GENERAL KOZ QUESTIONS
What's the Catch?
There is no catch. If you own property in the KOZ or locate your business in a KOZ, you will pay little or no business taxes until either 12/31/10, 12/31/13 or 12/31/18 depending on which subzone you are located.
The only requirements are:
- You must be up-to-date in all of your City and State taxes and in compliance with all City and State laws and regulations.
- You must file a KOZ application annually. Here is a link to the form.
- If you are presently a Pennsylvania business and relocate to a KOZ you must:
- increase employment by 20% in the first year
- or invest the equivalent of 10 % of the previous year’s gross revenues in capital improvements to the KOZ Property.
- or enter into a lease agreement for property within a KOZ for a term at least equivalent to the duration of the KOZ property and with an aggregate payment under the lease at least equivalent to 5% of the gross revenues of that business in the immediately preceding calendar or fiscal year.
It’s that simple!
I plan to lease space in a KOZ. Am I eligible for the KOZ benefits?
Yes. Assuming you are certified, you will be eligible for all the tax benefits that apply to your operations
Is there a lot of paperwork and other bureaucratic red tape involved?
No. This may well be the least bureaucratic program you will ever see. The application is simple.
Is the KOZ like other Zones where everyone in a certain geographic area is included and eligible for the KOZ benefits?
No. Unlike the state Enterprise Zone or federal Empowerment Zone where very specific boundaries are established and any business located within those boundaries is eligible for the benefits, the KOZ is parcel-specific. That is, the KOZ is broken into general geographic areas called Subzones. But only specific properties within those general areas are designated as KOZ parcels. For example, in the “American Street Subzone,” 1602 N. American Street is in the KOZ; the next KOZ property would be 2001 N. American Street and then 1640 N. Hancock Street etc.
How did the City choose which parcels to include in the KOZ?
The KOZ legislation limited the number and size of subzones. Given those parameters, the City chose (almost exclusively) vacant industrial land and vacant outdated industrial buildings in key geographic areas throughout the City. In addition, for reasons of fairness, no existing businesses were included, as a rule.
In the case of KOIZs, the governor designated the sites to be included. The designation however required local approval.
Can I apply to add my property or business to the KOZ?
No. The State KOZ legislation prohibits the addition of properties once the KOZs have been designated.
How do I know if my property, or a property I am looking to buy, is in a KOZ?
Visit the KOZ Property Map
I keep hearing about KOEZs and KOIZs. Are they the same as KOZs?
They are the same except for their respective expiration dates. KOZs expire on 12/31/10, Keystone Opportunity Expansion Zones (KOEZs) expire on 12/31/13, and Keystone Opportunity Improvement Zones (KOIZ) expire 12/31/18.
KOEZs were a second round of KOZ designations. KOIZs were in effect a third round, and were designated by the governor.
The KOEZ and KOIZ terms are generally being phased out. When we use the term KOZs we are referring to KOZs, KOEZs and KOIZs.
How do I know when the benefits for a KOZ expire, i.e. whether a property is a KOZ or KOEZ site?
Visit the KOZ Property Map
Where can I find a copy of the enabling legislation?
You may find a copy of the KOZ enabling legislation, and additional information on the statewide KOZs, on the State’s KOZ website.
KOZ PROCESS QUESTIONS
OK. I am located in a KOZ. Now what?
Fill out a KOZ application and submit it online.
To be eligible you must file by December 31 of the year for which you are applying for KOZ benefits.
What is the Philadelphia County Code and School Code?
The County Code is 51 and the School Code is 51500
Where do I find the Tax Parcel ID for the property?
Visit the KOZ Property Map for a complete listing of the Tax Parcel ID (under OPA Number).
The application has been filed. What happens next?
Both the City and State Revenue Departments will review your application for compliance. Upon this verification, you will receive a letter from the Pennsylvania Department of Community and Economic Development certifying you as a KOZ business, or property owner. Within a few weeks business applicants will receive their KOZ tax-exempt certificate and number.
If you are not certified, you will be notified of the problem and given contacts to help you address the issue.
How long does it take to get certified?
Normally, the process takes less than 60 days. However, in the very beginning of each year, in particular when all of the renewal applications come in at once, the process may take 90 days.
I have moved in but am just applying now, does that mean I can not take advantage of the KOZ benefits while my application is being processed?
The KOZ benefits are retroactive to January 1 of the application year or the date you moved into the KOZ, which ever is later. Once you are certified, you may file for a refund on any eligible tax paid during the time between January 1/move-in date and official notification of approval.
For refund information and forms, call the KOZ Hotline at (215) 683-2021. SAVE YOUR RECEIPTS!
I have been in the zone for two years now but have never filed. Can I file for the previous years?
No. You must file by 12/31 for the year in which you are applying. Should you miss that deadline, the law prohibits you from taking KOZ benefits for that year.
What if I have a tax problem or regulation problem? Am I automatically rejected?
No. You will be told what the specific problem is and whom to contact to remedy the issue. You will be given a reasonable amount of time to rectify the problem. If you are deemed out of compliance this year, for example, and thus rejected for KOZ benefits, you may reapply for the KOZ benefits for that year and the subsequent years if you rectify the compliance matter.
You must have all of your outstanding issues resolved by February 5 of the following year for which you have applied for KOZ benefits to be eligible to receive KOZ benefits.
What if I am a tenant and the landlord goes out of compliance, do I lose KOZ benefits as well?
No, in a landlord/tenant situation, an innocent party will not be held liable because of the actions of others.
You say that I need to be re-certified each year. How do I do that?
While it is your responsibility to re-file each year, as a courtesy, we automatically send previously certified applicants a renewal notice each year. You may file on line at http://koz.newpa.com
KOZ TAX QUESTIONS
You should always consult a qualified tax accountant to determine how the KOZ benefits apply to your particular business!
Since the taxes are abated or waived, do I have to file?
Yes. You must continue to file all of your tax forms. See below for how to take the KOZ credits or abatements on various tax filings.
How will the City and State know I am KOZ certified?
You should attach a copy of your approval letter and tax exemption certificate to every filing and correspondence.
What if I have one site in the KOZ and another site outside the KOZ? Are taxes waived on all of my business?
No. The taxes are abated on only the portion of work or sales, that is directly attributable to activities at the KOZ site.
Do my employees still pay local wage tax?
Yes, unless they live within one of Pennsylvania’s twelve KOZ. The wage tax abatement is based on where the employee lives NOT where he/she works. Philadelphia has elected to not include any residential properties it its KOZ program.
Are all of my real estate taxes abated?
Yes. Once certified, 100% of your real estate taxes are abated on your KOZ property for that year.
How are real estate taxes handled?
Since your real estate tax bill will often be mailed before you are certified for a given year, your account will be adjusted to reflect the KOZ exemption when you are certified. If you do not get certified for that year, you are responsible for all real estate taxes.
How do I take the BPT/NPT KOZ Tax credits?
In late February or early March, a separate KOZ schedule will be sent to every KOZ-certified business so that they may calculate the KOZ credit. This schedule gets filed with the regular BPT/NPT filing.
How much of a break do I get on my Use & Occupancy Tax?
Once KOZ-certified, 100% of your U&O Tax on your KOZ site is waived.
How is my U&O tax returns handled?
The new U&O tax forms have a line right on the return for you to take your KOZ credit.
How will the Pennsylvania corporate tax abatements work?
It is planned that you will file your tax returns as normal. A separate schedule has been added so you may take the KOZ credit on your return.
I am a Subchapter S Corporation, so I do not pay corporate taxes. Is my company left out?
No. Principals of a Subchapter S corporation will not be required to pay State personal income tax on the distributions. All principals must be listed on the KOZ certification form.
How does a qualified business claim a Corporate Net Income Tax and/or Capital Stock and Franchise Tax Credit?
A qualified business may take a tax credit, subject to certain limitations, against the Corporate Net Income Tax and/or the Capital Stock and Franchise Tax for the tax liability attributable to business activity conducted within a KOZ/KOEZ.
What is exempt from state and local Sales and Use tax?
Purchases of taxable property or services, other than motor vehicles, by a qualified KOZ business may be exempt from state and local Sales and Use Tax. These purchases must be used within a KOZ location by a qualified business. These items include everything from paper clips to racking and shelving used in the operation of your business at the KOZ site
Does the exemption apply to Sales and Use Tax on motor vehicles?
No. The sale or lease of motor vehicles licensed for over-the-road use, including special mobile equipment, are subject to Sales and Use Tax, even when used in an approved KOZ/KOEZ.
Must a KOZ/KOEZ business continue to charge and collect state and local Sales Tax from its customers?
Yes. A business located in a KOZ/KOEZ must continue to charge and collect Sales Tax from its customers, unless purchase is otherwise exempt.
Does the Sales Tax waiver apply to what I sell to others?
No. The waiver only applies to what a business inside a KOZ consumes in the KOZ, such as building materials, office supplies, etc. The state will issue you a “KOZ Tax Exemption Certificate” which you will be able to use when purchasing these eligible goods and services.
Does the Sales Tax waiver apply to services such as computer maintenance or equipment repair contracts?
Yes. If this work is done in the KOZ for a KOZ certified business use.
How do owners operating a qualified sole proprietorship, partnership or PA S-Corporation within a KOZ/KOEZ receive KOZ/KOEZ tax benefits?
Income earned by a qualified business in a KOZ/KOEZ is not subject to PA Personal Income Tax when passed through to the resident/nonresident shareholder, partner, member, etc. Income earned by a qualified sole proprietor is exempt from the individual owner’s PA taxable income. If you have any other income that you earned or realized from outside a KOZ/KOEZ, you are liable for PA Personal Income Tax on that income.
OTHER KOZ BENEFITS
Is that all there is?
- KOZ businesses get the loan lowest rates and highest participation on State and City Economic Development Loans offered by the Philadelphia Industrial Development Corporation (PIDC) and the Philadelphia Commercial Development Corporation.
- Philadelphia Works can assist you with all of your workforce needs, including recruitment and subsidized training programs, tax credits etc.
- The Commerce Department convenes a Developer Services Committee for large developments. This Committee, which consists of the key players from economic development, License and Inspections Department, Permitting, Utility Companies, Streets Department etc. is charged with cutting through the red tape to get your project from drawing board to construction with a minimum of effort on your part.
- For smaller projects and for everyday issues, the Commerce Department is there to help. Let us cut the red tape so that your project can move forward and you can spend your time and energy on growing your business.
How can I find out more on these programs?
First, don’t let the “alphabet soup” of government agencies intimidate and confuse you!
Call the Commerce Department’s “The Office of Business Services” at (215) 683-2100 and an OBS representative will be you personal liaison to guide you through the maze and bring the appropriate “players” to the table to assist you.