Proposed Constitutional Amendment to the Uniformity Clause: Balanced Reform or a Tax on the Poor?

Last Tuesday, October 2, 2018, legislators introduced HB 871, which would allow Philadelphia (and only Philadelphia) to raise the real estate tax rate on commercial properties to 15% over that applicable to non-commercial properties. On the flip side, the City of Philadelphia would then be obligated to “reduce the aggregate revenue from other taxes imposed . . . on businesses and any wage and net profits tax by the amount of any real estate tax revenues attributable” to the commercial property tax increase.  The bill proposes to amend the Pennsylvania Constitution’s Uniformity Clause, which currently requires all property of any class to be taxed equally. Full text of the bill can be found here. Read more about when it was originally proposed, in 2016, here and here.

Yesterday, Council President Darrell Clarke came out vehemently against HB 871 on Twitter, claiming it is a “tax break to commercial properties, with no additional relief for homeowners facing higher property assessments.”

On its face, HB 871 does not appear to be a “tax break” for commercial properties, but a tax neutral measure that may even be used to reallocate a greater portion of tax revenue to the School District of Philadelphia. The bill may also have the effect of giving Philadelphia homeowners a tax break, because the City could generate more revenue through real estate taxes by raising the real estate tax rate on commercial property owners, only, rather than on all Philadelphia property owners.

However, Council President Clarke is correct that this revision to the Pennsylvania Constitution’s Uniformity Clause is likely to result in greater burdens to Philadelphia renters. This is because multi-family properties in Philadelphia are considered “commercial” properties, and an increased tax burden on multi-family landlords may be passed on to renters to a greater or lesser extent. This would produce a “regressive” tax structure, which, in essence, places a higher property tax burden on low-income residents (who generally cannot afford to own) rather than higher-income residents (i.e., residential property owners).

In addition to Clarke’s concerns, it is unclear exactly how the City of Philadelphia would offset business taxes by “the amount of any real estate tax revenues attributable” to a commercial property tax increase.

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