Philadelphia Revenue Department Clarifies COVID-19 Relief
Philadelphia is balancing the joint desire to help businesses that are being crushed by the COVID-19 pandemic while still trying to stay solvent itself. In addition, it is struggling to deal with new situations within the statutory framework of Philadelphia’s taxation.
We attempt here to summarize the most important items confronting the real estate community. This is a fluid situation. The city expects to be posting updates to a special COVID 19 information page.
- BIRT/NPT. Filing and payment deadlines extended until July 15. Normally, estimated payments are required to be made at the prior year’s taxes. But, if a business expects 2020 taxes to be lower than 2019, it may pay 2020 estimates based on the assumed 2020 income. If payments due by 7/15 are paid late or if the estimated 2020 taxes turn out to be too low, penalties and interest will apply from April 15, 2020.
- School Income Tax. Filing, but not payment, deadline extended until July 15. If a filer is unsure of 2019 income, there is a payment safe harbor based on the prior year’s income, which is to be trued up by July 15.
- Real Estate Taxes. The payment deadline is extended from March 31 to April 30. The revenue department has no knowledge as to when the Office of Property Assessment (OPA) will mail proposed 2021 assessments and what procedures OPA will implement for taxpayers seeking lower values to reflect COVID-19 value impairment.
- U&O Tax. If a business is required to be closed by order of the Mayor or Governor and it in fact is closed, its space can be listed as vacant on U&O filings during the period of closure. However, if a business continues to use its space it has to pay U&O. For example, if a restaurant continues to serve take out and or delivers food, it pays U&O even if its dining room is closed. The city has clarified that someone coming in to check the mail or make sure everything is okay is not inconsistent with vacant status. However, if a portion of a business is essential and the space is available for work, no portion of the business’ space will be deemed vacant. For example, if the relevant orders allow trial lawyers to prepare for trial and space is available for that purpose, it is deemed occupied. But, if the law firm closes the space and does not allow entry, it most likely is vacant. The city knows there is an ambiguity here and encourages taxpayers to write to the technical staff seeking case by case determinations.
- U&O Calculations. The U&O regulations require an annual calculation. The city expects to publish guidance later this week on how the COVID-19 vacancy factor should be calculated.
- U&O Landlord Considerations. If a landlord collects U&O, for space that is considered vacant, it is required to refund the tax attributable to vacant space to the tenant. As previously stated, the city still must clarify how vacant space is pro-rated for tax calculation purposes. The fact that there may be ambiguity as to whether a space is vacant, but the landlord is required to collect tax for occupied space, puts landlords in an awkward position. If the landlord knows that employees of the tenant are using the space for the tenant’s business from time to time but the tenant insists it is closed, we should discuss the landlord’s options.
- Work at home issues – Philadelphia Businesses. If non-resident employees elect to work at home rather than at the office, wage tax is still due. If an employer closes its office or otherwise requires a non-resident employee to work at home, no wage tax is due with respect to outside-of-Philadelphia work.
- Work at home issues – Non-Philadelphia Businesses. A business located outside of Philadelphia which is forced to close by the COVID-19 emergency may have Philadelphia residents working from home. Theoretically, this creates a Philadelphia payroll and a business connection to the city. The revenue department is studying this issue and expects to publish guidance in the coming days.
- City Audits. Tax Filings. As of today, all audits and discovery requests are on hold. Certain tax functions are proceeding. Taxpayers can file returns and pay taxes electronically. While due dates have been extended until July 15, the city is on a June 30 fiscal year and they are hoping that taxpayers who can do so, will file and pay taxes by June 30.
The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.
Author Lawrence J. Arem is a partner in the tax practice group at Klehr Harrison. He can be reached here or at 215.569.4142.