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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!  

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