flying slippers blog

KIZ Tax Credits: The Great Equalizer

January 24, 2019

Philadelphia might get a bad rap for being unfriendly to businesses -- but try telling that to the 100+ Old City, Center City and University City-based startups that have benefited from over $15 million in Keystone Innovation Zone Tax Credits.

 

Those companies, each located within the University City Keystone Innovation Zone (KIZ), are fueling local economic growth. With the support of the Tax Credit program, they’re reinvesting in their companies – and, by extension, the City of Philadelphia.

 

Eligible companies can receive up to $100,000 in sellable tax credits annually. Timed right, a company can benefit for six years and up to $600,000 in KIZ Tax Credits before they “graduate” from the program.

 

And those funds are often used to create new jobs and the program has created over 9,000 jobs statewide since it began.

"The KIZ Tax Credit is extremely useful for early-stage companies like [ours]. It will help us to build out our new laboratory space in University City and advance the development of our point-of-care diagnostic system."

Johann deSa, Founder of Instadiagnostics

“We're excited about being a recipient of a KIZ tax credit because it will allow us to hire an environmental engineer to more aggressively pursue the opportunities we see with the business,” says John Yarchoan, Partner at Magnolia, Inc. “Startup companies face many of the same growth issues a larger company faces, but without comparable resources. I see the KIZ program as a great equalizer in that respect.”

 

“Using funds from the credit, CampusESP was able to accelerate the hiring process for an additional account executive and customer support specialist,” says Dave Becker, CEO of the Center City-based edtech startup.

 

Other companies use proceeds from the sale of KIZ credits to scale facilities and purchase equipment to meet their next milestone.

 

For Johann deSa, Founder of Instadiagnostics, "The KIZ Tax Credit is extremely useful for early-stage companies like [ours]. It will help us to build out our new laboratory space in University City and advance the development of our point-of-care diagnostic system."

 

“The KIZ tax credit will open up opportunities for us to expand our business into new verticals,” says Peter Buchak, CEO at Low Re Tech. “We plan to use the KIZ tax credit to fund research into new applications of our technology in other industries.”

 

So how does it work?

 

Companies must first meet three criteria:
 

  • be a for-profit company that’s less than 8 years old. The date on which a company obtains its federal EIN is considered its birthday.
  • be located within the boundaries of a KIZ (note that the University City KIZ includes sections of Center City and Old City, in addition to University City). And yes, you can move between KIZs and still be eligible.  
  • developing new or novel products in eligible science and technology sectors.

 

In addition to these criteria, companies must submit semi-annual reports to the DCED.

 

The Formula

 

KIZ Tax Credit awards are based on year-over-year revenue increase. It’s important to note that that the revenue must be attributable to a company’s location within the KIZ. That means if your company moves into the KIZ tomorrow, you’ll be eligible to start applying for the KIZ Tax Credit program in the year 2021. 2019 would serve as your “base year,” 2020 as your comparable year and your application submitted in 2021. Companies receive credits equal to 50% of the increase.

 

Let’s say your gross revenue in 2019 is $60,000 and your gross revenue in 2020 is $160,000. The year-over-year difference is $100,000 so your company would receive $50,000 in credits.

 

Once the credit is received

 

Tax credits must first be applied against the company’s tax liabilities. After that, any unused tax credits can be sold, or you can hold onto them for up to five years.

 

A total of up to $15 million in credits are available statewide each year to eligible companies.

 

Established in 2004 by the Commonwealth of Pennsylvania and the Ben Franklin Technology Development Authority, the University City KIZ is a partnership between BioAdvance, Drexel University, Thomas Jefferson University, the University City Science Center, the University of Pennsylvania, the University of the Sciences and The Wistar Institute.  The Science Center serves as fiscal agent.

 

The University City KIZ is one of 28 zones across the Commonwealth and one of three KIZs within the City of Philadelphia.

 

The KIZ Tax Credit application deadline is September 15 each year. Applications submitted at 12:01 on September 16 won’t be considered – so start the application process early!

 

Questions? Contact Kristen Fitch at kfitch [at] sciencecenter.org or 215-966-6156.