You never know what might happen at your children’s lacrosse game. Chatting recently with parents in the stands while his daughters played, Chuck Conrad discovered that a couple he knows was about to move their business out of their home and start hiring full-time employees.
Conrad, president of eCedent.com in Indiana, Pennsylvania, told the business owners about the state’s Keystone Innovation Zones (KIZ) and the tax credits available to companies located within a KIZ.
Conrad has used the program since 2009. He chose the location for his company because of the bandwidth available in the Indiana County KIZ. Conrad’s company enables professionals to manage and certify death certificates online. Since eCedent is an Internet-based business, the bandwidth was critical.
Launched as part of an economic stimulus plan, the KIZ program was meant to spur entrepreneurial activity around Pennsylvania’s research and development clusters — which is why the KIZs were established around colleges and universities.
“What we ended up with was 29 KIZs across the commonwealth,” says Sheri Collins, deputy secretary in the Office of Technology & Innovation at the Pennsylvania Department of Community & Economic Development. Businesses within the zones operate in targeted industry sectors — in life sciences, information technology, advanced manufacturing, energy, and robotics — and are partnered with nearly 100 colleges and universities.
After launching the KIZ program in 2004, Pennsylvania added the tax credit component in 2006.
“To qualify for participation in the KIZ program, and ultimately the tax credit program, you have to be a qualified company in operation less than eight years, and be located in the geographic footprint of a particular KIZ. And you have to operate in one or more of the targeted industry sectors,” Collins says. Companies receiving the tax credit also must demonstrate an increase in revenues within a prescribed period of time.
Tax credits must be applied against the tax liability of a KIZ company for the tax year in which the KIZ tax credit is issued. Also, unused tax credits may be applied against the tax liability of the KIZ company for up to five years from the date the tax credit is issued.
These tax credits may be sold to a qualified buyer. In fact, Collins says, qualified businesses often sell their tax credits to other buyers, gaining cash infusions for their growing companies. They use the cash to hire staff, purchase equipment and pay off debts.
“They may sell them for anywhere between 80 to 97 cents on the dollar,” says Collins. “It really is contingent on the company’s needs at the time. Most of our companies sell at 93 cents on the dollar.”
From the total pool of $25 million in tax credits available annually, a single company can receive up to $100,000 per year. Since the beginning of the KIZ program, 1,518 Pennsylvania businesses have received assistance — just over 239 in 2015. Tax credits awarded over the life of the program total $120.78 million with $17.97 million awarded in 2015.
Chuck Conrad admits that he can’t honestly say how things would have gone differently for eCedent without the tax credit, but he notes, “We have been able to secure additional cash every year from the state, so I would have to always say it has helped us move forward positively. I truly can’t tell you a downside to that.”
Importantly for small business owners, Conrad adds that the paperwork doesn’t take a whole lot of time.
“I think when the program first came out it was a little more difficult, but I think they have really streamlined the paperwork. The first year, the original paperwork takes some time to put together, but it’s not that bad, and now yearly, you go in and fill it out, and it’s all online and truthfully it doesn’t take us that long.”
As for his friends at the lacrosse game, Conrad says, “I told them, ‘You really need to look into this; it’s a wonderful program, and it’s not difficult at all to be a part of.’ For us, this program truly has been beneficial.”