Philadelphia business owners woke up to significant news on June 6, 2025, as City Council reached a preliminary agreement on Mayor Cherelle Parker’s $6.8 billion budget for fiscal year 2026, marking one of the most comprehensive sets of tax reforms and business policy changes in recent memory. These changes, which received preliminary approval on June 5, 2025, will fundamentally alter the tax landscape for businesses operating in Philadelphia and require immediate attention from business owners and their accounting professionals.
Major Tax Changes Taking Effect
Business Income and Receipts Tax (BIRT) Modifications
The most significant change affecting Philadelphia businesses involves comprehensive reforms to the Business Income and Receipts Tax. While the budget includes planned reductions to BIRT rates, it simultaneously eliminates a popular small business exemption that has provided substantial relief to smaller enterprises for the past decade.
BIRT Rate Reductions: The approved budget continues the gradual reduction of BIRT rates, with the gross receipts portion decreasing from 1.410 mills to 1.380 mills and the net income portion dropping from 5.71% to 5.50% by fiscal year 2030. These reductions are estimated to provide $210 million in tax relief through 2030, demonstrating the city’s commitment to making Philadelphia more business-friendly over time.
Elimination of Small Business Exemption: However, businesses will face a significant change with the elimination of the BIRT exemption that previously excluded the first $100,000 in gross receipts from taxation. This exemption, which has been in effect for a decade, allowed many small businesses to pay no BIRT at all and reduced tax burdens for all companies. The Parker administration defended this decision as necessary due to legal challenges that could have resulted in “devastating financial consequences” if the city attempted to defend the policy in court.
Use and Occupancy Tax Changes
Alongside the BIRT modifications, the city is eliminating the $2,000 annual exemption for the Use and Occupancy Tax, which affects businesses operating from properties in Philadelphia. This change will impact any business physically located in Philadelphia, including those operating from residential properties, as the tax applies to 1.21% of the assessed value of properties used for business purposes.
Wage Tax Reductions Continue
In positive news for businesses and employees, the budget resumes incremental wage tax reductions that had been temporarily paused. Both the resident and non-resident portions of the wage tax will decrease from 3.75% to 3.70% and from 3.44% to 3.39%, respectively, by fiscal year 2030. These reductions provide relief for businesses managing payroll costs and may help with employee retention and recruitment efforts.
Additional Tax Modifications
Real Estate Transfer Tax Increase: To fund the ambitious housing initiative, the city will increase the real estate transfer tax, which will affect businesses involved in property transactions and real estate development.
Construction Impact Tax Elimination: In a move designed to encourage development, the city is eliminating the Construction Impact Tax, which previously generated $3.7 million annually for the general fund. This change directly supports the housing initiative by removing barriers to construction.
Parking Fee Increases: Center City businesses and their employees will face higher parking costs, with meter rates increasing from $3 to $4 per hour in core Center City and from $2.50 to $3.50 per hour in the Center City fringe area. The bulk of this additional revenue will support the School District of Philadelphia.
Small Business Support Programs
Recognizing the impact of eliminating the BIRT exemption on small businesses, the city has allocated substantial resources to support affected enterprises through the new “Jumpstart Business Program”. This comprehensive initiative includes $30 million annually, totaling $150 million over five years, and encompasses several key components that accounting firms should help their clients understand and access.
Business Education and Capacity Building: The program allocates $11 million toward business education services that will serve an additional 6,500 businesses annually. These services include tax preparation assistance, bookkeeping support, general business education, and coaching – services that complement but don’t replace professional accounting assistance.
Enhanced Business Support: The Mayor’s Business Action Team will expand by 15 new staff members, providing direct support to approximately 1,300 businesses per year with guidance on city processes, service referrals, and resolution of complex regulatory issues.
Direct Capital Assistance: Perhaps most significantly for growing businesses, the program includes $19 million to increase direct capital provided to Philadelphia small businesses through proven impact programs. Approximately 750 businesses are expected to benefit from grants for commercial real estate purchases, emergency situation survival, expansion on targeted commercial corridors, and general growth support.
Housing Initiative and Economic Development
The preliminary budget approval includes $800 million in borrowing authority for Mayor Parker’s Housing Opportunities Made Easy (H.O.M.E.) initiative, which aims to build, preserve, or restore 30,000 housing units. While primarily focused on housing, this massive infrastructure investment will create significant opportunities for businesses in construction, real estate, property management, and related industries.
Expedited Permitting for Housing Projects: Council also approved legislation that will expedite the review process for affordable housing projects. The Department of Licenses and Inspection must now review zoning permit applications for affordable housing projects within five business days and building permit applications within ten business days. This streamlined process could benefit businesses involved in affordable housing development and related services.
Compliance and Planning Considerations
Immediate Action Items for Business Owners
Tax Planning Adjustments: Businesses that previously benefited from the BIRT exemption should begin planning immediately for the additional tax burden that will take effect in tax year 2025. This particularly affects businesses with gross receipts between $1 and $100,000, which may now face BIRT liability for the first time.
Cash Flow Management: The elimination of both BIRT and Use & Occupancy exemptions will require careful cash flow planning, especially for businesses that have structured their finances around these exemptions. Monthly Use & Occupancy tax payments will increase for most businesses, requiring adjustments to monthly expense budgets.
Documentation and Record-Keeping: With the expansion of tax obligations and new support programs, businesses should ensure their accounting systems can properly track and document expenses that may qualify for new city programs or tax credits.
Opportunities for Growth
Program Participation: Businesses should evaluate their eligibility for the various components of the Jumpstart Business Program, particularly those focused on direct capital assistance and business education. Working with qualified accounting professionals can help ensure proper application preparation and compliance with program requirements.
Development Opportunities: The elimination of the Construction Impact Tax and the massive housing initiative create opportunities for businesses in the construction, real estate development, and related industries to expand their operations in Philadelphia.
Workforce Development: With reduced wage taxes and substantial city investment in various programs, businesses may find improved conditions for workforce expansion and retention.
Timeline and Implementation
The preliminary budget approval sets the stage for final passage, scheduled for June 12, 2025. Most changes will take effect with the new fiscal year, which begins on July 1, 2025; however, some tax modifications may have different effective dates. Business owners should work with their accounting professionals to understand specific implementation timelines for each change affecting their operations.
The comprehensive nature of these changes requires immediate attention from business owners to ensure compliance and optimize their operations under the new tax structure. While some modifications create additional costs, the city’s substantial investment in business support programs and long-term tax reduction plans demonstrate a commitment to maintaining Philadelphia’s competitiveness as a business destination.
Conclusion
The preliminary approval of Mayor Parker’s budget represents a significant shift in Philadelphia’s approach to business taxation and economic development. While the elimination of certain exemptions will increase costs for some businesses, the combination of planned tax reductions, substantial support programs, and major infrastructure investments creates a mixed but generally positive outlook for Philadelphia businesses.
Business owners should begin immediate planning to accommodate these changes and should work closely with qualified accounting professionals to navigate the transition effectively. The final budget vote on June 12 will confirm these changes, making immediate preparation essential for businesses to maintain compliance and capitalize on new opportunities in Philadelphia’s evolving economic landscape.
The information in this article is based on preliminary budget approval and may be subject to modification before final passage. Business owners should consult with qualified accounting professionals for specific guidance on how these changes affect their individual circumstances.