Friday, December 10, 2010

Locating in Philadelphia? – Watch out for the “Taxman”

phila city hallThe thoughts that dance through the mind of the soon-to-be entrepreneur are of innovation and the freedom to turn dreams into reality.   Anyone who has done more than dreaming will want to quickly decide where to build their dream.  In a search for cities and municipalities that might be conducive to this adventure, Philadelphia is a top choice – in some ways.

Global top 100 cities ranking for innovation in 2010 by the group  2thinknow ranks Philadelphia #6 in the USA and #30 in the world based on cultural assets, human infrastructure and networked markets. Not bad.  Philadelphia has a rich mix of history and culture, along with a go-get-em workforce attitude.liberty bell

But, if you add taxes to the equation, the picture changes dramatically.  Taxes quickly become a central issue for a new business when calculating potential cash flow off of “slim” margins over the first few years.  The City of Philadelphia has a problem here.  Its tax rate is almost the highest in the nation for cities.  There may be brotherly love (and great cheesesteaks), but it comes at a whopper of a price:

PA State tax rate 9.99% on all net profits
Philadelphia Business Privilege Tax 1.415 mills on gross receipts
6.45% on taxable net income
Philadelphia Wage Tax (on gross wages) 3.9% (Resident) 3.5% (Non-Resident)

In 2001 Philadelphia was ranked as one of the worst cities in the country on a taxation comparison for business.  The Philadelphia suburbs have a more attractive taxation picture.  As a result, the city has seen residents and corporations leave the city altogether.  It is a spiral of sorts, forcing the need for higher taxes in the city to keep services whole.  Philadelphia has reduced its tax rates as more progressive politicians try to restore sanity to this spiral, but they are still burdensome. 

On a personal note, Philadelphia even taxes bloggers $300 if they make any revenue (you know, that $4.50 you made last year with the sidebar ads).

I love Philadelphia, and feel that the people, culture, and business community are great.  Yet, if you are starting up a business venture and are making profit maximization a priority, Philadelphia tax rates make the city a poor location choice at this time.

“Let me tell you how it will be - There’s one for you – nineteen for me” – John Lennon, Paul McCartney “Taxman”

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