BIRT applies to every entity, including sole-proprietors, engaged in a business for profit in the City of Philadelphia. This includes all businesses operating in the city, from large multinational corporations to local restaurants and retail shops.
There are two components of the BIRT:
- Tax on Net Income, which is based on the income a business generates in Philadelphia, and
- Tax on Gross Receipts, which is based on receipts from sales made and/or services performed in Philadelphia.
NPT applies to non-corporate entities only. This includes partnerships, LLCs, and also sole-proprietorships. If you’re a non-corporate consultant, freelancer or receive 1099 tax forms, you must file and pay NPT along with BIRT.
NPT is based on the net profits from the operation of a business.
It applies to:
- Philadelphia residents, even if all your business activity is conducted outside the city.
- The portion of profits earned by non-residents from business conducted in Philadelphia.
To provide relief from taxation of the same income, a taxpayer subject to NPT is allowed a credit against the tax of up to 60% of what they paid on the Net Income portion of the BIRT.