Employers doing business in the City of Philadelphia must pay taxes on wages (including salaries, commissions, and other forms of compensation) and net profits. A new ordinance shores up current enforcement mechanisms, arming the City with aggressive penalties on overdue taxes and giving private citizens an enforcement role.

About Ordinance 19-1509

Under Ordinance 19-1509, an employer with an overdue tax bill could face a law suit from the City Solicitor and could be liable for attorneys’ fees, interest, and penalties to the tune of two to three times the amount of taxes overdue.

To prevail, the City must show that the employer knowingly committed a Wage Tax or Net Profit Tax Law violation, conspired to violate the laws, or was involved in falsified tax records related to compliance with the laws. The bar for “knowledge” is fairly low, allowing an employer to be on the hook for damages if it (i) actually knows the taxes are unpaid, (ii) turns a blind eye to the unpaid taxes, or (iii) recklessly disregards the fact that wage and net profit taxes are not paid. The same rules apply to falsification of tax records.

Private Citizen Referrals

The Ordinance not only empowers the City Solicitor, but it also creates enforcement rights for private citizens. A private citizen may refer a case to the City Solicitor for investigation, and may even litigate the claim with or on behalf of the City Solicitor. In fact, the law incentivizes private citizen referrals by awarding, in some instances, a 15 to 25 percent award from proceeds of a successful recovery. The Ordinance also contains a clause prohibiting retaliation by an employer against whistleblowing employees.

The Moral of the Story

With such potentially devastating penalties at stake, employers must ensure that they pay wage and net profit taxes on time, and vigilantly maintain current and accurate tax records. Employers should also consult regularly with a responsible tax professional. If faced with a claim by the City Solicitor and/or private citizen, an employer should cooperate, refrain from taking any adverse action against any employees involved, and immediately contact legal counsel.