does any one remember the problems Clinton had finding a Federal judge who hadn't accidentally broken the law about withholding taxes for child care workers.
That's a bad example as that law is well documented in the tax returns.
My parents knew about that tax and paid it. However, it remind them that the ruling class thinks that taxes are for the little people.
Such a law that applies only to publications that make a certain amount of money (exempting others) was rejected in a Supreme Court case called Minneapolis Star and Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, (1983).
Actually, though - - there it was a tax law aimed directly at the press, but only at press who earned over a certain amount of money. This law is aimed at anyone, so at that level of abstraction, Minneapolis Star probably wouldn't be violated (i.e., it's okay to have a tax law that taxes only those who earn at least $1,000, including the press, but not okay to have a tax law that taxes only the press who earn at least $1,000).
regarding your suggestion .....how is a blogger going to know whether his new blog is going to net $10/year or $1000/year without turning on ads and therefore paying the $300 fee ?
Here in Washington state, businesses are required to pay 1.5% Business tax. However, if the business earns less than $28,000, the govt does not collect any taxes. I think a sole proprietorship business license (for a real business, not a blog) costs $15.
imo charging $300 for a license to run a blog with ads is high. Not exempting low-revenue blogs from the $300 fee is also absurd.
Likewise, how is a restauranteur going to know whether their new restaurant will make $50k its first year, or take a $100k loss, before building the restaurant and paying the $300 fee?
I'll go ahead and answer both questions. Just as an entrepreneur can create a business plan and analyze the market, a blogger can do the same. Except with a blogger, it's much easier; if your blog only gets a few hundred visits a day, you know you're in the $10/year range without having to turn on ads or pay the licensing fee.
Not exempting low-revenue blogs from the $300 fee is also absurd.
> how is a restauranteur going to know whether their new restaurant will make $50k its first year, or take a $100k loss
He won't, which is the suggested limit is on revenue, not actual profit. $10,000 revenue is what an average restaurant burns through in a few days (back-of-an-envelope number) in rent, staff and supplies.
Did you mean to say a few hundred visits a year? If you did or you just meant something else...then I'm sorry for the rest of my post. A few hundred visits a day is respectable. Though not easy or common, it is possible to do $10+/day with a few hundred visits/day.
Quick math: let's assume few hundred = 300 visits/day. Also have to assume the blog is self hosted so all revenue is kept in-house (unlike the bloggers in the article). So 300 visits x 5 page views = 1500 pageviews/day. That equals $7 CPM and a bit over $10/day or ~$3,750/year. Not messing with revenue from the feed or anything since this is just hypothetical numbers anyway. The change above the $10 will be enough to pay for hosting + domain costs. Alternatively, if you meant a few hundred views/day then dividing $3,750 by 5 still yields $750. Ah...I'm rambling and I doubt anyone cares too much so I'll stop.
Regarding the actual post, I don't agree with the fee either. This reminds me of a homeless SF guy trying to get back on his feet by shining shoes - SF came up to him and demanded he get a license and some other stuff too. Thankfully there was a small uproar and the city didn't end up screwing him over.
Um sure. The exact numbers weren't really the point. The point was that you can do quick math, just as you did, to get an idea of the potential income from putting ads on your blog before you actually implement them.
Many states do not require you to report income of less than $X on your taxes, where $X is around $500 or so. This article made it sound like that is not the case for Pennsylvania, but maybe we're missing some information here.
If their bill passes, bloggers will still have to get a privilege license if their sites are designed to make money
Even though this is sold as an improvement over existing policy, it's still a bad policy. Adding layers of bureaucracy not only hampers entrepreneurship but it lowers the quality of life, a little chunk at a time. I'm convinced that future generations of Americans won't have the same freedom I had growing up. I know it sounds like hyperbole, but I really do believe that loss of freedom is more likely to happen in baby steps than is some sweeping revolution.
In practice I can imagine how this would be enforced. A typical cat and knitting blogger no one knows about won't be contacted. But the blogger that starts writing critically about the city waste and corruption is suddenly on the radar and will definitely have to pay the tax, and quite likely will be arrested for tax evasion.
In Switzerland cantons have different tax laws, which have led to competition for businesses and very low taxes. I'm wondering why the same thing is not happening in US.
This is on display right around Philadelphia. As soon as you cross the border into neighboring areas, you notice businesses all over the place. Philadelphia has a number of big employers who can't easily relocate including a number of universities and medical centers. My understanding is that many of the really big corporations are given tax incentives to be in the city. Pretty much anyone else has long ago escaped to neighboring counties.
The same thing does happen in America, but local political pressures and interest groups often get in the way. Philadelphia is notoriously a single party town with a crony government that had no incentive to actually improve the town.
Well large corporations often get tax breaks in the US to locate a headquarters or factory in a state. But I think unless you are bringing several hundred jobs to the area, you are out of luck
Because despite assertions to the contrary, most Americans prioritize many things higher than low taxes when they consider a region to live in.
One might argue that some of the regions that collect more taxes provide services that help make them more attractive, but that link is speculative. I would imagine though that the services state and local governments provide are of a broader range than services provided by cantons in Switzerland which may be another difference.
Considering she runs a Wordpress.com blog (which doesn't allow advertising at all unless she hits a certain threshold), something tells me that she's only made money off of eHow articles.
The article doesn't make it clear how Philadelphia asserts jurisdiction over the blogs. Is it blogs hosted on servers inside Philadelphia? Is it blogs hosted on servers administered by someone physically located inside Philadelphia? Is it blogs hosted on servers whose business bank account is in Philadelphia? Is it blogs written by authors who live in Philadelphia? Is it blogs whose Adsense are sent to an address in Philadelphia? And so on.
Personally, I feel like they would have a hard time going after someone who works for a company incorporated outside of Philadelphia. The corporation runs the blog and pays you to write it. The business exists outside of Philadelphia's jurisdiction, and you just do some work on the side for it from Philadelphia.
Interestingly, the literal reading is "every individual ... engaged in an ... activity for profit must file a Business Privilege Tax Return". Sounds like this applies to anyone with income. Sounds like this applies to anyone on unemployment (after all, sitting around trying to keep your unemployment checks coming is techncially profitable).
This sounds like exactly the law that someone making $50 in profit from Google ads can safely ignore.
People incorporate in Delaware for several reasons: corporate legal disputes are handled by judges rather than randomly selected juries; one person can fill multiple roles for a company (e.g., he can be listed as the CEO, treasurer, and secretary -- other states don't allow this); since so many companies do it there is more established case law and precedent (= less risk); and, of course, the filing fees are cheap.
If it's like the rest of Philadelphia's tax laws, then if you come to the city for even a single day, and engage in any business activity, that business must pay the city's taxes. Of course, if you live there, then you obviously meet their condition no matter where your business is registered.
As far as I remember the wage tax applies to anyone who WORKS in Philly (W2's included) or at least it used to. So (as I recall) if you are employed at a company and go to the office in Philly, regardless of where you live you still needed to pay wage tax.
Its absolutely ridiculous, unenforceable and by some counts could be illegal. I know other municipalities in Pennsylvania had lawsuits filed regarding similar issues.
However because its so impossible to enforce you can basically tear up the letter if you live outside the city.
I'm curious when people think something is a "business" vs. a hobby/personal project, in general, in terms of business licenses (not the IRS, which is separate).
For instance, if one were to publish, say, an email newsletter for free with no ads, would that require a business license? Or would it only require one when you went out and solicited ads/started making money?
Edit: I wish all cities had exemptions for tiny/new businesses. Some do. Some don't.
I think having to get a license to do business in full liability is a terrible limitation of freedom, even when it does not cost money. Taxes on business income of course are more justified, I'm complaining merely about the requirement to get a license to do business.
That being said, you probably should not enable advertising on a blog before it has a substantial readership.
I skipped out on Philly wage tax when I moved to Los Angeles... 6 years later and I've never heard anything of it. Maybe their enforcement has gotten better since then, but city taxes are typically a breeze to skip out on.
When I moved to LA I discovered the city tax code here, which gives you a bunch of reasonable exemptions, particularly if you make less than $100k gross you don't pay city business taxes. New businesses are also exempt their first year. And if you screw it up the city will actually have a friendly conversation with you about it and try to help. Can't picture that ever happening in Philly haha
But honestly, politicians have been telling people for years they are getting rid of the wage tax and it never happens. Its just a huge insult to the workers and small businesses that are trying to make the city a better place to live. There has to be a better way to restructure taxes in philly.
If you do a bit of digging around on the City of Philadelphia website, you will find the following text under the Description of the Business Privilege Tax section:
"Every individual, partnership, association and corporation engaged in a business, profession or other activity for profit within the City of Philadelphia must file a Business Privilege Tax Return, whether or not they earned a profit during the preceding year."(http://www.phila.gov/revenue/pdfs/Rev%20PDFs/BPT_internet.pd...)
Basically, this is a $300 one-time licensing fee to conduct a business from a property within the City of Philadelphia.
There are two types of examples that this article uses:
1) Home-based "I'm just dicking around and use Google ads to offset the cost of my basic Wordpress subscription and server" bloggers. This seems kind of shady to me and I would be really interested to see about what an actual accountant and/or lawyer would have to say about this. After all, this is someone going asking the City of Philadelphia's Revenue Department if they have to pay more taxes. That's like going to a divorce lawyer and asking if you need a divorce... of COURSE the answer is going to be "yes."
2) Home-based business that turns no profit - Regardless of the profitability of a business, in the United States (and most everywhere else in the world) you have to pay the relevant city/state/county/federal licensing/inspection/regulatory/screw-you fees. That's the way running a business is. Don't like it? Don't run a business (out of your house or otherwise) if you can't make peace with that.
All in all I find this article to be long on rhetoric, anecdote and high-minded moralizing and short on details and investigative journalism. Were I a denizen of the City of Philadelphia and concerned about this, I would put in a couple of hours of research at the reference desk of the public library and wait for some better analysis on this subject from a slightly more reputable source before shelling out for this fee.
2) Home-based business that turns no profit - Regardless of the profitability of a business, in the United States (and most everywhere else in the world) you have to pay the relevant city/state/county/federal licensing/inspection/regulatory/screw-you fees.
2) does not apply in India, at least. As a 'sole proprietor' you pay taxes on profits as per personal income tax.
No profits, or profits under the minimum taxable limit: no taxes.
Don't like it? Don't run a business out of your home.
That sucks though, because many people are honest and to drive them in to dishonesty with such stupid policies is setting up for bigger dishonesty down the line. If you're already a tax fugitive for $50 why stop there?
Massachusetts is quite sane about this sort of thing. Only those that "[are] conducting business in the commonwealth under any title other than the real name of the person [or corporation]" (http://www.mass.gov/legis/laws/mgl/110-5.htm) need to file for a business certificate. So, sole proprietors and incorporated entities are exempt, leaving only those operating under a different name (e.g. DBA's and such). The filing fee is also far more reasonable: for example, $50 in Northampton and Boston, $40 in Holyoke.
Another nail in the coffin of the antiquated "taxachusetts" term.
The city wage tax is responsible for the city's 40 year long population decline, and most people now do the reverse commute to neighboring counties, because no business owners in their right minds would begin or continue operations in philadelphia county. In fact, there's a good amount of large companies set up right across the city line. The net effect is you see shuttered store fronts and blight on nearly every street, regardless of how nice the neighborhood is.
And, of course, nobody in city hall understands this. The entire political scene in philly is entrenched, pay to play politics.
Don't get me wrong, if these taxes were making philly a great place to live, I wouldn't be bitching. If they had an amazing transportation system, the streets were nice and pothole free, the services provided were amazing, the homeless had a place to go, the police coverage was very effective, then sure, I'll pay for those great things. However absolutely none of that exists in philly, which makes living and starting a business in a neighboring county that much more attractive.