The Philadelphia Commercial Activity License (CAL) is the first requirement for conducting any business in Philadelphia, but not the last. When a client asks us to help with a CAL, the project might dip into other Philly licenses or drown in local tax records. Once you have all your business information in order, getting a Commercial Activity License is a breeze – it’s ordering all the info (and getting it to the right offices in Philly government) that can be a headache. Which is where we usually come in: the Advil for your paperwork.
Philadelphia Commercial Activity License Basics
So first the boring stuff: the Commercial Activity License is required to do almost any business in Philly. That’s it. Want to open a restaurant? Get a CAL. Want to develop a property? CAL. Want to simply rent out a property you own? Even then, you need a CAL.
You need a Commercial Activity License even when your business isn’t actually located in Philadelphia – if you do any work in Philly, Philly’s Department of Licenses and Inspections wants to know about it, and the CAL is their tracking tag.
The only exceptions are business ventures that are (a) closer to running a lemonade stand than a Fortune 500 Company, or (b) explicitly not for profit: Renting 1-3 apartments in the building you live in, running an IRS-classified nonprofit organization, or declaring your property vacant. For those endeavors, you need an Activity License, which is for some reason different than a Commercial Activity License (we don’t make the rules).
Everyone else needs a CAL, and to get the CAL, you need:
- An Employer Identification Number (EIN)
- A Business Income and Receipts Tax (BIRT) ID
That’s it. And the fee for a CAL is $0.00! You can even apply through Philly’s online permitting system. When you apply and everything checks out, you get approval instantly.
It’s when everything doesn’t check out, of course, that things get complicated.
The EIN
Let’s start with the first prerequisite for a CAL: the Employer Identification Number.
An EIN is issued by the IRS – it’s basically a Social Security Number for a business (you have to form your legal entity at the state level first, but that’s another article). Any business with employees needs an EIN, as does any partnership or corporation, and even solo acts need one to pay sales or excise taxes. So this requirement rarely trips applicants for the CAL: it’s as simple as pulling up the IRS letter that anointed your business with its EIN. And any sole proprietor without an EIN – could be a contractor, IT consultant, architect; whatever – can substitute their Social Security Number for the EIN when applying for a Philadelphia Commercial Activity License.
Still, the EIN could snag you under certain conditions. Say you (or your business) own several other businesses – which of course happens a lot in real estate, where properties are often held by companies instead of individuals. Which EIN do you use? Do you get a CAL for every business entity?
Another tricky spot: What happens if you already gave Philadelphia your Social Security Number for a Commercial Activity License, but now you operate as a partnership with an EIN? Can you just swap the numbers? Should you get a new CAL?
This is prickly enough, but the thorns really get sharp when you take all that information to the Philly Department of Revenue.
The BIRT ID (Except it’s not a BIRT ID)
The first issue with the BIRT ID is the name: despite being listed as a requirement for a CAL in official City of Philadelphia documentation, the Business Income and Receipts Tax ID isn’t the ID number L&I requires for a CAL. The required ID is the Philadelphia Tax Identification Number (PHTIN).
The reason for this confusion is that City of Philadelphia only implemented the PHTIN in 2022, and before that, the account number for the BIRT was used as a business entity’s general ID in City systems. Staff from Licenses and Inspections – which issues the CAL – and Revenue – which collects taxes – now use the terms “Tax ID” and “BIRT” interchangeably; and they basically never refer to the PHTIN, which is the actual ID you need.
As astute readers might have the noted, the BIRT itself is a tax on business operations in Philadelphia, so the term “BIRT” could refer to the PHTIN or could simply refer to this particular business tax. And (even more fun) not every business in Philadelphia owes Business Income and Receipts Tax, but every business must file a BIRT return. However, every business does need a PHTIN, which parts of City government still refer to as a “BIRT ID.”
How’s your head?
Here’s another migraine: When the PHTIN superseded them, old BIRT IDs were supposed to be transformed into PHTINs. However, this change isn’t automatic. The process for transforming old BIRT IDs into shiny new Philadelphia Tax Identification Numbers is to…
- add three zeroes to the BIRT ID, then
- freeze any permits and license applications tied to that BIRT ID until
- the owner of the BIRT ID receives an access key to their new, online PHTIN account through the mail.
Yes, the physical mail: you need to get a printed letter to access your online Philadelphia tax account, which includes your new Tax ID, which is your old BIRT account number with three new zeroes. Crucially, if you used to do business in Philly under a BIRT ID, and want to take on new Philly business, you must undergo this process before you’ll be able to get a Commercial Activity License or even renew a different, existing license. (Side note: if you’re stuck at this part of the process, call us – we can usually speed this up.)
But let’s say you’re starting fresh: let’s say you’re just trying to get your BIRT ID (sorry, your PHTIN) for the very first time. This is, mercifully, a quicker process: you make the application online or in person and get your PHTIN, without involving the US Postal Service.
And once you finally get your Philly Tax ID Number, your only concern might be those nagging questions about multiple legal entities: if you own several businesses, which EIN do you use in application for a PHTIN? Do you need a PHTIN for every company you own? Do you need a Commercial Activity License for every company you own? And what if you already gave Philadelphia your Social Security Number for a Tax ID, but now you operate as a partnership with an EIN? Can you just swap the numbers? Should you get a new CAL?
The Multiverse of Madness
The basic answer is that you should only get a single Commercial Activity License in Philadelphia. Now, if you’re a legal member of several different companies, and different groups of people own each company, then each of those companies should get its own CAL. But if you, alone or via a holding company, own some disregarded entities outright, you should use a single CAL for all of them.
Now, this is not immediately clear from Philly documentation! As a result, a lot of people have, over the years, obtained multiple Tax IDs, EINs, and CALs for the same business, or for the same owner of several different businesses, or for a single business that comprised multiple legal entities. Small businesses especially – without large staffs to track this kind of local paperwork (hey, maybe Permit Philly could help) – might forget they had a CAL, then apply for a new one, which would either cause L&I to tell the business they couldn’t get a new CAL, or cause L&I to issue multiple CALs for the same business.
We’re now getting down to why the City of Philadelphia created the PHTIN (replacing, kind of, the BIRT ID), and how that affects the Commercial Activity License. In short, the Department of Revenue realized it was getting scammed; and that when it wasn’t getting scammed, it was creating more work for itself.
(Okay okay: I wasn’t in the meetings, so I can’t promise you that’s why the City instituted the Philadelphia Tax ID Number. Maybe they just happened to address those readily observable problems by creating the PHTIN. But, like, probably this was on purpose.)
Revenue was creating more work for itself in the ways described above: accidentally incentivizing people to create multiple Tax IDs and CALs for the same business.
Revenue was getting scammed when people did that same thing, just on purpose.
For example: Some businesses that did sporadic work in Philadelphia created multiple BIRT IDs and multiple CALs for themselves. This allowed them to get permits or licenses as needed, then simply ignore tax demands from the City of Philadelphia. Because Philadelphia doesn’t really have a tax enforcement strike force, the only way Revenue can extract payment is to withhold approvals – like a permit or license. If a company presented a new version of itself to the City every time it requested a permit, the City might never be able to collect taxes.
With the PHTIN, this changed: now, to register a PHTIN, a business must provide the Social Security Number of at least one of its members or officers. Any other entity in Philly’s system with the same officer or member will be linked by that Social Security Number, so if one entity defaults on its tax payments, Revenue can freeze all permits and approvals for every related entity until the tax is paid. And Revenue confirms company membership through official documents filed at the state or federal level, to prevent people simply saying, “Yeah, my cousin is for sure the managing member of this brand-new LLC.”
Which is great! Much better for all of us than the old system. Except when it conflicts with the old system.
One scenario: Someone has an old Commercial Activity License in the system as a sole proprietor, but changes their company structure to a partnership and obtains an EIN. Being a responsible citizen, they get a new tax ID (the PHTIN) for the new company structure and link it to their federal ID, the EIN. However, they might find their permits and approvals suddenly stalled when the City of Philadelphia tells them they haven’t paid taxes for the last several years – because they stopped filing tax returns for the old sole proprietorship, which now shares a Social Security Number with a member of the new partnership.
The Simplest Impossible Task in Philadelphia Licensing
So the Philadelphia Commercial Activity License is easy to get, unless you’re tied to unpaid taxes or an older CAL, or your company uses a City license in your name instead of its name, or your old company still exists in the City’s system; in which case the application process will – not to be dramatic – cause your head to fully explode.
Before people start commenting on the web of veins in your forehead, just check with Permit Philly. When you have your documents in order, we can acquire a CAL for just $300 – and obviously, for that price we’ll confirm that you do indeed have the correct documents, or tell you how to obtain the right ones. If other problems emerge, or you need other licenses after the CAL, or for any reason you’re worried you might go full Scanners, just relax: you’ve got that extra-strength Tylenol in your pocket. We’ll manage the pain and get your business up and running in Philly in no time.