Posted on 01/23/2004 5:25:02 AM PST by 2banana
Crosstown move means big tax break for rich lawyers
In Phila., an opportunity zone gives partners a 15-year shield from some income taxes. Critics are outraged.
By Nathan Gorenstein
Inquirer Staff Writer
More than 100 of the highest-paid people in Philadelphia will be exempted from state and city taxes on their income because they are moving across town.
They are the partners at the law firms of Dechert L.L.P. and Woodcock Washburn L.L.P. Partnerships at top law firms can pay $500,000 a year or more, according to a Philadelphia Bar Association survey.
The tax break for that salary could be nearly $50,000 annually for each lawyer.
The lawyers will get the break after moving into the Cira Centre, a 28-story office tower planned for the Keystone Opportunity Zone next to 30th Street Station. It is scheduled to open in 2005.
Such zones, set up by the state to rebuild poor neighborhoods by attracting firms from outside Philadelphia, have economic-development incentives that include a little-known provision that exempts partnership income - the lawyers' salaries - from taxation.
The 15-year tax break does not extend to lesser-paid law firm employees - associates, paralegals, secretaries - who draw a standard salary.
The law firms' move to the Cira Centre already was controversial because the site was originally designated as an opportunity zone on the premise it would attract companies from out of town - not firms already in Center City.
Along with getting the tax breaks for partners, businesses that locate in such zones do not have to pay sales tax, property tax, corporate taxes, or any business taxes.
Now, the project will cut the city's tax revenue while providing an unprecedented tax break to a small slice of the workforce.
"The personal enrichment of already very rich people is the most outrageous aspect," said Jonathan Stein, a public-service lawyer who served on the Philadelphia Tax Reform Commission.
The precise value of the exemption that Dechert and Woodcock partners receive will vary according to their compensation, where they live, and how much time they spend working outside Philadelphia.
Dechert, the largest law firm in Philadelphia, has 89 partners, about 180 associates, and about 350 other employees in the city. It has 16 other offices in the nation and around the world. Its clients include Philadelphia Newspapers Inc., publisher of The Inquirer and the Philadelphia Daily News.
Woodcock has about 25 partners and about 100 other employees, and has a second office in Seattle.
Spokesmen for the two firms said that in an economically competitive environment, tax breaks were needed for Philadelphia to retain workers.
"We would have moved a substantial amount of our operations outside of the city" without the opportunity zone, "and our partners would have saved as much money by that," said Barton J. Winokur, chairman and chief executive officer of Dechert.
Winokur minimized the impact that the tax benefit would actually have for Dechert partners. For example, he said, he spends two months a year in Colorado, for which he is already not taxed by Philadelphia.
"Even those lawyers who have offices in the city, many of them have their work done outside of the city," Winokur said.
Both firms also said the tax break represented fair compensation for moving next to 30th Street Station. The area is relatively isolated compared with Center City, they said, and employees will be some distance from restaurants and retail shops.
"By moving to that building, we are taking certain risks. That area of town is undeveloped and unproven for a business like us," said Joseph Lucci, a partner at Woodcock, which specializes in intellectual property law.
Winokur minimized the impact the tax break might have on the morale of support-staff members once they realize they are paying taxes that their employers avoid.
"We have a lot bigger issues" when it comes to keeping employees content, he said.
"They want to know that we are going to give them a first-class place and that they'll have it at least as good as they have it now," Winokur said.
Now, the Dechert firm is located in the Bell Atlantic Tower at 1717 Arch St., near the Four Seasons Hotel. Woodcock's offices are in One Liberty Place at 1650 Market St.
The planned moves by Dechert and Woodcock are prompting other law firms to consider seeking similar deals, said David Campoli, regional manager of REIT Management & Research, which operates five city office buildings for HRPT Properties Trust.
"I think all the law firms are looking at it," he said. If landlords slash rents to match Cira Centre tax benefits, Campoli said, there will be a ripple effect through the city's tax stream.
"Philadelphia historically has been supported by partnerships, law firms and accounting firms," Campoli said.
Not only will Philadelphia lose the taxes otherwise paid by lawyers who move into a Keystone Opportunity Zone, but owners of existing buildings also will likely have their property taxes cut because their properties will fall in value, Campoli said.
Mayor Street has opposed creating another opportunity zone at 17th and Market Streets. A spokeswoman said he is negotiating with Gov. Rendell over the terms of a proposal for that site. Street would like to limit tax breaks afforded future tenants for the planned 60-story office tower on the site owned by Liberty Property Trust.
The presumed lead tenant is the cable giant Comcast. Comcast could not use the partnership benefit, which is an exemption on a firms' net profits, because it is a corporation, not a partnership.
Liberty has declined to confirm its deal with Comcast, but yesterday said it would not use the partnership exemption to attract other tenants.
"We certainly would support, for our site, the elimination or exclusion of the net profits tax... abatement. We commit to do that," said John Gattuso, a senior vice president.
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Contact staff writer Nathan Gorenstein at 215-854-5983 or ngorenstein@phillynews.com.
Having a $500,000/year job and be excempted from all sales tax, property tax, corporate taxes, or any business taxes plus having the "little" people fully pay their taxes.
FYI - Lawyers are the #1 campaign contributors to the democrat party in Philadelphia and Pennsylvania...
Time for a second American Revolution agaist the oppressive, utterly corrupt lawyer industry!
So if they don't have to pay any of these taxes, why should they have to pay tax on partnership income?
I say give them a bigger zone, with more tax breaks. Maybe some of the Florida lawyers here will move up to Philly. hahahahahahaha
I only wish I could do the same.
Careful now, that is exactly what the French elitests thought right before the revolution. ;P
I also don't understand how existing building values will go down if there's an influx of high-rent tenants to the area. Is Philly living in Bizarro world?
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