Executive Summary
P R E S S R E L E A S E
For Immediate Release:
March 11, 2009
Contact: Harvey M. Rice
(215) 686-6696
BUTKOVITZ FINDS SCHOOL DISTRICT PAID $4.3 MILLION TO VENDORS
NOT REGISTERED WITH CITY’S DEPT. OF REVENUE
Hundreds of businesses did not pay taxes
PHILADELPHIA – City Controller Alan Butkovitz today released a review of the School District of Philadelphia Vendors that found the School District paid $4,329,816 to hundreds of vendors who were not registered with the City’s Department of Revenue and were not paying all applicable city taxes.
Of the $4.3 million that was paid to unregistered School District vendors during 2007, $603,415 was paid to 64 vendors who were located in the city but not licensed to do business in the city. This included payments for overall management services and consulting fees for curriculum support, as well as for the installation of bleachers at a Philadelphia High School.
“It appears that these businesses are undoubtedly trying to avoid paying taxes that they know would be owed if they registered with the City,” said Butkovitz. “It’s possible that these unregistered vendors are performing other services and avoiding the other taxes.”
Any person or business entity who engages in a taxable activity in Philadelphia or attributable to Philadelphia is subject to the Business Privilege Tax, whether or not a person is a resident and/or has a permanent place of business in Philadelphia.
The review included 66 out-of-state vendors, who were paid $2,743,315 but not registered with the Dept. of Revenue. Under former School District CEO Paul Vallas, an Illinois band consultant was paid $50,400 and a consultant from Kansas was paid $16,322 for unidentified consulting services.
The School District also made payments to 145 vendors who listed Pennsylvania as their state of residence but did not have a City registration.
“The School District must ensure that any and all vendors who do business with them are legally registered with the City of Philadelphia and that all of their tax liabilities are current and paid up,” said Butkovitz.
The review also found that 538 vendors who earned less than $600 were not issued 1099’s at the end of the year. Philadelphia tax regulations require all earnings to be reported for tax purposes. While some of these individuals may not be subject to BPT regulations, they may be liable for wage or earnings tax on this income.
“In normal economic times, it is important to be vigilant in making sure that those who are obligated to pay their fair share of taxes – do so,” said Butkovitz. “In our current financial situation – it is critical that we hold everyone accountable to the same rules and regulations – and enforce compliance with our tax laws.”
The Controller recommended that the School District share its vendor list with the City’s Revenue Department on an annual basis. This will allow the City to determine what vendors, if any, are not in compliance with BPT regulations. The School District should also enforce the terms of its vendor contracts.
“The School District’s main objective is to provide educational and instructional tools to help our children become tomorrow’s leaders,” said Butkovitz. “All services provided to the District s should help to reinforce this goal — but it also should be done in compliance with all existing state and local laws.”
The independent review was conducted as a follow up to the Controller’s FY 2006-07 Philadelphia School District audit. The original audit found the School District was making payments to vendors who owed delinquent taxes to the City.