Mike Dershowitz was “scared to death” of having to pay Philadelphia business taxes.
Dershowitz, of Bryn Mawr, runs a software company called ModSolar that caters to solar installers. For the last three years, he and his team (now at 45 full-timers, with 21 locally) worked out of offices in Paoli and most recently, Ardmore. After finding out how much money he could save on rent in the city (“We were looking at savings of 30-60% on a square footage basis,” he wrote), Dershowitz was now eyeing the city. He was also cautiously eyeing the city’s business taxes.
But after his step-brother, former City Controller candidate Brett Mandel, gave him a tax policy primer, Dershowitz realized it wasn’t as bad as he thought.
That’s because businesses only have to pay the 6.45 percent tax on net profits if you make more than 10 percent of your income in Philadelphia. ModSolar doesn’t.
That’s because software companies (and companies in other eligible industries) only have to pay taxes on the percent of sales done in Philadelphia, Commerce Department spokeswoman Rebecca Lopez-Kriss said. ModSolar doesn’t do the majority of its sales in the city.
“While we’d like more of the US Solar industry to be in the city, in reality, the super-majority of it isn’t,” he wrote in a blog post.
That, plus the city’s new job creation tax credit, will significantly decrease ModSolar’s business tax burden. (The company will, however, have to pay the wage tax and use and occupancy tax.)
ModSolar is now working out of a nearly 9,500-square-foot office at 13th and Race Streets near Chinatown.
(We’ll note that the section that describes “the net profits tax” in this additional ModSolar blog post isn’t entirely accurate, which Lopez-Kriss pointed out to us. It reads: ” If you earn less than 10% of your income inside the city, you don’t quality for the Net Profits Tax.” Instead, companies in certain industries, like the software industry, only need to pay taxes on the percent of sales they do inside the city.)