Use & Occupancy Tax Relief
On March 31, 2020, the City of Philadelphia Revenue Department announced that businesses that do not have access to their place of business because of the mayor’s March 17, 2020 order closing non-essential businesses are not considered to “occupy” the space (the announcement is available here). Therefore, such businesses are not subject to the city’s Business Use & Occupancy (U&O) tax.
The Revenue Department announced that this relief does not apply to businesses that have employees on-site or businesses that have maintained employee access to their place of business since the mayor’s closure order was announced on March 17, 2020.
Whether a business is closed will be a factual determination made on a business-by-business basis. However, on April 6, 2020, the Revenue Department updated the original notice and indicated it intends to interpret very narrowly what businesses are “closed.” In the updated notice, the Revenue Department provides two examples of offices that remain used and occupied for U&O tax purposes:
- An accounting firm that is permitted to operate during the pandemic because it is an essential service; and
- A law firm that has a skeletal crew in its office to open and scan mail and to maintain its IT system.
Additionally, during a webinar hosted by PICPA on April 6, 2020, the Revenue Commissioner stated that restaurants that provide take-out food also will be considered open for these purposes.
U&O tax is imposed on a commercial user of real estate—e.g., the owner in the case of owner-occupied commercial property or a commercial tenant. In the case of a commercial tenant, U&O tax must be collected by the landlord from the tenant and remitted to the city. The Revenue Department’s announcement makes clear that, notwithstanding that many commercial properties are closed, the U&O tax return filing deadlines remain the same (i.e., the 25th day of each month), and that owners and landlords should indicate on returns the portion of the property that is exempt because it is deemed unoccupied. The Revenue Department also announced that for property that remains occupied/open, U&O taxes must be paid by the 25th day of each month.
A landlord that collected U&O tax from a tenant through regular rent collection for periods during which the tenant’s place of business was closed are directed to refund the collected tax to the tenants.
School Income Tax
The Revenue Department also announced (in a notice available here) that there is no change to the April 15, 2020 due date for filing School Income Tax (SIT) returns and paying SIT remains unchanged. Taxpayers are directed to file returns by April 15, 2020 for the 2019 tax year and either pay the remaining balance due or to claim any overpayment as a refund or as a credit against their 2020 liability. Taxpayers who cannot meet this deadline are encouraged to file an extension request (available online or in the SIT packet mailed to taxpayers), and to pay an amount equal to their 2018 SIT liability.
Although the SUT due date remains unchanged, there is limited relief from interest and penalties available for certain late payments. If a taxpayer timely files an extension and pays an amount equal to his or her 2018 tax liability, no interest and penalties will be imposed on any remaining balance due as long as such taxpayer pays the balance by July 15, 2020. Any amounts paid after July 15, 2020, however, will be subject to interest and penalties accruing from April 15, 2020.
We will continue to monitor the city’s announcements regarding tax collection in light of the coronavirus crisis. If you have any questions about U&O tax or other state and local tax issues, contact a member of the Ballard Spahr Tax Group.
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