Is the Philadelphia Wage Tax Unconstitutional? And If It Is, What Can and Should the City Do?

Abstract

Philadelphia has a complex and antiquated tax system that has long been criticized for driving employers and jobs away from Philadelphia by making it expensive to conduct business in the City. The centerpiece of the Philadelphia tax system is the Philadelphia wage tax, which raised more than $1.6 billion in 2014. That tax has been challenged as unconstitutional in light of the Supreme Court’s 2015 decision in Wynne v. Comptroller of Maryland, which struck down a structurally similar Maryland tax. This Essay explains the constitutional challenge to the City wage tax, argues that the tax is unconstitutional, describes steps the City could take to save that tax, and raises the question of whether Philadelphia should save or eliminate its wage tax.

Keywords: Constitutional Law, Supreme Court of the United States, SCOTUS, Local Taxation, Tax Discrimination, Dormant Commerce Clause, Internal Consistency, Philadelphia Wage Tax, Economic Development

JEL Classification: H21, H24, H71, H73, K34, R51