Guest Post: Tax Credits and Incentives for Pennsylvania Businesses

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I met Anne a few weeks ago at a Headroom event in Wayne. Her subject matter was news to me and seemed relevant to many readers of this blog so I invited her to write a column. Thankfully, she obliged my request. -Steve

by Anne Fabry of MVM Associates
There are nearly 2,000 different state incentives and thousands of federal programs currently available to businesses in the US. Many organizations miss out on substantial benefits that are in place specifically to support growth.
Pennsylvania has a variety of incentive programs available to for-profit companies. Two are mentioned below. In both cases, the benefits are given in the form of a sellable/transferable tax credit. This means that if a business is awarded one of these tax credits and does not need them to satisfy a liability, they can sell the credit to another entity. The credit is then monetized and provides an additional source of capital to their business.
Keystone Innovation Zone (KIZ) Tax Credit – PA

  • Available to biotechnology, technology, life science or manufacturing focused businesses located in PA within one of 28 zones throughout PA.
  • Established to foster innovation and create entrepreneurial opportunities throughout the state.
  • There are 28 zones located throughout Pennsylvania.
  • This tax credit is transferable and sellable for cash.

 KIZ Requirements/Info

  • Businesses in targeted industries must be involved in the creation of a product or process for commercialization.
  • Company must be less than 8 years old.
  • Located in KIZ for 2 consecutive years (the base year does not need to be a complete year).
  • Demonstrate increasing gross revenues (including grants).
  • Must have either payroll or property factor in both years.
  • Complete required semi-annual KIZ Force reporting.
  • Submit application by September 15th each year, award letters announced December 15
  • Maximum tax credit award amount per year is $100,000 based on 50% of year over year increase in revenues.

Research & Development Tax Credit – PA

  • Available to companies who incur qualified research expenses within Pennsylvania.
  • Program created to assist with the growth and development of technology-oriented businesses.
  • Not zone related – available to all for-profit entities regardless of their age.
  • Tax credit is transferable and sellable for cash.

 R&D Requirements/Info

  • Qualified research expenses (QRE) to be incurred within PA.
  • Minimum 2 years of QREs to apply for tax credit (base year does not need to be a complete year).
  • QREs are defined by IRS Code and may include wages, disposable office supplies, contract research and patent costs.
  • Submit application by September 15th each year, award letters announced December 15
  • Companies valued at $5M or less receive 20% tax credit versus year over year increase in spending.
  • Companies valued over $5M receive 10% award versus year over year increase in QREs.

Research & Experimentation (R&E) Tax Credit – Federal

  • For US companies who incur qualified research expenses – permanent benefit beginning in 2016.
  • Dollar for dollar reduction of liability, taken at tax filing.
  • Special incentives for start-ups – can reduce payroll tax liability.
  • Can be used to offset Alternative Minimum Tax – AMT.
  • Tax credit is not transferable – can be carried forward 20 years.

Tax Credit Applications

  • Use – apply credit against a state tax liability including personal income tax, corporate net income, capital stock and franchise tax. Federal tax credits can be used versus federal liabilities.
  • Carry forward – use in future years versus tax liabilities according to guidelines which vary according to each program.
  • Sell – if the tax credit is sellable/transferable, once you have deducted the state liability from the total award, the remainder can be sold for cash. Federal R&E tax credit is not sellable.

These credits are valuable benefits that can support growth by providing additional capital or reducing the tax burden on a business. However, capturing accurate data, especially when calculating R&D and R&E qualified expenditures, can be a complicated task best left to experts. At MVM Associates, they’ve simplified the process with a one page questionnaire that can gauge your eligibility. To find out more about these incentives and your opportunity, contact:
Anne Fabry
MVM Associates