Want to start a business in Philly? Make sure you know the rules.
Yes, there’s red tape. But the process can be much easier if you know the basic steps in advance.
There’s no shortage of advice from experts and entrepreneurs to help you start up a business. Have a business plan, they say. Make sure you’ve accumulated enough capital. Put together a team of advisers. Watch your overhead. Be prepared to spend a lot of time.
All of that advice is true. But what if you’re starting up a business in Philadelphia? Is there anything additional you should know? The answer is yes, quite a few things.
“Philadelphia has its own way of doing things,” said Evy Cruz, a small-business coordinator for Philadelphia VIP, a nonprofit organization that offers volunteer attorneys to provide pro bono legal representation to Philadelphians for both individual and business purposes. Cruz has heard “the feedback from small businesses and other service providers is that it is uniquely difficult to start a business in Philadelphia, because there’s often a lot of red tape.”
Yes, there’s red tape. But the process can be much easier if you know the basic steps in advance — and get some help.
Step 1: Set up a Philadelphia tax account
To set up a city business tax account, you’ll need a federal tax identification number, which can be either an employer identification number (EIN) or just your Social Security number, depending on whether you have employees. You can apply for this on the Internal Revenue Service website.
You’ll also need to decide on your business formation. This is not really a Philly thing. It’s more about choosing the type of business organization that will be most suitable for tax and legal purposes. Different legal forms your business can take include S corporations, limited liability companies and partnerships, as well as simple proprietorships and C corporations.
This decision will affect the types of tax filings you make with the city, state, and federal government. Because this decision can be complicated and because it’s so important, it’s best to get help from either a lawyer or an accountant, or research your options on such legal sites as LegalZoom and Incfile.
Once you’ve done the above, you’re finally ready to apply for a Philadelphia tax account at the Philadelphia Tax Center.
Step 2: Get a Philadelphia commercial activity license
This is required for any business operating in the city and is issued by the Department of Licenses and Inspections.
You must have a city business tax account number to obtain this license, which you can apply for online.
Step 3: Understand the taxes you’ll have to report
There are more than a dozen types of business taxes in Philadelphia, ranging from the business income and receipts tax (BIRT) to the outdoor advertising tax.
Some are specific to certain industries, such as hotels or liquor sales. You should be aware of which ones your business could be responsible for paying.
Instructions on the various business taxes can be found on the city’s website.
If it seems that there are a lot of taxes to consider, well, there are. But Karen Fegely, deputy commerce director at the city’s Commerce Department, says the city does have programs to help mitigate some of these costs for start-ups.
“Businesses with $100,000 in Philadelphia taxable gross receipts or less do not have a BIRT liability and are not required to file a return,” she said. “Additionally, new businesses that employ six people in the first two years of operations can receive a two-year tax holiday on the BIRT.”
Fegely also says that additional tax credits such as the Job Creation Tax Credit can offer $5,000 per job created in Philadelphia, so long as additional requirements are met.
Step 4: Apply for zoning permits and licenses
Depending on the type of business you start — particularly if you’ll be receiving customers or outside visitors to your location — you may need to get zoning permission from the city. Philadelphia’s zoning code regulates development and includes rules related to property use, the height and size of buildings, population density, parking requirements, signage placement, and the character of development on private property.
The best place to find out which zoning requirements apply in your targeted location is the city’s Atlas website.
Special rules apply for certain trades. For example, if you’re a contractor, a sheet-metal technician, a plumber, an electrical contractor, an engineer — or if you wish to perform any number of other special functions related to the construction industry — you’ll need to get a specialized license from the Department of Licenses and Inspections.
Still with me?
Step 5: Access more help
If you’re a little overwhelmed by all of this, you’re not alone. Which is why there are a number of nonprofit organizations such as Philly VIP, SCORE, Philadelphia Industrial Development Corporation, the Women’s Opportunity Resource Center, and the Enterprise Center that can provide assistance. The Free Library of Philadelphia also runs workshops on starting businesses in the city.
In her experience, Cruz said, the city’s Commerce Department is also “very helpful,” especially its Office of Business Services. “They’re very responsive and knowledgeable,” she said.
According to Fegely, the Office of Business Services assists business owners at “all stages of their entrepreneurial journeys” with one-on-one support. Individual business owners can meet with a dedicated business services manager who can help them get started.
“Business Services managers can offer advice that simplifies the process of navigating city services, understanding business regulations, and opening and operating a business in Philadelphia,” she said. Entrepreneurs can call the city’s business services hotline at 215-683-2100 or email business@phila.gov.
Gene Marks is a certified public accountant and the owner of the Marks Group, a technology and financial management consulting firm in Bala Cynwyd.
The Philadelphia Inquirer is one of more than 20 news organizations producing Broke in Philly, a collaborative reporting project on solutions to poverty and the city’s push toward economic justice. See all of our reporting at brokeinphilly.org.