Tax Discovery Initiative Suburban Realtors Conducting Business in Philadelphia Not Complying with License and Tax Requirements March 2015


Audit Date: April 15, 2015

Audit Categories

  • Investigation
Controller: Alan Butkovitz

Audit Tags

  • Economic Development,
  • Homeowners,
  • Permits and Fees,
  • Taxes

Description


Controller found that 56, or more than half examined, did not possess the City’s required business license or tax account.


Executive Summary


Why The Controller’s Office Conducted The Audit

In response to a request from Philadelphia City Council, the Office of the Controller (Controller’s Office) conducted a tax discovery initiative. Our objectives were to determine if suburban realtors who are conducting business in the City of Philadelphia (City) are obtaining the required commercial activity licenses and filing all appropriate City taxes, to generate a report of findings and recommendations regarding collection of unpaid taxes, and to create an atmosphere of compliance within the real estate industry.

What The Controller’s Office Found

The Controller’s Office conducted a survey of the top 41 realtor offices in Philadelphia’s suburbs that were involved with sales of properties located within the City. Of the realtor offices that responded to the survey, more than half of the agents did not possess the required Commercial Activity License (CAL) and Business Income and Receipts Tax (BIRT) account number.

Realtors selected for the survey were based on sales data analyzed in the Trend Multiple Listing Service. Sales data covered the period July 1, 2010 through June 30, 2014. Of the agents responding to the survey that did not have a CAL and BIRT account number, commissions associated with at least $56 million in sale transactions were not reported to the City and appropriately taxed. Most agents responding to the survey without a CAL and BIRT account number asserted they were unaware of the City’s licenses and tax requirements on their commissions.

Our review suggests a significant reason for such commissions remaining undetected is because during the real estate closing process realtor agents are not required to provide their CAL or BIRT account number as part of the process. In our opinion, such a requirement would yield greater tax compliance amongst realtors, as it would otherwise bar them from conducting business within the City if they fail to comply.

What The Controller’s Office Recommends

The Controller’s Office has developed a number of recommendations to address the above findings. These include: 1) legislating law that requires realtors conducting sale transactions of properties located within the City to provide their CAL and BIRT account number as part of the closing process; 2) developing and implementing an outreach effort to make certain realtors conducting business within the City, along with their tax preparers, are aware of Philadelphia license and tax requirements; 3) aggressively identifying entities without proper licensing or tax account numbers; and 4) establishing a more aggressive license and tax enforcement program for the real estate industry.