by Paula J. Leicht and Brian J. Hinkle
Over the past eight years Pennsylvania has had a remarkably business-friendly environment despite budget shortfalls and an overall weak economy. During that time, and while the Governor's Office and General Assembly were both Republican and Democrat-controlled, existing economic development incentives and programs continued to receive funding and new incentives and programs were created, all of which were aimed at making Pennsylvania an attractive place to do business.
Additionally, with the election of Democrat Governor Tom Wolf, a businessman and former Secretary of the Pennsylvania Department of Revenue, and the pro-business Republican leadership in the General Assembly, the trend toward expanding economic development incentives seems likely to continue.
As such, any business looking to relocate to/expand in Pennsylvania should take full advantage of the numerous economic development incentives offered in Pennsylvania, a number of which are discussed below.
Commonwealth of Pennsylvania Incentives:
Tax breaks and other economic development incentives are essentially the only tools used to attract and retain businesses over which the Commonwealth of Pennsylvania has control.
As it relates to tax breaks, Pennsylvania has been trending toward offering industry and business-specific tax incentives, such as tax credits and Sales and Use Tax exemptions, over the past few years. For example, a 25-year $1.65 billion tax credit was signed into law in 2012 that incentivized the construction of an ethane processing facility in western Pennsylvania. Also, a Sales and Use Tax exemption for sale of airplane parts and services worth an estimated $12.5 million was signed into law in 2013. A similar exemption for helicopters was also enacted in 2009. These types of incentives, which can be challenging to obtain, provide meaningful incentives to any business or industry that receives them.
As for other economic development incentives, the Pennsylvania Department of Community & Economic Development (DCED) invests public resources to create jobs in Pennsylvania. To do so, DCED administers various grants, loans and loan guarantees designed to stimulate economic development in Pennsylvania. These types of incentives are typically less challenging to obtain than the industry or business specific incentives discussed above. The following is a summary of selected programs administered by DCED:
Keystone Opportunity Zones (KOZs) – KOZs were designed to offer state and local tax incentives to attract businesses to designated areas within Pennsylvania. KOZs are designated by local governments and approved by DCED. Incentives offered through the KOZ program include, but are not limited to, abatements and exemptions to: corporate net income tax; earned income tax; property tax; and business gross receipts tax. KOZ projects also receive Sales and Use Tax exemptions for certain purchases of services and products.
Job Creation Tax Credit (JCTC) Program – The JCTC Program was established for the purpose of securing job-creating economic development opportunities through the expansion of existing businesses and the attraction of new businesses to Pennsylvania. Specifically, the JCTC Program provides employers with a $1,000 tax credit per employee for those employers who meet certain requirements.
In addition to the various programs administered by DCED, numerous opportunities to obtain financing for economic development projects exist in Pennsylvania. For example, the Pennsylvania Economic Development Financing Authority (PEDFA) provides access to low-interest financing for businesses through the issuance of tax-exempt and taxable bonds. Additionally, the Pennsylvania Industrial Development Authority (PIDA) provides access to financing for businesses engaging in projects involving the acquisition, renovation, expansion or new construction of land and buildings.
Local Government Incentives:
While many incentives are offered by the Commonwealth of Pennsylvania, local governments may also offer incentives to attract and retain businesses.
For example, Payment In Lieu of Taxes (PILOT) Agreements are entered into between for-profit or non-profit entities and local governments and involve voluntary payments made by the entity to the local government as a substitute for county and township property and school district taxes. With regard to for-profit entities, PILOT Agreements are used almost exclusively as an economic development incentive to attract certain businesses.
Another example is Tax Increment Financing (TIF), whereby an industrial or commercial development authority may issue tax increment bonds to finance certain project costs for residential, commercial or industrial development projects within a tax increment district, which is created by resolution or ordinance by the governing body of the local government, usually a municipality or county.
At Mette, Evans & Woodside, our experienced attorneys can help you navigate the numerous programs available, work together with our strategic partners on any government relations efforts which may be required to obtain incentives, and address other issues, such as obtaining land development, subdivision and zoning approvals, which may arise during the course of your relocation/expansion.