Mayor Baker Will Ask Council to Repeal “S” Corporation Provisions
News from the City of Wilmington
For Immediate Release
Thursdsay, September 30, 2010, 10:55 a.m.
Mayor Baker Will Ask Council to Repeal “S” Corporation Provisions
City To Decide How to Proceed With Taxing Earned Income of “S” Corporations After the Wilmington Economic and Financial Advisory Council Reviews the Issue
Wilmington Mayor James M. Baker announced today that he will ask Wilmington City Council to repeal all “S” Corporation amendments contained in an Earned Income Tax Ordinance approved by City Council at the Administration’s urging last December. The Mayor also announced that he will ask the Wilmington Economic and Financial Advisory Council (WEFAC) to deliberate on all aspects of the “S” Corporation tax issue and to make recommendations for potential, future “S” Corporation amendments to him and to City Council by December 31.
The Mayor’s decision effectively means that there will be no additional taxes imposed on shareholders of “S” Corporations through at least calendar year 2010.
The Administration urged approval of the Sub “S” Corporation tax provisions last year as part of the City’s overall revenue collection and audit program when it was discovered that some wealthier business people were not filing tax returns or were declaring inaccurate earned income totals and paying far less that they should in City taxes. “S” Corporations are entities that elect to pass corporate income, losses, deductions and credit through to their shareholders for tax purposes.
“By asking Council to repeal these provisions, I am acknowledging that this issue has been misunderstood, misrepresented and misinterpreted at many levels and is not being properly credited or portrayed for what it is, an effort to ensure tax fairness to all citizens,” said Mayor Baker. “By setting aside our “S” Corporation auditing program while further study takes place, the City will lose upwards of $3 million in revenue in this current fiscal year alone. This places a tremendous additional burden on both the Administration and City Council to overcome growing budget pressures that will now swell to $8 million resulting in the likely loss of jobs for City employees and a corresponding reduction of City services.”
Prior to the Mayor’s decision that the “S” Corporation issue should be further reviewed, he had already directed his Chief of Staff, William S. Montgomery, to identify at least $5 million in budget cuts for this fiscal year.
Mayor Baker said he is very troubled that a tax collection program that affects a relatively small number of wealthier people who are not paying their taxes as required by law has produced threats from businesses to move out of Wilmington.
“I don’t know if the threats are real, but I will not take the chance of losing businesses and further weakening the City’s fiscal base,” said the Mayor. “I have an obligation to serve the interests of all citizens, so I am suggesting instead that a cooling off period would be beneficial to everyone during which the “S” Corporation tax issue can be studied by a group of people as well respected as the Council Members of WEFAC. It is my hope that WEFAC might help us resolve and better understand what was becoming a much too bitter and convoluted debate.”
The Mayor today thanked Council President Norman Griffiths and Council Finance Chair Charles “Bud” Freel (who has agreed to sponsor the repeal ordinance) for their ongoing support.
The Wilmington Economic and Financial Advisory Council is chaired by Fred Sears, President and CEO of the Delaware Community Foundation. Mr. Sears is a former Member of Wilmington City Council and served as Council’s Finance Committee Chair for many years. He also previously served as Wilmington’s Director of Finance and also as Director of Economic Development.