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What Is a Keystone Opportunity Expansion Zone (KOEZ)?

If you are thinking of starting or expanding a business, you should consider doing it in a Keystone Opportunity Zone (KOZ) or a Keystone Opportunity Expansion Zone (KOEZ). KOZs/KOEZs were created to encourage people to live and do business in these special areas. Businesses that operate in KOZs/KOEZs are in line to receive significant state and local tax benefits. KOZs/KOEZs are virtually tax free zones that may result in substantial state and local tax savings, giving businesses more money to invest into business operations. Furthermore, businesses located in a KOZ/KOEZ 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/KOEZ by contacting the KOZ/KOEZ coordinator in your area. KOZ/KOEZ coordinators will help you fill out the application so you can begin receiving the benefits of operating in a zone.

Businesses may qualify for relief from the following state taxes:

Businesses may qualify for relief from the following local taxes:

How to Qualify for KOZ/KOEZ Benefits

How does a company become a qualified business?

To become a qualified business, a business must: (1) own or lease real property in a KOZ/KOEZ from which it actively conducts a trade, profession, or business, and (2) obtain annual certification from the PA Department of Community and Economic Development.

Do businesses have to be current with their taxes in order to receive the tax benefits?

Yes. Businesses are not entitled to any tax benefits of a KOZ/KOEZ 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.

Is a business required to complete and submit a KOZ/KOEZ application to receive KOZ/KOEZ tax benefits?

Yes. Any taxpayer that is interested in receiving KOZ/KOEZ tax benefits must complete and submit a KOZ/KOEZ application.

Must a business owner reapply each year to be eligible for the tax benefits of a KOZ/KOEZ?

Yes. All taxpayers must reapply each year to be eligible for KOZ/KOEZ tax benefits.

How a KOZ/KOEZ Affects Sales and Use Tax

What is exempt from state and local Sales and Use Tax?

Purchases of taxable property or services, other than motor vehicles, by a qualified business located within a KOZ/KOEZ, may be exempt from state and local Sales and Use Tax. These purchases must be consumed and used within the KOZ/KOEZ location by a qualified business. The PA Department of Revenue will provide a KOZ/KOEZ 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/an KOZ/KOEZ qualified business holding Exemption Number 72-******; and Line 7. Other Property or services are being purchased for use and consumption in a KOZ/KOEZ.

Note: All KOZ/KOEZ exemption numbers will start with the prefix "72".

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?

A business located in a KOZ/KOEZ must continue to charge and collect Sales Tax from its customers, unless the purchase is otherwise exempt.

How a KOZ/KOEZ Affects Corporate Taxes

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. The credit shall be apportioned to the KOZ/KOEZ by use of the common three-factor formula: property, payroll, and sales. The credit is determined by an apportioned percentage: KOZ/KOEZ property/total PA property; KOZ/KOEZ payroll/total PA payroll; KOZ/KOEZ sales/total PA sales.

Are railroad, truck, bus, airline, pipeline, natural gas, or water transportation companies entitled to certain KOZ/KOEZ tax benefits?

These types of companies that are qualified businesses may claim Job Creation Tax Credits for full-time jobs created in a KOZ/KOEZ, provided that Pennsylvania full-time jobs increase from the prior year.

How a KOZ/KOEZ Affects Financial Institutions

Are banks, trust companies, and mutual thrift institutions entitled to certain KOZ/KOEZ tax benefits?

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/KOEZ.

Are insurance companies entitled to certain KOZ/KOEZ tax benefits?

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/KOEZ.

How a KOZ/KOEZ Affects Personal Income Tax

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.

How a KOZ/KOEZ Affects Local Real Estate Taxes

Are qualified businesses located in a KOZ/KOEZ entitled to local real property tax abatement?

Yes. A qualified business may be entitled to 100 percent abatement of local real property taxes.

How to Get a KOZ/KOEZ Application & Other Information

Contact the Lawrence County Economic Development Corporation regarding KOZ and KOEZs located in Lawrence County.

For additional information on how KOZs/KOEZs 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
E-mail: parev@state.pa.us
Visit Us At: http://www.revenue.state.pa.us

The information provided herein is not meant to constitute legal advice or to serve as a legal document statement.