HB 177 — An Act providing for the creation of keystone opportunity dairy zones to facilitate the economic development of Pennsylvania's dairy industry; authorizing expenditures; providing for tax exemptions, tax deductions, tax abatements and tax credits; creating additional obligations of the Commonwealth and local governmental units; prescribing powers and duties of certain State and local departments, agencies and officials; and imposing penalties.

PRINTER'S NO.   857

                    THE GENERAL ASSEMBLY OF PENNSYLVANIA



                        HOUSE BILL
                        No. 177
                                              Session of
                                                2025

     INTRODUCED BY LAWRENCE, OWLETT, KENYATTA, GREINER, JAMES, SMITH,
        REICHARD AND MOUL, MARCH 10, 2025

     REFERRED TO COMMITTEE ON AGRICULTURE AND RURAL AFFAIRS,
        MARCH 10, 2025


                                   AN ACT
 1   Providing for the creation of keystone opportunity dairy zones
 2      to facilitate the economic development of Pennsylvania's
 3      dairy industry; authorizing expenditures; providing for tax
 4      exemptions, tax deductions, tax abatements and tax credits;
 5      creating additional obligations of the Commonwealth and local
 6      governmental units; prescribing powers and duties of certain
 7      State and local departments, agencies and officials; and
 8      imposing penalties.
 9                            TABLE OF CONTENTS
10   Chapter 1.   Preliminary Provisions
11   Section 101.   Short title.
12   Section 102.   Legislative findings.
13   Section 103.   Definitions.
14   Chapter 3.   Keystone Opportunity Dairy Zones
15   Section 301.   Keystone opportunity dairy zones.
16   Section 302.   Application.
17   Section 303.   Review.
18   Section 304.   Criteria for authorization of zone.
19   Section 305.   Zone limitations.
20   Section 306.   Residency.
 1   Section 307.    Qualified businesses.
 2   Section 308.    Forms.
 3   Chapter 5.    State Taxes
 4   Subchapter A.    General Provisions
 5   Section 501.    State taxes.
 6   Subchapter B.    Particular State Taxes
 7   Section 511.    Sales and use tax.
 8   Section 512.    Personal income tax.
 9   Section 513.    Residency considerations.
10   Section 514.    Corporate net income tax.
11   Chapter 7.    Local Taxes
12   Section 701.    Local taxes.
13   Section 702.    Real property tax.
14   Section 703.    Local earned income and net profits taxes and
15                 business privilege taxes.
16   Section 704.    Mercantile license tax.
17   Section 705.    Local sales and use tax.
18   Chapter 9.    Administration of Tax Provisions
19   Section 901.    Transferability.
20   Section 902.    Recapture.
21   Section 903.    Delinquent or deficient State or local taxes.
22   Section 904.    Code compliance.
23   Section 905.    Appeals.
24   Section 906.    Notice requirements.
25   Section 907.    Application time.
26   Chapter 11.    Procedures for Zones
27   Section 1101.    Keystone opportunity dairy zone prioritizations.
28   Section 1102.    Reporting.
29   Section 1103.    Other Commonwealth tax credits.
30   Section 1104.    Monitoring data.

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 1   Chapter 13.    Miscellaneous Provisions
 2   Section 1301.    Illegal activity.
 3   Section 1302.    Rules and regulations.
 4   Section 1303.    Compliance.
 5   Section 1304.    Penalties.
 6   Section 1305.    Construction.
 7   Section 1306.    Severability.
 8   Section 1307.    Repeals.
 9   Section 1308.    Applicability.
10   Section 1309.    Effective date.
11      The General Assembly of the Commonwealth of Pennsylvania
12   hereby enacts as follows:
13                                  CHAPTER 1
14                           PRELIMINARY PROVISIONS
15   Section 101.    Short title.
16      This act shall be known and may be cited as the Keystone
17   Opportunity Dairy Zone Act.
18   Section 102.    Legislative findings.
19      The General Assembly finds and declares as follows:
20          (1)     Dairy farmers are a vital, integral and
21      irreplaceable part of the agricultural heritage of this
22      Commonwealth.
23          (2)     Dairy farmers contribute to the continued economic
24      health of this Commonwealth's agricultural sector, provide
25      jobs and pay taxes, provide local and sustainable food
26      products for nourishment and enjoyment and promote the
27      preservation of farmland in the public interest of all
28      residents of this Commonwealth.
29          (3)     The continued viability of dairy farming is in the
30      best interest of the residents of this Commonwealth.

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 1          (4)     In light of continued economic forces and market
 2      pressures, the long-term viability of dairy farming requires
 3      coordinated efforts by private and public entities to ensure
 4      economic viability and ensure the continuation of the
 5      significant contributions dairy farmers make to the economic
 6      and social life of this Commonwealth.
 7          (5)     The long-term economic viability of dairy farming
 8      requires the cooperative involvement of residents,
 9      businesses, State and local elected officials and community
10      organizations.
11          (6)     It is in the best interest of this Commonwealth to
12      assist and encourage the creation of zones to accomplish the
13      purposes of this act.
14   Section 103.    Definitions.
15      The following words and phrases when used in this act shall
16   have the meanings given to them in this section unless the
17   context clearly indicates otherwise:
18      "Applicant."    An individual or business that submits or
19   intends to submit a zone application to the department.
20      "Business."    An association, partnership, cooperative,
21   corporation, sole proprietorship, limited liability company or
22   employer.
23      "Dairy processing facility."     A factory or plant directly and
24   primarily involved in processing, refining or manufacturing raw
25   milk that is at least 75% Pennsylvania milk or Pennsylvania milk
26   products into milk, butter, milk powder, cheese, yogurt, ice
27   cream, sour cream or a value-added dairy product intended for
28   the wholesale or retail market.
29      "Department."    The Department of Community and Economic
30   Development of the Commonwealth.

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 1      "Domicile."   The place where an individual has a true and
 2   fixed home and principal establishment for an indefinite time
 3   and to which, whenever absent, that individual intends to
 4   return. Domicile continues until another place of domicile is
 5   established.
 6      "Keystone opportunity dairy zone" or "zone."     A defined
 7   geographic area comprised of one or more political subdivisions
 8   or portions of political subdivisions as designated by the
 9   department under section 301.
10      "Opportunity plan."     A written plan that addresses the
11   criteria and meets the requirements under section 302(a)(2).
12      "Pennsylvania dairy farm."     A farm that produces Pennsylvania
13   milk.
14      "Pennsylvania milk."    Raw milk produced by the milking of
15   cows physically located on a farm within the geographic
16   boundaries of this Commonwealth and certified as such by the
17   Pennsylvania Milk Board.
18      "Pennsylvania milk product."     A food or beverage made from or
19   primarily made from at least 75% Pennsylvania milk, or a value-
20   added dairy product, processed within this Commonwealth that
21   utilized 75% or more Pennsylvania milk in its manufacture.
22      "Political subdivision."     A county, city, borough, township,
23   town or school district with taxing jurisdiction in a defined
24   geographic area within this Commonwealth.
25      "Qualified business."     A business authorized to do business
26   in this Commonwealth that is located or partially located within
27   a zone.
28      "Qualified political subdivision."     A political subdivision
29   that has real property within its jurisdiction that has been
30   designated by the department as a zone.

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 1      "Resident."   An individual who is domiciled and resides in an
 2   area that is designated a zone.
 3      "Small scale dairy processing facility."    A factory, plant or
 4   operation that exclusively utilizes Pennsylvania milk produced
 5   from a single Pennsylvania dairy farm with a total average herd
 6   size of 250 milking cows or fewer, or a combination of
 7   Pennsylvania dairy farms with a total collective average herd
 8   size of 250 milking cows or fewer, and that is directly and
 9   primarily involved in processing, refining or manufacturing raw
10   Pennsylvania milk or Pennsylvania milk products into milk,
11   butter, milk powder, cheese, yogurt, ice cream, sour cream or a
12   value-added dairy product intended for the wholesale or retail
13   market.
14      "Tax Reform Code of 1971."     The act of March 4, 1971 (P.L.6,
15   No.2), known as the Tax Reform Code of 1971.
16      "Value-added dairy product."     Pennsylvania milk or a
17   Pennsylvania milk product that has been additionally processed,
18   improved, shredded, combined, aged, flavored, separated,
19   condensed or otherwise prepared to provide additional value or
20   convenience for the wholesale or retail market.
21                                CHAPTER 3
22                     KEYSTONE OPPORTUNITY DAIRY ZONES
23   Section 301.   Keystone opportunity dairy zones.
24      (a)    Establishment.--The department may designate up to 30
25   zones in accordance with this section, with up to 15 Class A
26   zones and up to 20 Class B zones.
27      (b)    Zone authorization.--The department shall authorize not
28   more than 30 zones in this Commonwealth. Individuals and
29   businesses within an authorized zone that are qualified under
30   this act shall be entitled to all tax exemptions, deductions,

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 1   abatements or credits provided under this act for a period not
 2   to exceed 10 years beginning no sooner than one year from the
 3   effective date of this subsection and no later than three years
 4   from the effective date of this subsection. The department
 5   shall, upon approval, specify the precise beginning and ending
 6   dates for the tax exemptions, deductions, abatements or credits
 7   provided under this act.
 8      (c)   Authorization for local tax exemption.--Every political
 9   subdivision within which a proposed zone is located, whether in
10   whole or in part, is authorized to provide tax exemptions,
11   deductions, abatements or credits to individuals and businesses
12   qualified under this act. The political subdivision shall agree
13   to provide exemptions, deductions, abatements or credits from
14   all local taxes provided under this act in order to qualify to
15   be designated a zone. The exemptions, deductions, abatements or
16   credits shall be effective on the date determined by the
17   department. The exemptions, deductions, abatements or credits
18   shall be binding upon the political subdivision for the duration
19   of the zone designation.
20      (d)   Authorization to extend duration of zone.--A zone may
21   request to extend its designation for a period of three years.
22   The request to extend a zone designation shall be made on a
23   zone-by-zone basis. A qualified political subdivision having an
24   approved zone within its jurisdiction and seeking to extend the
25   zone designation shall pass the required ordinances, resolutions
26   or other required action of the qualified political subdivision
27   for the necessary exemptions, deductions, abatements or credits
28   under this act, and shall submit copies of the ordinance,
29   resolution or other action to the department. The department may
30   grant the request to extend provided all the proper binding

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 1   ordinances, resolutions or other governing documents are passed
 2   by all qualified political subdivisions within the zone
 3   extending the necessary exemptions, deductions, abatements and
 4   credits to the entire zone. The department shall approve or deny
 5   the request for extension of duration of a subzone within 90
 6   days of receipt and shall provide written notice, irrespective
 7   of whether approved or denied, to each qualified applicant,
 8   political subdivision, resident and qualified business affected.
 9   Upon approval of a request for extension of duration of a zone,
10   the exemptions, deductions, abatements or credits shall be
11   binding upon the qualified political subdivision as provided in
12   subsection (c).
13   Section 302.     Application.
14      (a)   Initial application.--An applicant may apply to the
15   department to designate a parcel as a zone. The application
16   shall contain the following:
17            (1)   The geographic area of the proposed zone, including
18      the specific political subdivision or subdivisions.
19            (2)   An opportunity plan, which shall include the
20      following:
21                  (i)    A detailed map of the proposed zone, including
22            geographic boundaries, total area and present use and
23            conditions of the land and structures of the proposed
24            zone.
25                  (ii)    Evidence of support from and participation of
26            local government, school districts and other educational
27            institutions, business groups, community organizations
28            and the public.
29                  (iii)   A detailed proposal outlining the proposed
30            improvements in the zone, including, but not limited to,

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 1            proposed capital investment, job creation and increased
 2            dairy processing capacity for Pennsylvania milk or
 3            Pennsylvania milk products according to the
 4            specifications of this act.
 5                  (iv)    A description of anticipated activity in the
 6            proposed zone, including, but not limited to, site
 7            improvements.
 8                  (v)    Evidence of potential private and public
 9            investment in the proposed zone.
10                  (vi)    The role of the proposed zone in economic
11            development of the dairy industry in this Commonwealth
12            and the anticipated impacts to dairy farmers producing
13            Pennsylvania milk.
14                  (vii)    Any other information deemed appropriate by
15            the department or by the Secretary of Agriculture in
16            consultation with the department.
17            (3)   The duration of the proposed zone, including the
18      anticipated beginning and end date.
19            (4)   A formal, binding ordinance or resolution passed by
20      every political subdivision in which the proposed zone is
21      located that specifically provides for all local tax
22      exemptions, deductions, abatements or credits for businesses
23      provided in this act.
24            (5)   Evidence that the proposed zone meets the required
25      criteria under this act.
26   Section 303.     Review.
27      (a)   Action of department.--The department, in consultation
28   with the Secretary of Agriculture, shall review all completed
29   applications submitted under section 302. An application for
30   authorization as a zone must be received by a date to be

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 1   determined by the department in order to be considered by the
 2   department. The date to be determined by the department shall
 3   not be sooner than 120 days after the effective date of this
 4   subsection, nor later than two years after the effective date of
 5   this subsection.
 6      (b)   Process.--The department shall authorize up to 30 zones
 7   from applications meeting the criteria under section 304 based
 8   upon need, likelihood of success, potential for increased dairy
 9   processing capacity and overall impact on the market for
10   Pennsylvania milk or Pennsylvania milk products. The department
11   may not alter the geographic boundaries of a zone described in
12   an application unless mutually agreed upon between the
13   department, the applicant and any affected local municipality.
14   The department shall not deny an application due to an
15   applicant's prior receipt of or consideration for any other
16   State community and economic development program funding.
17      (c)   Authorizations.--Any zone approved shall be approved no
18   later than three years after the effective date of this
19   subsection.
20   Section 304.     Criteria for authorization of zone.
21      (a)   Class A zones.--
22            (1)   A class A zone shall:
23                  (i)    Be not less than five acres, unless contiguous
24            to or co-located with an existing or proposed dairy
25            processing facility.
26                  (ii)   Be not more than 150 acres.
27            (2)   In order to qualify for authorization as a class A
28      zone under this section, an application shall:
29                  (i)    Provide specific geographic information on the
30            proposed zone location.

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 1                  (ii)    Show anticipated private investment of $10
 2            million or more in a dairy processing facility.
 3                  (iii)    Create 25 or more new jobs as defined by the
 4            department.
 5                  (iv)    Demonstrate an exceptional and meaningful
 6            opportunity for the expansion of dairy processing
 7            capacity within this Commonwealth.
 8      (b)   Class B zones.--A class B zone shall:
 9            (1)   Be not less than five acres, unless contiguous to or
10      co-located with an existing or proposed dairy processing
11      facility.
12            (2)   Be not more than 25 acres, unless co-located with a
13      Pennsylvania dairy farm directly supplying Pennsylvania milk
14      for an existing or proposed small-scale dairy processing
15      facility.
16            (3)   In order to qualify for authorization as a class B
17      zone under this section, an application shall:
18                  (i)    Provide specific geographic information on the
19            proposed zone location.
20                  (ii)    Show anticipated private investment of $100,000
21            or more in a small-scale dairy processing facility.
22                  (iii)    Demonstrate an exceptional and meaningful
23            opportunity for the expansion of small-scale, boutique or
24            locally based dairy processing capacity within this
25            Commonwealth.
26   Section 305.     Zone limitations.
27      A zone shall not encompass an entire political subdivision.
28   Section 306.     Residency.
29      In order to qualify each year for a tax exemption, deduction,
30   abatement or credit under this act, an individual shall be

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 1   domiciled and shall reside in a zone for a period of 184
 2   consecutive days during each taxable year.
 3   Section 307.    Qualified businesses.
 4      In order to qualify each year for a tax exemption, deduction,
 5   abatement or credit under this act, a qualified business shall
 6   be incorporated under the laws of this Commonwealth and own or
 7   lease real property in a zone from which the qualified business
 8   actively operates a dairy processing facility or small scale
 9   dairy processing facility as certified by the department. The
10   qualified business shall obtain annual renewal of the
11   certification from the department to continue to qualify under
12   this section. The following shall apply:
13          (1)     For a class A zone, the certification form shall
14      include, but not be limited to, all of the following:
15                (i)    The duration of the zone designation.
16                (ii)    The number of jobs created.
17                (iii)    The number of jobs retained.
18                (iv)    The amount of capital investment.
19                (v)    The gross value of Pennsylvania milk products
20          produced in the past year.
21                (vi)    The percentage of Pennsylvania milk utilized in
22          the production of Pennsylvania milk products.
23                (vii)    Any other information, conditions or
24          requirements reasonably required by the department.
25          (2)     For a class B zone, the certification form shall
26      include all of the following:
27                (i)    The duration of the zone designation.
28                (ii)    The gross value of Pennsylvania milk products
29          produced in the past year.
30                (iii)    Any other information, conditions or

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 1            requirements required by the department.
 2   Section 308.   Forms.
 3      Applications for authorization as a zone shall be on forms
 4   prescribed by the department. The department shall make
 5   application forms available on the department's publicly
 6   accessible Internet website, or upon request by a potential
 7   applicant on paper forms or another method as determined by the
 8   department.
 9                                  CHAPTER 5
10                                 STATE TAXES
11                                 SUBCHAPTER A
12                             GENERAL PROVISIONS
13   Section 501.   State taxes.
14      (a)   Application.--An individual who is a resident of, or a
15   qualified business located in, a zone shall receive the
16   exemptions, deductions, abatements or credits as provided in
17   this chapter and Chapter 7 for the duration of the zone
18   designation. Exemptions, deductions, abatements or credits shall
19   expire on the date of expiration of the zone.
20      (b)   Administration.--The Department of Revenue shall
21   administer, construe and enforce the provisions of this chapter
22   consistent with Articles II, III, IV, VI, VII, IX and XV of the
23   Tax Reform Code of 1971.
24                                 SUBCHAPTER B
25                           PARTICULAR STATE TAXES
26   Section 511.   Sales and use tax.
27      Sales at retail of services or tangible personal property,
28   other than motor vehicles, to a qualified business or a
29   construction contractor under a construction contract with a
30   qualified business, landowner or lessee for the exclusive use,

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 1   consumption and utilization of the tangible personal property or
 2   service by the qualified business at the qualified business's,
 3   landowner's or lessee's facility located within a zone are
 4   exempt from the sales and use tax imposed under Article II of
 5   the Tax Reform Code of 1971. An exemption shall not be permitted
 6   for sales conducted prior to designation of the real property as
 7   part of a zone.
 8   Section 512.     Personal income tax.
 9      (a)   Exemption.--An individual shall be allowed an exemption
10   from personal income tax for:
11            (1)   Compensation received during the time period when
12      the individual was a resident of a zone.
13            (2)   Net income from the operation of a qualified
14      business received by a resident or nonresident of a zone
15      attributable to business activity conducted within a zone,
16      determined in accordance with section 514, except that any
17      business that operates both within and outside this
18      Commonwealth, before computing its zone exemption, shall
19      first determine its Pennsylvania activity over its activity
20      everywhere by applying the three-factor apportionment formula
21      as provided in Department of Revenue personal income tax
22      regulations applicable to income apportionment in connection
23      with a business, trade or profession carried on both within
24      and outside this Commonwealth.
25            (3)   All of the following:
26                  (i)   Net gains or income, less net losses, derived by
27            a resident or nonresident of a zone from the sale,
28            exchange or other disposition of real or tangible
29            personal property located in a zone as determined in
30            accordance with accepted accounting principles and

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 1        practices. The exemption provided in this subparagraph
 2        shall not apply to the sale, exchange or other
 3        disposition of any stock of goods, merchandise or
 4        inventory or any operational assets unless the transfer
 5        is in connection with the sale, exchange or other
 6        disposition of all of the assets in complete liquidation
 7        of a qualified business located in a zone. This
 8        subparagraph shall apply to intangible personal property
 9        employed in a trade, profession or business in a zone,
10        but only when transferred in connection with a sale,
11        exchange or other disposition of all of the assets in
12        complete liquidation of the qualified business in the
13        zone.
14             (ii)    Net gains, less net losses, realized by a
15        resident of a zone from the sale, exchange or disposition
16        of intangible personal property or obligations issued on
17        or after February 1, 1994, by the Commonwealth, a public
18        authority, commission, board or other Commonwealth
19        agency, political subdivision or authority created by a
20        political subdivision or by the Federal Government as
21        determined in accordance with accepted accounting
22        principles and practices.
23             (iii)    The exemption from income for gain or loss
24        provided for in subparagraphs (i) and (ii) shall be
25        prorated based on the following:
26                    (A)   In the case of gains, less net losses, in
27             subparagraph (i), the percentage of time, based on
28             calendar days, the property located in a zone was
29             held by a resident or nonresident of the zone during
30             the time period the zone was in effect in relation to

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 1                  the total time the property was held.
 2                         (B)   In the case of gains, less net losses, in
 3                  subparagraph (ii), the percentage of time, based on
 4                  calendar days, the property was held by the taxpayer
 5                  while a resident of a zone in relation to the total
 6                  time the property was held.
 7            (4)   Net gains or income derived from or in the form of
 8      rents received by an individual, whether a resident or
 9      nonresident of a zone, to the extent that income or loss from
10      the rental of real or tangible personal property is allocable
11      to a zone. For purposes of calculating this exemption:
12                  (i)    Net rents derived from real or tangible personal
13            property located in a zone are allocable to a zone.
14                  (ii)    If the tangible personal property was used both
15            within and without the zone during the taxable year, only
16            the net income attributable to use in the zone is exempt.
17            The net rental income shall be multiplied by a fraction,
18            the numerator of which is the number of days the property
19            was used in the zone and the denominator of which is the
20            total days of use.
21            (5)   Dividends received during the time the individual
22      was a resident of a zone.
23            (6)   Interest received during the time period the
24      individual was a resident of a zone.
25      (b)   Pass-through entities.--The exemptions provided for in
26   subsection (a)(2), (3)(i) and (4) shall apply to all of the
27   following:
28            (1)   The income or gain of a partnership or association.
29      The partner or member shall be entitled to the exemptions
30      under this section for the partner's or member's share,

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 1      whether or not distributed, of the income or gain received by
 2      the partnership or association for its taxable year.
 3            (2)   The income or gain of a Pennsylvania S corporation.
 4      The shareholder shall be entitled to the exemptions under
 5      this section for the shareholder's pro rata share, whether or
 6      not distributed, of the income or gain received by the
 7      corporation for its taxable year ending within or with the
 8      shareholder's taxable year.
 9      (c)   Limitation.--A partnership, association, Subchapter S
10   corporation, cooperative, resident or nonresident may not apply
11   an exemption from income under this act for any class of income
12   against any other classes of income or gain. A partnership,
13   association, Subchapter S corporation, cooperative, resident or
14   nonresident may not carry back or carry forward any exemption
15   under this act from year to year. The credit allowed under this
16   section shall not exceed the tax liability of the taxpayer under
17   Article III of the Tax Reform Code of 1971 for the tax year.
18   Section 513.    Residency considerations.
19      If an individual completes the residency requirements under
20   section 306 or if a nonresident realizes income attributable to
21   business activity or property within a zone, the individual may
22   claim the exemptions from income for the items provided under
23   section 512 for that portion of the tax year that the individual
24   was a resident or for that portion of the tax year during which
25   the area is designated as a zone.
26   Section 514.    Corporate net income tax.
27      (a)   Credits.--For the tax years that begin on or after
28   January 1, 2025, a corporation that is a qualified business
29   under this act may claim a credit against the tax imposed by
30   Article IV of the Tax Reform Code of 1971 for tax liability

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 1   attributable to business activity conducted within the zone in
 2   the taxable year. A credit may not be claimed for activities
 3   conducted prior to designation of the real property as part of a
 4   zone. The business activity must be conducted directly by a
 5   corporation in the zone in order for the corporation to claim
 6   the tax credit.
 7      (b)   Tax liability determinations.--The corporate tax
 8   liability attributable to business activity conducted within a
 9   zone shall be determined by multiplying the corporation's
10   taxable income that is attributable to business activity
11   conducted within the zone by the rate of tax imposed under
12   Article IV of the Tax Reform Code of 1971 for the taxable year.
13      (c)   Determinations of attributable tax liability.--Tax
14   liability attributable to business activity conducted within a
15   zone shall be computed, construed, administered and enforced in
16   conformity with Article IV of the Tax Reform Code of 1971 and
17   with specific reference to the following:
18            (1)   If the entire business of a corporation in this
19      Commonwealth is transacted wholly within the zone, the
20      taxable income attributable to business activity within a
21      zone shall consist of the Pennsylvania taxable income as
22      determined under Article IV of the Tax Reform Code of 1971.
23            (2)   If the entire business of a corporation in this
24      Commonwealth is not transacted wholly within the zone, the
25      taxable income of the corporation in a zone shall be
26      determined upon the portion of the Pennsylvania taxable
27      income of the corporation attributable to business activity
28      conducted within the zone and apportioned in accordance with
29      subsection (d).
30      (d)   Income apportionment.--The taxable income of a

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 1   corporation that is a qualified business shall be apportioned to
 2   a zone by multiplying the Pennsylvania taxable income by a
 3   fraction, the numerator of which is the property factor plus the
 4   payroll factor and the denominator of which is two, in
 5   accordance with the following:
 6          (1)   The property factor is a fraction, the numerator of
 7      which is the average value of the taxpayer's real and
 8      tangible personal property owned or rented and used in the
 9      zone during the tax period and the denominator of which is
10      the average value of all the taxpayer's real and tangible
11      personal property owned or rented and used in this
12      Commonwealth during the tax period but shall not include the
13      security interest of any corporation as seller or lessor in
14      personal property sold or leased under a conditional sale,
15      bailment lease, chattel mortgage or other contract providing
16      for the retention of a lien or title as security for the
17      sales price of the property.
18          (2)   (i)     The payroll factor is a fraction, the numerator
19          of which is the total amount paid in the zone during the
20          tax period by the taxpayer for compensation and the
21          denominator of which is the total compensation paid in
22          this Commonwealth during the tax period.
23                (ii)    Compensation is paid in the zone if:
24                       (A)   the person's service is performed entirely
25                within the zone;
26                       (B)   the person's service is performed both
27                within and without the zone, but the service
28                performed without the zone is incidental to the
29                person's service within the zone; or
30                       (C)   some of the service is performed in the zone

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 1                  and the base of operations or, if there is no base of
 2                  operations, the place from which the service is
 3                  directed or controlled is in the zone, or the base of
 4                  operations or the place from which the service is
 5                  directed or controlled is not in any location in
 6                  which some part of the service is performed, but the
 7                  individual's residence is in the zone.
 8      (e)   Computation.--A corporation shall compute its
 9   Commonwealth taxable income in conformity with Article IV of the
10   Tax Reform Code of 1971 with no adjustments or subtractions for
11   zone taxable income.
12      (f)   Limitation on amount of credit.--The credit allowed
13   under this section shall not exceed the tax liability of a
14   taxpayer under Article IV of the Tax Reform Code of 1971 for the
15   tax year.
16      (g)   Credit not applicable to certain businesses.--The
17   following shall apply:
18            (1)   Any portion of a taxpayer's taxable income that is
19      attributable to the operation of any of the following may not
20      be used to calculate a credit under this section:
21                  (i)    A corporation that qualifies as a regulated
22            investment company under Article IV of the Tax Reform
23            Code of 1971.
24                  (ii)    A holding company as defined in Article VI of
25            the Tax Reform Code of 1971.
26            (2)   The prohibition under paragraph (1) shall not apply
27      to the portion of a qualified business engaged in
28      manufacturing or processing.
29                                    CHAPTER 7
30                                   LOCAL TAXES

20250HB0177PN0857                       - 20 -
 1   Section 701.   Local taxes.
 2      Every political subdivision in which a designated zone is
 3   located shall exempt, deduct, abate or credit local taxes in
 4   accordance with ordinances and resolutions adopted under section
 5   301(c), as is applicable. Failure to exempt, deduct, abate or
 6   credit local taxes shall result in the revocation of the zone
 7   designation.
 8   Section 702.   Real property tax.
 9      (a)   Local rule.--Notwithstanding the act of May 22, 1933
10   (P.L.853, No.155), known as The General County Assessment Law,
11   and 53 Pa.C.S. (relating to municipalities generally) each
12   qualified political subdivision shall by ordinance or resolution
13   abate 100% of the real property taxes on the assessed valuation
14   of property in an area designated as a zone within this
15   Commonwealth during the taxable years determined by the
16   department. The real property tax abatement provided for in this
17   section shall apply to all real property located in a zone,
18   irrespective of the business activity, if any, made of the real
19   property by its owner, when this act is in effect. An abatement
20   may not be provided prior to designation of a zone by the
21   department.
22      (b)   Interest and penalties.--If the department or a
23   political subdivision finds that an individual or business
24   claimed an abatement of real property tax to which the
25   individual or business was not entitled under this act, the
26   individual or business shall be liable for the abated taxes and
27   subject to the applicable interest and penalty provisions
28   provided by law.
29      (c)   Calculations for education subsidy for school
30   districts.--In determining the market value of real property in

20250HB0177PN0857                  - 21 -
 1   each school district, the State Tax Equalization Board shall
 2   exclude any increase in value above the base value prior to the
 3   effect of the abatement of local taxes to the extent and during
 4   the period of time that real estate tax revenues attributable to
 5   such increased value are not available to the school district
 6   for general school district purposes.
 7   Section 703.     Local earned income and net profits taxes and
 8                  business privilege taxes.
 9      (a)   General exemption.--
10            (1)   If a qualified political subdivision has enacted any
11      tax on the privilege of engaging in any business or
12      profession, measured by gross receipts or on a flat rate
13      basis, earned income or net profits, as defined in the act of
14      December 31, 1965 (P.L.1257, No.511), known as The Local Tax
15      Enabling Act, imposed within the boundaries of a zone, the
16      qualified political subdivision shall exempt from the
17      imposition or operation of the local tax ordinances,
18      statutes, regulations or otherwise:
19                  (i)    The business gross receipts for operations
20            conducted by a qualified business within a zone.
21                  (ii)    The earned income received by a resident of a
22            zone.
23                  (iii)    The net profits of a qualified business
24            attributable to business activity conducted within a zone
25            when imposed by the qualified political subdivision where
26            that qualified business is located.
27            (2)   An exemption may not be granted for operations
28      conducted for earned income received or for activities
29      conducted prior to designation of the real property as part
30      of a zone.

20250HB0177PN0857                       - 22 -
 1    (b)   Additional exemptions.--
 2          (1)   Paragraph (2) shall apply if a qualified political
 3    subdivision has enacted a tax on the privilege of engaging in
 4    a profession or business, on wages or compensation, on net
 5    profits from the operation of a business or profession or
 6    other activity or on the occupancy or use of real property
 7    under any of the following:
 8                (i)    The act of August 5, 1932 (Sp.Sess. P.L.45,
 9          No.45), referred to as the Sterling Act.
10                (ii)    The act of March 10, 1949 (P.L.30, No.14),
11          known as the Public School Code of 1949.
12                (iii)    The act of August 24, 1961 (P.L.1135, No.508),
13          referred to as the First Class A School District Earned
14          Income Tax Act.
15                (iv)    The act of August 9, 1963 (P.L.640, No.338),
16          entitled "An act empowering cities of the first class,
17          coterminous with school districts of the first class, to
18          authorize the boards of public education of such school
19          districts to impose certain additional taxes for school
20          district purposes, and providing for the levy, assessment
21          and collection of such taxes."
22                (v)    The act of May 30, 1984 (P.L.345, No.69), known
23          as the First Class City Business Tax Reform Act.
24                (vi)    The act of June 5, 1991 (P.L.9, No.6), known as
25          the Pennsylvania Intergovernmental Cooperation Authority
26          Act for Cities of the First Class.
27          (2)   If there is an enactment under paragraph (1), the
28    qualified political subdivision shall provide an exemption,
29    deduction, abatement or credit from the imposition and
30    operation of the local tax ordinance or resolution for all of

20250HB0177PN0857                     - 23 -
 1      the following:
 2                (i)    The privilege of engaging in a business or
 3            profession within a zone by an individual or qualified
 4            business, whether a resident or nonresident of the zone.
 5                (ii)    Salaries, wages, commissions, compensation or
 6            other income received for services rendered or work
 7            performed by a resident of a zone.
 8                (iii)    The gross or net income or gross or net
 9            profits realized from the operation of a qualified
10            business to the extent attributable to business activity
11            conducted within a zone.
12                (iv)    The occupancy or use of real property located
13            within the zone.
14      (c)   Calculation for education subsidy for school district.--
15   In determining the personal income valuation of a school
16   district, the Secretary of Revenue shall exclude any increase in
17   the valuation as defined in section 2501(9.1) of the Public
18   School Code of 1949, above the base value prior to the abatement
19   of local taxes in a zone located within the school district to
20   the extent and during the period of time that personal income
21   revenues attributable to the increase in the personal income
22   valuation are not available to the school district for general
23   school district purposes. An exemption under this section may
24   not be granted to an individual or qualified business prior to
25   designation of the real property as part of a zone.
26      (d)   Determination of exemption.--For the purposes of
27   determining an exemption under this section, a tax on or
28   measured by any of the following shall be attributed to business
29   activity conducted within a zone by applying the apportionment
30   factors under section 514(d):

20250HB0177PN0857                     - 24 -
 1            (1)   Business gross receipts.
 2            (2)   Gross or net income.
 3            (3)   Gross or net profits.
 4   Section 704.    Mercantile license tax.
 5      An individual or qualified business in a zone shall not be
 6   required to pay any fee authorized pursuant to a mercantile
 7   license tax imposed under the act of June 20, 1947 (P.L.745,
 8   No.320), entitled "An act to provide revenue for school
 9   districts of the first class A by imposing a temporary
10   mercantile license tax on persons engaging in certain
11   occupations and businesses therein; providing for its levy and
12   collection; for the issuance of mercantile licenses upon the
13   payment of fees therefor; conferring and imposing powers and
14   duties on boards of public education, receivers of school taxes
15   and school treasurers in such districts; saving certain
16   ordinances of council of certain cities, and providing
17   compensation for certain officers, and employes and imposing
18   penalties."
19   Section 705.    Local sales and use tax.
20      (a)   Exemption.--A political subdivision shall exempt sales
21   at retail of services or tangible personal property, except
22   motor vehicles, to a qualified business or a construction
23   contractor under a construction contract with a qualified
24   business, landowner or lessee for the exclusive use, consumption
25   and utilization of the tangible personal property or service by
26   the qualified business at the qualified business's, landowner's
27   or lessee's facility located within a zone from a city or county
28   tax on purchase price authorized under Article XXXI-B of the act
29   of July 28, 1953 (P.L.723, No.230), known as the Second Class
30   County Code and the act of June 5, 1991 (P.L.9, No.6), known as

20250HB0177PN0857                    - 25 -
 1   the Pennsylvania Intergovernmental Cooperation Authority Act for
 2   Cities of the First Class. An exemption may not be granted for
 3   sales occurring prior to designation of the real property as
 4   part of a zone.
 5      (b)   Definition.--As used in this section, the term "sales at
 6   retail of services or tangible personal property" shall be as
 7   specified under Article II of the Tax Reform Code of 1971.
 8                                 CHAPTER 9
 9                      ADMINISTRATION OF TAX PROVISIONS
10   Section 901.    Transferability.
11      Any exemption, deduction, abatement or credit provided to any
12   individual or qualified business under Chapter 5 or 7 is
13   nontransferable and cannot be applied, used or assigned to any
14   other individual, business or tax account.
15   Section 902.    Recapture.
16      (a)   Refund.--If any qualified business located within a zone
17   has received an exemption, deduction, abatement or credit under
18   this act and subsequently relocates outside of the zone within
19   the first nine years of locating in a zone, the qualified
20   business shall refund to the State and political subdivision
21   that granted the exemption, deduction, abatement or credit
22   received in accordance with the following:
23            (1)   If a qualified business relocates within five years
24      from the date of first locating in a zone, 66% of all the
25      exemptions, deductions, abatements or credits attributed to
26      that qualified business's participation in the zone shall be
27      refunded to the Commonwealth and the political subdivision.
28            (2)   If a qualified business relocates within five to
29      nine years from the date of first locating in a zone, 33% of
30      all exemptions, deductions, abatements or credits attributed

20250HB0177PN0857                    - 26 -
 1      to that qualified business's participation in the zone shall
 2      be refunded to the Commonwealth and the political
 3      subdivision.
 4      (b)   Waiver.--The department, in consultation with the
 5   Department of Revenue, the Secretary of Agriculture and the
 6   political subdivision, may waive or modify recapture
 7   requirements under this section if the department determines
 8   that the business relocation was due to circumstances beyond the
 9   control of the business, including, but not limited to:
10            (1)   natural disaster;
11            (2)   unforeseen industry trends; or
12            (3)   loss of a major supplier or market.
13   Section 903.    Delinquent or deficient State or local taxes.
14      (a)   Individuals.--An individual may not claim or receive an
15   exemption, deduction, abatement or credit under this act unless
16   that individual is in full compliance with all State and local
17   tax laws, ordinances and resolutions.
18      (b)   Qualified business.--
19            (1)   A qualified business may not claim or receive an
20      exemption, deduction, abatement or credit under this act
21      unless that qualified business is in full compliance with all
22      State and local tax laws, ordinances and resolutions.
23            (2)   A qualified business may not claim or receive an
24      exemption, deduction, abatement or credit under this act if
25      any individual or business with a 20% or greater interest in
26      that qualified business is not in full compliance with all
27      State and local tax laws, ordinances and resolutions.
28      (c)   Later compliance and eligibility.--An individual or
29   qualified business that is not eligible to claim an exemption,
30   deduction, abatement or credit due to noncompliance with any

20250HB0177PN0857                       - 27 -
 1   State or local tax law may become eligible if that individual or
 2   qualified business subsequently comes into full compliance with
 3   all State and local tax laws to the satisfaction of the
 4   Department of Revenue or the political subdivision within the
 5   calendar year in which the noncompliance first occurred. If full
 6   compliance is not attained by February 5 of the calendar year
 7   following the calendar year during which noncompliance first
 8   occurred, that individual or qualified business is precluded
 9   from claiming any exemption, deduction, abatement or credit for
10   that calendar year, whether or not full compliance is achieved
11   subsequently.
12   Section 904.    Code compliance.
13      (a)   Applicability.--An individual or qualified business
14   shall be precluded from claiming an exemption, deduction,
15   abatement or credit provided under this act if the individual or
16   qualified business owns real property in a zone and the real
17   property is not in compliance with all applicable State and
18   local zoning, building and housing laws, ordinances or codes.
19      (b)   Opportunity to achieve compliance.--An individual or
20   qualified business who is not in compliance under subsection (a)
21   shall have until December 31 of the calendar year following
22   designation of the real property as part of a zone to be in
23   compliance in order to claim any State exemptions, deductions,
24   abatements or credits for that year. If full compliance is not
25   attained by December 31 of that calendar year, the individual or
26   qualified business is precluded from claiming any exemption,
27   deduction or credit for that calendar year, whether or not
28   compliance is achieved in a subsequent calendar year. The
29   political subdivision may extend the time period in which an
30   individual or qualified business must come into compliance with

20250HB0177PN0857                   - 28 -
 1   a local ordinance or building code for a period not to exceed
 2   one year if the political subdivision determines that the
 3   individual or qualified business has made and shall continue to
 4   make a good faith effort to come into compliance and that an
 5   extension will enable the individual or qualified business to
 6   achieve full compliance. A qualified political subdivision is
 7   required to notify the Department of Revenue in writing of all
 8   individuals or qualified businesses not in compliance with this
 9   subsection within 30 days following the end of each calendar
10   year.
11   Section 905.   Appeals.
12      An individual or qualified business shall be deemed to be in
13   compliance with any State or local tax for purposes of this
14   section if that individual or qualified business had made a
15   timely administrative or judicial appeal for that particular tax
16   or has entered into and is in compliance with a duly authorized
17   deferred payment plan with the Department of Revenue or
18   political subdivision for that particular tax.
19   Section 906.   Notice requirements.
20      (a)   Requirement.--After compliance reviews have been
21   conducted by appropriate Commonwealth and local authorities, the
22   department shall notify each zone applicant by regular mail each
23   year of the department's approval or denial of the applicant's
24   zone application. No zone is entitled to any tax benefits unless
25   it receives approval from the department.
26      (b)   Transmittal.--The department or its designated official
27   shall, within 15 business days of receipt of a zone application
28   made under this act, forward a copy of the application to the
29   Department of Revenue, the Secretary of Agriculture, the
30   Pennsylvania Milk Board and any other appropriate Commonwealth

20250HB0177PN0857                  - 29 -
 1   and local authorities for review and processing.
 2   Section 907.    Application time.
 3      (a)   Requirement.--Except as provided under subsection (b),
 4   an applicant shall file an application in a manner prescribed by
 5   the department by December 31 of each calendar year for which
 6   the applicant claims any exemption, deduction, abatement or
 7   credit under this act.
 8      (b)   Extension or waiver.--Upon request of the applicant, the
 9   department may extend or waive the application deadline for good
10   cause shown if the political subdivision does not object to the
11   waiver or extension.
12      (c)   Approval.--An exemption, deduction, abatement or credit
13   may not be claimed or received for that calendar year until
14   approval has been granted by the department.
15                                 CHAPTER 11
16                            PROCEDURES FOR ZONES
17   Section 1101.   Keystone opportunity dairy zone prioritizations.
18      (a)   Reduced interest.--Projects in a zone that is approved
19   for Pennsylvania Industrial Development Authority or Small
20   Business First financing shall receive the lowest interest rate
21   extended to borrowers.
22      (b)   Priority consideration.--Projects in a zone shall
23   receive priority consideration for State assistance under State
24   community and economic development programs and for necessary
25   approval required from the Department of Environmental
26   Protection.
27      (c)   Local governments.--The department shall provide
28   technical assistance to political subdivisions relating to
29   taxation, implementation of the opportunity plan, establishing
30   annual benchmarks and annual reporting requirements.

20250HB0177PN0857                   - 30 -
 1   Section 1102.           Reporting.
 2        The department shall report every four years to the General
 3   Assembly on the economic effects of this act in each zone.
 4   Section 1103.           Other Commonwealth tax credits.
 5        (a)   Entitled to claim credit.--An individual or qualified
 6   business that is entitled to claim an exemption, deduction,
 7   abatement or credit in accordance with the provisions of this
 8   act shall not be entitled to claim or accumulate any of the
 9   following exemptions, deductions, abatements or credits that it
10   may otherwise have qualified for due to activity in the zone:
11              (i)    under the Tax Reform Code of 1971:
12                     (A)    a research and development tax credit under
13              Article XVII-B; or
14                     (B)    a neighborhood assistance tax credit under
15              Article XIX-A;
16              (ii)    a job creation tax credit under the act of June 29,
17        1996 (P.L.434, No.67), known as the Job Enhancement Act.
18        (b)   Application to income.--The individual or qualified
19   business may apply the exemptions, deductions, abatements or
20   credits to income realized from activity or transactions outside
21   the zone, but only for the taxable year to which the exemptions,
22   deductions, abatements or credits apply. The provisions of this
23   section shall apply only to the taxes provided in Chapters 5 and
24   7.
25   Section 1104.           Monitoring data.
26        In addition to any other requirements of this act, the
27   department shall monitor all of the following:
28              (1)    Verifiable job creation and job retention data.
29              (2)    Information on the types of jobs created and average
30        hourly wages.

20250HB0177PN0857                          - 31 -
 1            (3)   The number of years in the zone.
 2            (4)   Annual, unduplicated public and private capital
 3      investment amounts.
 4            (5)   A description of dairy processing activities.
 5            (6)   Types and amounts of other economic development
 6      assistance received from the department, if any.
 7                                  CHAPTER 13
 8                          MISCELLANEOUS PROVISIONS
 9   Section 1301.    Illegal activity.
10      Any funds or other forms of consideration received by an
11   individual or qualified business conducting any type of illegal
12   activity shall not be eligible for any of the exemptions,
13   deductions, abatements and credits or any other benefits that
14   are created under this act.
15   Section 1302.    Rules and regulations.
16      The department, Department of Revenue and Department of
17   Agriculture may promulgate regulations necessary to effectuate
18   the provisions of this act.
19   Section 1303.    Compliance.
20      An individual or qualified business eligible for an
21   exemption, deduction or credit under this act shall comply with
22   all reporting, filing and compliance requirements under the Tax
23   Reform Code of 1971 unless otherwise provided for in this act.
24   Section 1304.    Penalties.
25      (a)   Civil penalty.--
26            (1)   In addition to any penalties authorized by the Tax
27      Reform Code of 1971 for violations of that act, the
28      Department of Revenue may impose an additional administrative
29      penalty not to exceed $50,000 for any act or violation of
30      this act relating to State and local taxes, including the

20250HB0177PN0857                    - 32 -
 1      filing of any false statement, return or document.
 2            (2)   The department may impose a civil penalty not to
 3      exceed $50,000 for a violation of this act, including the
 4      filing of any false statement, return or document.
 5      (b)   Criminal penalty.--In addition to any criminal penalty
 6   under the Tax Reform Code of 1971, any individual or qualified
 7   business who knowingly violates any of the provisions of this
 8   act commits a misdemeanor of the third degree.
 9   Section 1305.    Construction.
10      This act shall be interpreted to ensure that all provisions
11   relating to State and local tax exemptions, deductions,
12   abatements and credits are strictly construed in favor of the
13   Commonwealth.
14   Section 1306.    Severability.
15      The provisions of this act are severable. If any provision of
16   this act or its application to any individual or circumstance is
17   held invalid, the invalidity shall not affect other provisions
18   or applications of this act which can be given effect without
19   the invalid provision or application.
20   Section 1307.    Repeals.
21      All acts and parts of acts are repealed insofar as they are
22   inconsistent with this act.
23   Section 1308.    Applicability.
24      The provisions of this act shall be applied prospectively. An
25   individual or business may not claim any exemption, deduction,
26   abatement or credit until the individual or business becomes
27   qualified under this act and, in the case of a business,
28   receives certification from the department that the business is
29   qualified.
30   Section 1309.    Effective date.

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