If you are thinking of starting or expanding a business, you should consider doing it in a Keystone Opportunity Zone (KOZ). KOZs were created to encourage people to live and do business in these special areas. Businesses that operate in KOZs are in line to receive significant state and local tax benefits. KOZs are virtually tax free zones that may result in substantial state and local tax savings, giving businesses more money to invest back into business operations. Furthermore, businesses located in a KOZ are given priority for various state and local community-building assistance programs. With so much to gain, it is worth your while to find out more about doing business in a KOZ by contacting the LCEDC.
To become a qualified business, a business must: (1) own or lease real property in a KOZ from which it actively conducts a trade, profession, or business, and (2) obtain annual certification from the PA Department of Community and Economic Development.
Yes. Businesses are not entitled to any tax benefits of a KOZ unless they are in compliance with all state and local tax laws and building code provisions. All previous year tax returns must be filed to be considered compliant. A business has until February 5 of the following calendar year to come into compliance with state and local tax laws.
Yes. Any taxpayer that is interested in receiving KOZ tax benefits must complete and submit an annual online application.
Yes. All taxpayers must reapply each year to be eligible for KOZ tax benefits.
Purchases of taxable property or services, other than motor vehicles, by a qualified business located within a KOZ may be exempt from state and local Sales and Use Tax. These purchases must be consumed and used within the KOZ location by a qualified business. The PA Department of Revenue will provide a KOZ exemption number and notification to each qualified business. A qualified business is required to provide its vendors with a properly completed PA Tax Exemption Certificate (REV-1220) with the following information: Line 4. Purchaser is a KOZ qualified business holding Exemption Number 72-******; and Line 7. Other Property or services are being purchased for use and consumption in a KOZ.
Note: All KOZ exemption numbers will start with the prefix "72".
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.
A business located in a KOZ must continue to charge and collect Sales Tax from its customers, unless the purchase is otherwise exempt.
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. The credit shall be apportioned to the KOZ by use of the common three-factor formula: property, payroll, and sales. The credit is determined by an apportioned percentage: KOZ property/total PA property; KOZ payroll/total PA payroll; KOZ sales/total PA sales.
These types of companies that are qualified businesses may claim Job Creation Tax Credits for full-time jobs created in a KOZ, provided that Pennsylvania full-time jobs increase from the prior year.
A bank, trust company, or mutual thrift institution that is a qualified business may take a credit, subject to certain limitations, against the Bank and Trust Company Shares Tax or the Mutual Thrift Institutions Tax for liabilities attributable to business activity conducted within a KOZ.
An insurance company that is a qualified business may take a Job Tax Credit, subject to certain limitations, against the Insurance Premiums Tax liability attributable to business activity conducted within a KOZ.
Income earned by a qualified business in a KOZ 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, you are liable for PA Personal Income Tax on that income.
Yes. A qualified business may be entitled to 100 percent abatement of local real property taxes.
Contact the Lawrence County Economic Development Corporation regarding KOZs located in Lawrence County.
For additional information on how KOZs affect state taxes, call the PA Department of Revenue Taxpayer Service and Information Center at (717) 787-8201 for PA Personal Income Tax questions, or (717) 787-1064 for PA business tax questions. Information is also available on the Department’s website.
PA Department of Revenue
Harrisburg, PA 17128
The information provided herein is not meant to constitute legal advice or to serve as a legal document statement.