DOING BUSINESS IN UPPER MERION TOWNSHIP A Tax Policy Study /// April 2015 /// King of Prussia District /// visitKOP.com/Tax Policy 234 Mall Boulevard, Suite 150, King of Prussia, PA 19406 | 484.681.9452 | eric@kopbid.com
Upper Merion Township/King of Prussia (UMT/KOP) is the largest employment, commercial office, industrial and flex space, retail and hospitality center in the suburban Philadelphia region (53,000+ employees, Census 2010), however, it suffers from lingering perceptions as a high-‐tax business location. In order for the King of Prussia District (KOP-‐BID) to get its arms around the actual data and determine whether or not these concerns are more perceptions or a harsh reality, KOP-‐BID hired two well-‐respected organizations from Philadelphia who have conducted numerous studies on the topic of business tax impacts: Econsult Solutions, Inc. and the Economy League of Greater Philadelphia. The first study by these two firms together and the second and third study by Econsult Solutions, Inc., can best be summarized as follows: • REPORT I: Evaluate the current tax structure of UMT/KOP and how it compares to other significant commercial office locations in the region • REPORT II: Analyze historical data on employment mix and commercial office markets of UMT/KOP and competing locations, devise a summary of market trends, provide a framework for developing strategies to improve UMT/KOP’s competitive position • REPORT III: Develop preliminary tax policy recommendations
The key findings of the reports are: • UMT/KOP’s reputation as a high tax business location is “overstated” • UMT/KOP ranks 5th out of the 10 largest business centers in the Philadelphia region in terms of total tax burden on business • Challenges with retaining and attracting office tenants is amplified for UMT/KOP because of its proximity to the lowest tax business location (Tredyffrin Township) • UMT/KOP job growth has been slow relative to its low tax neighbors since 2002 • Property values and tax revenues have been stagnant in UMT/KOP since 2002 This report provides specific data to support these findings and analyzes the ten largest business locations in the Philadelphia region dating back to 2002. Based on these findings, KOP-‐BID believes that there are concrete steps that can be taken to improve UMT/KOP’s reputation and formal tax policies. KOP-‐BID will seek to advocate tax policy revisions with the Commonwealth, the County and the Township in an effort to determine how best to use future tax policy strategies to enhance economic growth and development in UMT/KOP.
Eric T. Goldstein Executive Director
COMPETING COMMERCIAL OFFICE LOCATIONS IN THE PHILADELPHIA REGION Upper Merion Township/King of Prussia (UMT/KOP) is a major employment center with over 53,000 jobs (Census 2010), the largest in the Philadelphia suburban region. It enjoys a prime position at the crossroads of southeastern Pennsylvania’s most traveled highways and is strategically located less than 20 miles from downtown Philadelphia. Despite UMT/KOP’s position as the largest commercial center, it is continuously competing with other municipalities for business attraction, retention and new
development. The Township must, therefore, work aggressively to remain competitive. One significant factor in locating business activity and new investment is taxes. Taxes are also something that is largely within a municipality’s control. Therefore, it is useful to consider how the Township’s taxes compare to those of nearby business locations. The following findings are based on recent analyses conducted by Econsult Solutions, Inc. for King of Prussia District.
Figure 1. The 10 largest commercial office locations in the five-‐county Philadelphia region.
“Tax Policy Recommendations for Upper Merion Township” (March 2013), “Upper Merion Township Comparative Office Market and Employment Analysis” (June 2012), “King of Prussia Business Improvement District Tax Policy Analysis” (February 2012). Please refer to these reports for additional detail on methodology and results.
UPPER MERION TOWNSHIP/KING OF PRUSSIA’S TAX BURDEN RANKS 5th OUT OF THE 10 LARGEST BUSINESS LOCATIONS*
The study looked at the total tax burdens on businesses of varying sizes and in a number of different industry archetypes. Across all industries, UMT/KOP ranks 5th out of 10 nearby business locations in terms of local tax burden (see Table 1). For professional services businesses, UMT/KOP’s tax burden is higher than that of Tredyffrin, Malvern, Paoli, and Exton and lower than that of Newtown Square, Plymouth Meeting, Conshohocken, and Radnor. For professional services businesses, UMT/KOP’s tax burden is lower than that of Newtown Square, Plymouth
Meeting, Conshohocken, and Radnor but higher than that of Tredyffrin, Malvern, Paoli, and Exton. The data suggests that while UMT/KOP should not be considered a high-‐tax business location, there is room to improve its tax policies to become more business-‐friendly. As the next section indicates, UMT/KOP is similarly in the middle for other key industries like defense, financial services, insurance, and retail (see Table 2).
Table 1. Local Tax Burden Across All Industries – Ranking for 10 Largest Office Locations in Philadelphia region
* This was determined by constructing industry average business archetypes in key sectors and calculating their tax burden in the Township and in neighboring business locations. 2 See also Appendix A for additional detail on tax types, tax rates, and tax mix across jurisdictions.
Table 2. Ranking of Local Tax Burden By Industry Archetypes (1 = Lowest Total Tax Burden, 10 = Highest Total Tax Burden) in Selected Industries
JOB GROWTH PERFORMANCE “ The Township has seen far less job growth than neighboring Tredyffrin Township due in part to the difference in tax burden. This results in more interest and more investment in Tredyffrin Township relative to Upper Merion Township as it relates to commercial office development.” – Econsult Solutions, Inc. Although, UMT/KOP is the largest employment center in the suburban Philadelphia region, it has had middling success in attracting new jobs and maintaining strong commercial office markets in the past 10-‐ 15 years. This was determined by comparing employment data and commercial office market data across locations. From 2002 to 2013, Tredyffrin Township, whose tax burden is significantly lower than that of UMT/KOP, saw much greater growth in overall employment (+167 percent vs. +25%) and in office jobs (+125% vs. +31%) (Figure 2).
Figure 2. 2002-‐2013 Employment Growth within Selected Business Locations All Jobs and Office Jobs
TAX MIX OF THE LARGEST COMMERCIAL OFFICE LOCATIONS
GENERAL FUND REVENUES GENERATED BY VARIOUS TAXES
UMT/KOP has no earned income tax and an extremely low real estate tax rate, however UMT/KOP relies heavily on the Gross Receipts Tax to fund general operating expenses.
BUSINESS PRIVILEGE TAX FACTS
The Business Privilege Tax (BPT) is a business gross receipts tax levied by Upper Merion Township for the privilege of doing certain types of business in the Township. The BPT applies to the gross receipts of all businesses and persons engaged in business in Upper Merion Township except those businesses subject to the mercantile tax or that fall under allowable exclusions.
In UMT/KOP, the BPT is currently $1.50 per $1,000 of gross receipts Research & Development and Non-‐Profit Entities are Exempt from the BPT The rate for wholesale businesses is one third or $.50 per $1,000 of gross receipts
CLOSING REMARKS The tax policy studies conducted by King of Prussia District during the past few years reveal a number of positive results according to Econsult Solution’s research: • The perception of UMT/KOP as a high tax business location appears to be overstated • UMT/KOP rank only 5th out of the top 10 regional commercial office locations in terms of total tax burden • UMT/KOP continues to be the largest commercial office (7M+ SF), industrial and flex space (9M+ SF), and employment center (53,000+) in the suburban Philadelphia region. The studies also reveal a number of significant challenges that UMT/KOP should address in the future including: • Competition with low business tax neighboring municipalities • Flat property values and resulting tax revenues during the past decade • Slower office and total job growth that neighboring municipalities, particularly ones with lower business tax burdens along the south Route 202 corridor There are number of recommendations and strategies listed in the tax policy studies to help deal with these challenges. King of Prussia will study each and advocate for those that we believe have the ability to help retain existing companies and employees as well as attract new ones to the Township. They include: • Work with the County and Township to move towards a “market value assessment” approach. This is widely regarded as a more fair and uniform method to determine property valuation • Adjust property tax rates that are currently low relative to other nearby jurisdictions and one of the lowest in Montgomery County
• Investigate property tax abatements on new construction and/or major renovations in order to induce development and redevelopment within the Township • Lower the Business Privilege Tax (BRT) rate, particularly for non-‐retail businesses It is important to note that these are only recommendations for consideration. KOP-‐BID has not taken any actions or advocacy positions at this time. We do believe however, that the Township must act on some or all of these recommendations in order to deal with the very serious challenges we face in terms of office sector job growth, commercial property value and the resulting tax revenues. We believe that, in addressing these issues, it is possible to balance short-‐term considerations with long-‐term objectives. We understand that raising taxes on some and lowering taxes on others is never an easy task and it would require the cooperation of the business community, the County, residents and the school district, alike. But inaction will only lead to long-‐ term issues that will be even more difficult to overcome. In the words of Econsult Solutions, Inc. UMT/KOP is dealing with “a stagnant tax base and a particularly weakened position from which to compete with nearby jurisdictions to attract additional office space demand and professional services workers.” Now is the time to take action. KOP-‐BID will assist with helping achieve this mission. The business community must also rally, however, to move these initiatives forward. For that, we thank you in advance for your support!