T ax I ssues & A ccounting
Real Estate Journal — July 12 - 25, 2019 — 5A
www.marej.com
M id A tlantic
By Stuart A Katz, CPA, MST, Friedman LLP Philadelphia Use and Occupancy Tax
S ince the financial cri- ses of the late 2000s, out-of-town developers
month or $500 per quarter. Where there are multiple ten- ants or businesses occupying a property, the exemption must be allocated equally among all the users. How to Pay on Time. The tax can be filed and paid electronically online through the City’s eFile/ePay site. Monthly filers must file and remit the tax by the 25th of each month. Some small filers can apply to the City to file an- nually instead of monthly. A 1% deduction may be taken as compensation for the expense of collecting and remitting the tax by the person who collects and timely remits the tax due. No commission is permitted for an owner of the property continued on page 8A
Tax? U&O is imposed on business- es who use or occupy real estate within the City of Philadelphia School District to engage in any business, trade, occupation, profession, vocation or any other commercial or industrial activity. The user is subject to the tax, but landlords and their rental agents collect it on a monthly basis from their ten- ants. While the tax is collected by the City, the Commissioner of Revenue administers the tax and the generated revenue is used to fund the school district. Origins of the Use &Occupancy Tax. U&O was birthed in an effort to shift more of the tax burden to commercial and industrial property, while adhering to the
1967 Pennsylvania Supreme Court decision Madway v. Board for the Assessment and Revision of Taxes. The ruling prohibited multi-rate taxation of different types of real estate within a jurisdiction, which is frequently practiced in other areas. Since U&O is not of- ficially a real estate tax, it’s constitutionally permissible. How the City Imposes this Tax. For the fiscal year ended in June 2018, according to the Philadelphia Department of Revenue’s 2018 Annual Report, Use and Occupancy tax collec- tions were $176 million. This represents 16% of collections for the school district. Use and Occupancy Tax collections increased by $37 million from FY17 to FY18, or 26.6%, largely
due to rising property values. In the last ten years, Use and Occupancy Tax collections have increased 43% from $112.7 mil- lion to $175.6 million. The tax is imposed at the rate of 1.21% of the assessed value of the property. The assessed value is determined by the Office of Property Assessment “OPA.” Since 2014, the OPA has been assessing properties based on their fair market value according to the City’s Fair Value Initiative. For years beginning July 1, 2015 and thereafter, there is a $165,300 exemption amount that is sub- tracted from the assessed value of the property actually used for business purposes. This exemp- tion translates into a $2,000 annual exemption, or $167 per
and institu- tional funds have flooded Philadelphia t o cap i t a l - ize on real e s t a t e o p - portunities. However, few out-of-state
Stuart A Katz
developers knew about the city’s hefty and rather confus- ing School District Business Use and Occupancy tax—also known as “U&O.” This article takes a closer look that this tax and explores opportunities for you to ease your burden and focus on growth. Who Gets Pegged With the
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