How to Cheat on Your Taxes, Philly Style

A couple of weeks ago, during a frantic, though futile, effort to catch up with the pile of accruing New Yorker issues on my nightstand, I read a fascinatingly detailed piece by business writer James B. Stewart. In “Tax Me If You Can,” Stewart explores the maniacal methods that people in New York—mostly people who would fall into the disgustingly, disturbingly, mindblowingly wealthy category—use to avoid paying taxes to the City of New York. And so I wondered, what do people and businesses in Philadelphia do to avoid paying their taxes?

“There’s really nothing clever going on here,” says Philadelphia tax reformer Brett Mandel. “Sure, you could try the address outside the city scheme, but by and large, Philadelphians just cheat by simply not paying their taxes. It’s not like anyone has shell locations offshore in Wildwood.”

Here are five easy ways you can avoid the Philadelphia tax collector:

Tax Cheating Tip #1

OPEN A HOTEL
When you check out of a hotel in Philadelphia, you’ll note a hotel tax on your bill. Many municipalities charge hotel taxes to hotels in their city limits. Hey, it’s the cost of doing business. The difference here in Philadelphia is that many hotels just don’t turn the tax that you pay on your bill over to the city. That’s right. They charge you a hotel tax to cover their costs, and then they turn around and keep it instead of paying up. Not a bad scheme, eh? As of 2011, there were 27 hotels in Philadelphia with outstanding tax bills. In total, Philadelphia hotels owe the city $2,583,252.30.

Tax Cheating Tip #2

GET PEOPLE DRUNK
Think the hotel scheme is a good one? Sure, you can pocket some pretty decent coin, but you’ll also have hundreds of employees and thousands of guests keeping you up at night. Perhaps something more your speed would be opening a bar. No, not anything too flashy. Just a little neighborhood job in the Northeast or Port Richmond, perhaps. I know you’re wondering, Why the hell would I want to open a bar? In good olde Philadelphia, there is a 10 percent schools tax assessed on each drink you order when you belly up. But do you think bars actually give this money to the tax collector? In many cases, they don’t. “When you go to a bar and order a $10 Grey Goose vodka, you owe the schools a buck,” explains local tax reformer Brett Mandel. “But the city doesn’t collect that tax from something like one-third of the establishments with liquor licenses.” Right now in Philadelphia, there are $31,019,616.24 in outstanding liquor taxes. Yes, $31 million. It’s not like the schools could use that money or anything.

Tax Cheating Tip #3

WHAT BUSINESS PRIVILEGE TAX?
No doubt you’ve heard about the reviled business privilege tax, the hefty tariff the city charges anyone who does business within city limits. Or, let me correct that. It’s the hefty tariff that the city charges anyone it knows about who does business in the city. “In order to pay your business privilege tax, you first have to register as a business with the city,” points out Deputy City Controller Harvey Rice. “And many businesses just don’t register.” Rice’s office conducted an unscientific study. They identified hundreds of local businesses offering home repair or remodeling services in a Philadelphia newspaper and checked the business names against the city’s registry of businesses. According to Rice’s research, the city didn’t even know that 60 percent of the businesses existed. And hey, even if you “do the right thing” and register as a business with the city, it’s not like you actually have to pay the BPT: Philadelphia is owed $377,967,669.15 in outstanding business privilege taxes.

Tax Cheating Tip #4

IGNORE THE SCHOOLS UNEARNED INCOME TAX
Chances are, if you work for a company in Philadelphia, you don’t file any income tax paperwork with the city, because your company withholds your city wage tax that you owe and turns it over to the city on your behalf. (Or they withhold it and don’t turn it over, as is often the case, especially in the construction business. The total amount owed in city wage tax is $201,529,113.51 and counting). But you’re still supposed to report any unearned income, like legal settlements, gambling proceeds, dividends, stocks, etc. Oh, you don’t report your unearned income and pay the school tax on it? That’s OK. Neither does anyone else. “It’s almost voluntary,” observes Mandel. “Enforcement isn’t heavy. Accountants will fill out forms and say, ‘It’s up to you if you want to put this in. I can’t make you.'” Case in point: There is $5,702,898.34 in delinquent tax on these proceeds. And that’s the money the city knows about.

Tax Cheating Tip #5

ASK THE CITY TO LOAN YOU THE MONEY
So let’s say you decide to tell the city to go screw itself on taxes. Eventually, they may catch up with you (the key word being may), and you’ll get a letter in the mail from some local tax office telling you what you owe, with penalties and interest. “But all you have to do is say, ‘I’ll pay up in full if you waive the penalty and interest,” advises Mandel. “And they will almost invariably say OK. So essentially, you’re getting a no-interest loan from the city.”