Tax Policy and the Impact on Employment in Upper Merion Township/King of Prussia A Summary of Tax Policy Analysis Conducted by Econsult Solutions, Inc. and the Economy League of Greater Philadelphia for the King of Prussia District
April 2015 Taxation and the applied tax policies that school district’s, municipalities, and counties have often play a big part in the way businesses and their site selection representatives make decisions about where to locate. Therefore, the total tax burden on commercial entities needs to be carefully balanced in any municipality to make sure that the local government has enough funds to cover necessary operational expenses without having the tax burden be so high that it begins to negatively impact economic development and job growth. In Upper Merion Township/King of Prussia (UMT/KOP), we are fortunate to have extremely low municipal and county taxes as well as a reasonable school tax. The result is that UMT/KOP has the third lowest overall real estate tax in Montgomery County. But despite UMT/KOP’s low real estate tax and its status as the largest employment (53,000+ employees, Census 2010), commercial office, industrial and flex space, retail and hospitality center in the suburban Philadelphia region, it has continually suffered from lingering perceptions as a high-tax business location. Industry experts routinely cite the business privilege tax (gross receipts tax) and the confusion with the formula, and method by which the tax is applied, as a primary reason for this ongoing perception. In order to determine whether or not this high tax business location concern is more perception or the harsh reality, the King of Prussia District (KOPBID) set out to gather accurate data about the subject of business taxes and their impact. In 2011, 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. These firms completed three studies. Econsult Solutions, Inc. and the Economy League completed the first report together. Econsult Solutions, Inc. completed the second and third reports independently. The overall report themes are best 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 is the largest employment and commercial center in the suburban Philadelphia region • UMT/KOP’s reputation as a high tax business location is overstated • UMT/KOP ranks only 5th out of the 10 largest business centers in the Philadelphia region in terms of total tax burden on business •C hallenges with retaining and attracting office tenants are 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
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This summary provides specific data dating back to 2002 to support these findings. Each of the reports analyzed the 10 largest commercial office centers in the Philadelphia region (see Figure 1). 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, County and Township in an effort to determine how best to use future tax policy strategies to enhance economic growth and development in UMT/KOP. Figure 1: The 10 largest commercial office locations in the five county Philadelphia Region.
476
Montgomery County 202
76
Chester County 76
476
276
202
476
King of Prussia
Plymouth Meeting
202
Coshohocken
422
76
476
276
202
422
76
Exton 30
476
276
422
30
Malvern
Paoli
422
Tredyffrin Radnor
76
1 30
Newtown Square Delaware County
1 Philadelphia 76 County
476
276
202
Philadelphia
“ 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.
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Employment in the Region’s Largest Commercial Office Locations Upper Merion Township/King of Prussia is the largest employment center in the suburban Philadelphia region with over 53,000 jobs (Census 2010). UMT/ KOP has taken advantage of its prime position at the crossroads of southeastern Pennsylvania’s most traveled highways. It is also conveniently located just 18 miles from downtown Philadelphia and 26 miles from the Philadelphia International Airport. UMT/KOP is home to more than 3,700 companies, but despite its position as the largest commercial office and employment center, it finds itself continuously competing with other municipalities for business attraction, retention and new development. Many of the competing locations have seen significant economic development and job growth in recent years due to their proximity to public transportation (Conshohocken, Radnor, Paoli), significant infrastructure improvements (Malvern) and/or low taxes (Tredyffrin, Exton, Malvern). The Philadelphia region has also been slow to attract companies from outside of the region, forcing local municipalities to continually compete with one another for tenants. UMT/KOP must, therefore, work pro-actively and aggressively to remain competitive.
Table 1: Largest Employment Centers in the Philadelphia Region*
City of Philadelphia Upper Merion Township/KOP Tredyffrin
604,879 53,579 39,419
Malvern
24,382
Radnor
18,029
Newtown Square
11,055
Plymouth Meeting
10,952
Exton Paoli
7,624 5,980
Conshohocken
5,194 1170 Devon Park Drive
*US Census Bureau (2011), Econsult Solutions, Inc. (2011)
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Job Growth Performance
“UMT/KOP 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.”
Figure 2: 2002-2013 Employment Growth within Selected Business Locations – All Jobs and Office Jobs 180%
167%
160% 140%
125%
– Econsult Solutions, Inc.
120% 100% 80%
70%
60% 40%
25%
31%
24%
20% 0%
Upper Merion
Tredyffrin
Malvern
-20%
All Jobs
Office Jobs
UMT/KOP has had middling success in attracting new jobs and maintaining strong commercial office markets during the past 10-15 years.
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). Similarly, Malvern, also with a lower overall tax burden on business, has had employment growth nearly three times that of UMT/KOP.
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Upper Merion Township/King of Prussia’s Assesed Values and Tax Revenue Have Been Stagnant for the Past Decade In addition to a slower rate of job growth, UMT/KOP has had a slower rate of growth in the assessed value of its commercial properties and resulting tax revenues since 2000 when compared to its lower taxed neighbors.
Table 2: Assesed Value of Commercial Properties (2000 - 2011)
YEAR
UMT/KOP
TREDYFFRIN
MALVERN
2000 2011
3,269,976,319 3,472,131,960
3,282,883,760
1,239,225,325
2000 - 2011 Change
6.2%
3,534,590,854 7.7%
1,449,711,227 14.6%
Source: Munistats, Econsult Solutions, Inc. (2012)
Table 3: Property Tax Revenues (2000-2011)
YEAR
UMT/KOP
TREDYFFRIN
MALVERN
2000 2011
5,191,315 5,165,815
6,145,428
554,339
2000 - 2011 Change
-0.5%
7,855,000 27.8%
627,000 13.1%
Source: Munistats, Econsult Solutions, Inc. (2012) 150 S. Warner Road
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Upper Merion Township/King of Prussia’s Tax Burden Ranks 5th Out of the 10 Largest Business Locations The reports looked at the total tax burdens on businesses of varying sizes and in a number of different industry archetypes for each of the 10 largest commercial office/employment centers in the region. Across all industries, UMT/KOP ranks as the 5th lowest total tax burden location out of 10 nearby business locations (Table 4).
Table 4: Local Tax Burden Across All Industries – Ranking for 10 Largest Office Locations in Philadelphia Region
ALL INDUSTRIES RANK and LOCATION
1 = Lowest Tax Burden, 10 = Highest Tax Burden) 1
TREDYFFRIN
2
MALVERN
3
PAOLI
4
EXTON
5
UPPER MERION
6
NEWTOWN SQUARE
7
PLYMOUTH MEETING
8
CONSHOHOCKEN
9
RADNOR
10 PHILADELPHIA
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, Radnor and Philadelphia. The same results were derived for financial services, insurance and retail (Table 5). UMT/KOP’s strongest performance was in the defense sector, coming in as the 4th lowest total tax burden location. UMT/KOP has a strong defense industry segment with the presence of Lockheed Martin and its 3,500 employees. The overall tax burden picture on business in UMT/KOP reveals a fairly positive result as UMT/KOP continually ranks in the middle for all industry sectors and company sizes. It certainly suggests that any reference or notion that UMT/KOP is an unreasonably high taxing district could easily be dismissed as untrue or exaggerated.
5th
Across all industries, the Township ranks 5th out of 10 of the region’s largest commercial locations for total tax burden on business.
Source: Econsult Solutions, Inc. (2012)
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The issue in UMT/KOP is not the overall or total tax burden on business, but rather how the tax revenues are derived. In UMT/KOP, the Gross Receipts Tax (GRT) accounts for nearly 50% of all tax collected (Figure 6), the highest of any of the ten largest commercial office locations. The reliance on the GRT combined with UMT/KOP’s proximity to the lowest tax burden municipality (Tredyffrin) is what creates significant pressure on commercial property owners to attract and retain tenants. Figures 3, 4 and 5 on page 8 show the types of taxes collected by each of the ten largest commercial office locations in the region.
Table 5: Ranking of Local Tax Burden By Industry Archetypes (1 = lowest, 10 = highest) in Selected Industries PROFESSIONAL SERVICES
LOCATION
INSURANCE
LOCATION
DEFENSE
LOCATION
1 2 3 4 5 6 7 8 9 10
TREDYFFRIN MALVERN PAOLI EXTON UPPER MERION NEWTOWN SQUARE PLYMOUTH MEETING CONSHOHOCKEN RADNOR PHILADELPHIA
1 2 3 4 5 6 7 8 9 10
TREDYFFRIN MALVERN PAOLI EXTON UPPER MERION NEWTOWN SQUARE PLYMOUTH MEETING CONSHOHOCKEN RADNOR PHILADELPHIA
1 2 3 4 5 6 7 8 9 10
TREDYFFRIN MALVERN NEWTOWN SQUARE UPPER MERION PAOLI EXTON PLYMOUTH MEETING CONSHOHOCKEN RADNOR PHILADELPHIA
RETAIL
LOCATION
FINANCIAL SERVICES
LOCATION
1 2 3 4 5 6 7 8 9 10
PAOLI MALVERN EXTON TREDYFFRIN UPPER MERION PLYMOUTH MEETING NEWTOWN SQUARE CONSHOHOCKEN RADNOR PHILADELPHIA
1 2 3 4 5 6 7 8 9 10
TREDYFFRIN MALVERN PAOLI EXTON UPPER MERION NEWTOWN SQUARE PLYMOUTH MEETING CONSHOHOCKEN RADNOR PHILADELPHIA
Source: Econsult Solutions, Inc. (2012)
The data suggests that while the Township should not be considered a high-tax business location, there is room to improve its tax policies to become even more business-friendly.
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Tax Mix of Largest Business Locations Figure 3: Current Earned Income Tax 5.0% 4.0% 3.0%
955 First Avenue
2.0%
Upper Merion Township has no earned income tax.
1.0% 0.0%
Upper Merion Tedyffrin
Malvern Newtown Square Conshohocken Exton Plymouth Township Radnor (E. Whiteland Twp.) (W. Whiteland Twp.)
Plymouth Meeting Paoli (Whitemarsh Twp.) (Willistown Twp.)
Philadelphia
Figure 4: Real Property Tax 2.5% 2.0% 1.5% 1.0% 0.5%
151 Warner Road
0.0%
Upper Merion Tedyffrin
Malvern Newtown Square Conshohocken Exton Plymouth Township Radnor (E. Whiteland Twp.) (W. Whiteland Twp.)
Municipal Rate
School District Rate
Plymouth Meeting Paoli (Whitemarsh Twp.) (Willistown Twp.)
Philadelphia
The real property tax is fairly equal amongst all of the largest business locations.
Country Rate
Figure 5: Gross Receipts Tax 0.30% 0.20% 0.10%
Parkview Tower
0.0%
Upper Merion Tedyffrin
Malvern Newtown Square Conshohocken Exton Plymouth Township Radnor (E. Whiteland Twp.) (W. Whiteland Twp.)
Plymouth Meeting Paoli (Whitemarsh Twp.) (Willistown Twp.)
Source: Econsult Solutions, Inc. (2012) 4
Earned income tax rates shown here are the resident rates. “Real property tax rate” = millage rate x equalization ratio. Note that Philadelphia also has a net income tax in addition to its gross receipts tax.
Philadelphia
Gross receipts tax is typically used in older commercial locations that are highly developed. mong the business locations that employ a A gross receipts tax, Upper Merion ranks among the region’s average.
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General Fund Revenues Generated By Various Taxes Figure 6 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Upper Merion Tedyffrin
Malvern Newtown Square Conshohocken Exton Plymouth Township Radnor (E. Whiteland Twp.) (W. Whiteland Twp.)
Income Tax
Real Estate Tax
Gross Receipts Tax
Plymouth Meeting Paoli (Whitemarsh Twp.) (Willistown Twp.)
Philadelphia
Other GF Revenues
Source: Econsult Solutions, Inc. (2012)
Maschellmac Complex, King of Prussia Business Park
Business Privilege Tax Facts in Upper Merion Township/King of Prussia 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 Upper Merion. 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 Upper Merion Township, the BPT is equal to $1.50 per $1,000 of gross receipts. Research & Development and Non-Profit Entities are Exempt. Wholesale companies pay one third or just $.50 per $1,000.
Triad Building, Renaissance Business Park
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Closing Remarks/Recommendations The tax policy studies conducted by KOP-BID during the past few years reveal a number of positive results according to Econsult Solutions, Inc.’s research: • The perception of UMT/KOP as a high tax business location appear to be overstated • UMT/KOP rank only 5th out of the top 10 regional commercial office locations in terms of total tax burden on business • UMT/KOP continues to be the largest commercial office (7M+ SF), industrial and flex space (9M+ SF), and employment center (57,000+) 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. KOP-BID 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 Commonwealth, the County and the Township to investigate ways to move counties like Montgomery 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 which 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
• Investigate any opportunities to abate or 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 Commonwealth, the business community, the County, the Township, 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!
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CONTACT INFORMATION King of Prussia District 234 Mall Blvd., Ste 150 484.681.9452 visitKOP.com
Eric T. Goldstein, Executive Director King of Prussia District eric@kopbid.com
PHOTOGRAPHY CREDITS Brandywine Realty Trust, Don Pearse Photographers, Inc., George Yu, Keystone Property Group, Liberty Property Trust, MIM-Hayden, Weld Photography
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