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Tax & Business

Tax Credits & Incentives - Pennsylvania

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2016 YEAR-END TAX GUIDE

The Marcum 2016 Year-End Tax Guide continues our tradition of providing timely tax guidance for the upcoming year.

 

Businesses

Keystone Opportunity Zones (KOZ):

Keystone Opportunity Zones (KOZ) and Keystone Opportunity Expansion Zones (KOEZ) are geographic areas that can provide specific state and local tax benefits. The goal of the KOZ/KOEZ program is to revive economically distressed urban and rural communities by abolishing taxes.

As of January 31, 2015, KOZ applicants have created almost 10,000 jobs and invested more than $1 billion of private capital into KOZ properties. Due to the success of the KOZ program, there have been multiple opportunities for local communities to designate additional subzones.

The tax benefits available under KOZ and KOEZ programs may be available through December 31, 2020. A KOZ/KOEZ is given priority for various state and local community-building assistance programs.

In order to be eligible, Pennsylvania businesses relocating to a KOZ/KOEZ must either increase their full-time employment by 20% within the first full year of operation or make a 10% capital investment in the KOZ/KOEZ property, based on their prior year's gross revenues.

Eligibility for benefits is based upon annual certification. In order to receive benefits, any entity applying must be compliant with all local and state taxes and building and zoning codes.

Keystone Innovation Zone (KIZ) Tax Credit:

The KIZ program creates designated geographic zones to foster innovation and entrepreneurial opportunities by aligning the resources of educational institutions and the private sector.
In order to be eligible, for-profit business entities must be located within the KIZ boundaries, have been in operation for less than eight years, and operate within one of the KIZ targeted industry segments or sectors.

Applications must be submitted on or before September 15 of each year. The KIZ tax credits will be awarded on December 15 of the year in which the application is submitted.
Qualified businesses, including pass-through entities, and individuals with business activity in a KIZ may claim this credit against the following state taxes:

  • Capital Stock/Foreign Franchise Tax.
  • Corporate Net Income Tax.
  • Personal Income Tax.

The KIZ Tax Credit must first be applied against the KIZ company's own tax liability under Articles III (Personal Income Tax), IV (Corporate Net Income Tax), or VI (Capital Stock – Franchise Tax) of the Pennsylvania Tax Reform Code of 1971. The KIZ company may claim a tax credit equal to 50% of the increase in that KIZ company's gross revenues attributable to activities in the KIZ in the immediately preceding taxable year. The KIZ Tax Credit is limited to $100,000 annually per company.

Tax credits not used in the tax year the contribution is made may not be carried forward or carried back, and are not refundable or transferable.

Keystone Special Development Zone (KSDZ):

The Keystone Special Development Zone (KSDZ) program was established for the purpose of providing incentives to for-profit businesses that locate and operate in designated geographic zones. The KSDZ program is an incentive-based tax credit program to foster the redevelopment of Pennsylvania's abandoned and deteriorated industrial and commercial sites.

Qualified businesses, including pass-through entities, and individuals with business activity in a KSDZ may claim this credit against the following state taxes:

  • Corporate Net Income Tax.
  • Capital Stock/Foreign Franchise Tax.
  • Personal Income Tax.
  • Title Insurance Tax.
  • Bank Shares Tax.
  • Mutual Thrift Taxes.

This credit is equal to $2,100 per job for approved businesses operating within a Keystone Special Development Zone. Tax credits may be claimed for up to 10 years.

Job Creation Tax Credits:

The $1,000 per job tax credit rewards approved businesses that agree to create jobs in Pennsylvania within three years. On July 2, 2013, the tax credit amount increased from $1,000 to $2,500 per job for employers who create new jobs for unemployed individuals.

Qualified businesses, including pass-through entities, and individuals may claim this credit against the following state taxes:

  • Capital Stock/Foreign Franchise Tax.
  • Corporate Net Income Tax.
  • Mutual Thrift Institutions Tax.
  • Bank Shares Tax.
  • Insurance Premiums Tax.
  • Gross Receipts Tax.
  • Title Insurance & Trust Company Shares Tax.
  • Personal Income Tax.

25% of the tax credits allocated each year must go to businesses with fewer than 100 employees. The business must create at least 25 new jobs or expand the existing workforce by at least 20%.

Film Tax Credit Program:

The Film Tax Credit program was created in an effort to expand the activity of film, television, and other production companies in Pennsylvania. This program issues approximately $60 million in tax credits to eligible businesses.

Projects eligible for tax credits under the program include the production of a feature film, a television film, a television talk or game show series, a television commercial, a television pilot or each episode of a television series intended as programming for a national audience.

A project is eligible if at least 60% of the project's total production budget is used for qualified Pennsylvania production expenses. The amount of the tax credit available for an eligible project is equal to 25% of qualified Pennsylvania production expenses for the project. Applications may be filed no sooner than 90 days prior to the start date of principal photography in the Commonwealth.

Educational Improvement Tax Credit Program (EITC):

This program rewards tax credits to eligible businesses contributing to a Scholarship Organization, an Educational Improvement Organizations, and/or a Pre- Kindergarten Scholarship Organization.

In order to be eligible, the business must be subject to one or more of the following taxes:

  • Personal Income Tax.
  • Capital Stock/Foreign Franchise Tax.
  • Corporate Net Income Tax.
  • Bank Shares Tax.
  • Title Insurance & Trust Company Shares Tax.
  • Insurance Premium Tax (excluding surplus lines, unauthorized, domestic/foreign marine).
  • Mutual Thrift Tax.
  • Malt Beverage Tax.
  • Retaliatory Fees under section 212 of the Insurance Company Law of 1921.

For contributions to scholarship or educational improvement organizations, the amount of the credit is 75% of the contribution, up to $750,000 per taxable year. If the taxpayer provides a written commitment to make the same contribution for two consecutive years, the Department of Community and Economic Development (DCED) will increase the credit to 90%.

For contributions to Pre- Kindergarten Scholarship Organizations, a business may receive a tax credit equal to 100% of the first $10,000 contributed and up to 90% of the remaining amount contributed, up to a maximum credit of $200,000 annually.

An approved company must provide proof that a contribution was made within 60 days of the notification letter to the DCED. This has to be done within 90 days of receiving the notification letter. Tax credits not used in the tax year the contribution is made may not be carried forward or carried back and are not refundable or transferable.

Historic Preservation Tax Credit (HPTC):

Available for individuals

The Historic Preservation Tax Credit provides tax credits to qualified taxpayers who will restore qualified historic structures to income-producing properties. The Pennsylvania Historical and Museum Commission must approve a qualified rehabilitation plan for every project.

Those eligible to apply are qualified taxpayers, which include an individual, corporation, business trust, limited liability company, limited liability partnership or any other form of legal business entity. Qualified taxpayers must be subject to the Personal Income Tax, Corporate Net Income Tax, Capital Stock-Franchise Tax, Bank and Trust Company Shares Tax, Title Insurance Companies Shares Tax, Insurance Premiums Tax, Gross Receipts Tax, or Mutual Thrift Institutions Tax.

The commonwealth issues a maximum of $3 million in tax credits per fiscal year. The credits are to be awarded equitably for projects in each region of the commonwealth. Tax credits awarded to a qualified taxpayer are limited to 25% of the qualified expenditures. The total tax credits awarded to a qualified taxpayer may not exceed $500,000 in any fiscal year.

Research and Development Tax Credit:

This credit is available to businesses and individuals performing qualified research in Pennsylvania. The purpose of this credit is to encourage businesses to conduct research, especially of a technological or scientific nature.

Qualified businesses, including pass-through entities, and individuals may apply the credit against the following state taxes:

  • Capital Stock/Foreign Franchise Tax.
  • Corporate Net Income Tax.
  • Personal Income Tax.

A company will receive 10% tax credit for increased research and development expenses over a base period. The annual cap is $15 million for all businesses. However, 20% of the total pool is reserved for small businesses.

Mobile Telecommunications Broadband Investment Tax Credit:

A taxpayer that is a provider of a mobile telecommunication service is eligible to receive a tax credit against the corporate net income tax imposed under Article IV of the Tax Reform Code for investment in certain qualified broadband equipment placed into service. However, this credit expires on January 1, 2024.

Pennsylvania Resource Manufacturing Tax Credit (PRM):

Beginning in 2017, any manufacturer purchasing natural gas containing ethane as a petrochemical feedstock at a facility within the commonwealth shall be allowed a tax credit equal to five cents per gallon ($2.10 per barrel) used in manufacturing ethylene. In order to be considered an eligible manufacturer, a company must make a capital investment of at least $1 billion and create the equivalent of at least 2,500 full-time jobs while constructing the manufacturing facility. This credit is effective for ethane purchased between January 1, 2017, and December 31, 2042.

The program is intended to transform Pennsylvania's manufacturing industry by creating thousands of well- paying Pennsylvania jobs and securing long-term economic benefits for Pennsylvania residents and communities.

Business in our Sites Loans (BOS):

The Business in Our Sites (BOS) program provides loans for the acquisition and development of key sites for future use by businesses, private developers and others. The program is administered through the Commonwealth Financing Authority (CFA).

The BOS program is intended to financially assist municipalities and others with planning and preparing sites for future use. Site must be previously utilized property or undeveloped property that is planned and zoned for development. Projects which require site development assistance, where a business has already committed to locating at a specific site or where a private developer has already committed to locating a facility for a specific user, may also seek financial assistance under other appropriate programs administered by the DCED.

Eligible applicants for this program include:

  • Municipalities (boroughs, townships, towns, counties, cities, home rule).
  • Redevelopment authorities.
  • Municipal authorities.
  • Industrial development agencies.
  • Private developers.

Types of Projects
Previously Utilized Sites: A project that redevelops, reuses or revitalizes a previously utilized site for future use. This includes, but is not limited to, a former or underutilized industrial, commercial, military, mining, railroad, or institutional site or building.

Undeveloped Sites: The development of the site must be consistent with an existing comprehensive county plan and/or municipal plan. Additionally, the site must be zoned for such development at the time of the application.

There is no maximum or minimum loan amount, except that the maximum amount of the funding for projects located within a single city, borough, town, or township may not exceed 15% of the funds available for the program.

There will be no repayment until the property is sold or leased, or five years from the date of closing. The interest rate for the loan will be set by the Commonwealth Financing Authority.

HOME:

This is a federally funded program that provides municipalities with grant and loan assistance as well as technical assistance to increase the supply of decent and affordable housing for low income residents. Providing affordable housing in Pennsylvania communities is a primary concern of the commonwealth.

The funds are earmarked for new construction, rehabilitation, financing mechanisms, acquisition of rental or sales housing, and rental assistance for low and moderate income families. The maximum grant is $500,000.

New PA Venture Capital Investment Program:

This program provides loans to venture capital partnerships for investment in Pennsylvania-related companies. The nature of investments by these partnerships shall be equity or convertible to debt. This program was created to address the financing needs of Pennsylvania businesses.

This program has up to $60 million dollars in funds and will allocate 50% of available funds to venture capital partnerships which operate in underserved areas in Pennsylvania. These areas are defined as counties outside of the Philadelphia MSA and those with populations below 1 million. The program also requires a match by the venture capital of $3 of investment in Pennsylvania companies for every $1 provided by the commonwealth. Consequently, this creates $240 million in investment capital for Pennsylvania companies.

Innovate in Pennsylvania- Life Science Greenhouse (LSG):

The LSG program consists of three regional biotechnology research centers that serve to facilitate biomedical, clinical, collaborative, and health services research through the sharing of funds and infrastructure. The mission of the LSG is to build and develop strengths in the life sciences within their regions, as well as to promote economic growth by establishing and nurturing links and networks between universities, research institutions, commercial concerns, industry organizations, and other entities. Innovate in Pennsylvania legislation allows for up to 5% of the net proceeds received from the sale of insurance premium tax credits to be administered to the three LSGs, which share the proceeds equally. The funding may be in form of grants, loans, equity investments, royalty/payback agreements, or other forms of financial support.

Innovate in Pennsylvania- Ben Franklin Technology Partners (BFTP):

The Ben Franklin Technology Partnership is one of the nation's longest running technology-based economic development programs. The objective of the BFTP is to invest in the revolution of the Pennsylvania economy through technology, innovation, and strategic partnerships that promote a promising business environment for companies. For more than 31 years, BFTP has provided both early stage and established companies with funding, business and technical expertise, and access to a network of innovative, expert resources.

The four regional Ben Franklin Technology Partners will receive new capital from the sale of insurance premium tax credits. The Ben Franklin Technology Development Authority will administer the revenue generated through the sale of the tax credits. This revenue will be used for direct company investments, business and technical support, technology and entrepreneurial infrastructure, and administrative expenses.

For more information, please visit:
http://www.revenue.pa.gov
http://www.newpa.com/program

 

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Contacts

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William Kuhlman

Partner
Tax & Business
Philadelphia, PA
Jeffrey Winkleman

Partner-in-Charge
Corporate Taxation
Tax & Business
Philadelphia, PA
 
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