Early-stage companies need cash. The state is helping them get it, by giving them tax credits they can sell.
On Thursday, the Department of Community and Economic Development spoke to about 35 people, many of them early stage tech company CEOs, about the Keystone Innovation Zone program.
Here’s how it works: tech companies that launched less than eight years ago and are located within one of 29 designated zones can get tax credits based on how much revenue they’re bringing in. There are zones in University City, the Philadelphia Navy Yard, Greater Reading, the south side of Bethlehem, and central Pittsburgh, among other places.
When tax season comes around, the companies can use the credits to lower their tax bills. If any of the credit is left over, they can sell it to other companies for cash.
A lot of early stage companies don’t owe the government any money in taxes. They can sell the entire credit.
In either case, companies will typically get 80 or 90 cents for each dollar of tax credit.
Companies can receive up to $100,000 a year in KIZ tax credits, says Kristen Fitch, the program coordinator for the University City zone. “It’s a huge asset to early-stage companies,” she said.
The point is to give entrepreneurs the cash they need to hire employees, buy equipment, and expand their office space — basically, grow faster, says Jennifer Leinbach, executive director of DCED’s Office of Technology and Innovation.
Lauren Swartz, the director of international business investment at the Philadelphia Department of Commerce, attended the seminar. She said these incentives would help her make the pitch to international tech companies, who she’s always trying to attract to the city.
“Once you start talking with international businesses about foreign direct investment, the conversation quickly turns to incentives,” Swartz said. “They want to know what opportunities there are to leverage different credits that will make them more successful wherever they land in the U.S.”
Mahesh Narayanan founded his company, ImMAGE Biotherapeutics, in 2015. He recently moved to Philadelphia, and he came to the seminar because he’s looking for tax credits that could help offset some of the costs of doing business. Since the company isn’t bringing in much revenue yet, it probably won’t qualify for the KIZ. But Narayanan said it was good to have the information for next year.
Since the KIZ program launched in 2003, DCED has awarded more than $120 million in tax credits to companies around the state. In 2016, the department awarded credits to 239 companies.
Correction 6/29/16: A previous version of this story misstated how many companies are receiving KIZ credits.