Philadelphia’s City Council Proposes Changes to the Tax Abatement Program and a New Construction Tax
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Changes that will significantly reduce the value of Philadelphia’s 10-year tax abatement are slated to take place on December 10.
12.04.20
Updated December 31, 2020
City Council voted to approve changes to the existing tax abatement program and a new construction tax on December 10, 2020. The new Bills will become effective on January 1, 2022. (Updated Bills available below)
Businesses, developers and the entire building industry have been rushing to get building permits approved before the deadline and anxiously waiting for any other changes from City Council.
On Tuesday, December 1, 2020, City Council’s Committee of the Whole met to consider changes to the existing tax abatement program and to consider a new construction tax. After an extended hearing, the committee voted to approve the bills and advance them for hearings and final consideration by City Council before their winter recess begins on December 10, 2020. The bills that were advanced are outlined below:
1. Extension of Residential Abatement by One Year
Bill 200366, sponsored by Councilmember Bobby Henon.
If approved, the bill would delay the recent changes made to the tax abatement program for residential properties for a period of one year. The recent changes to the tax abatement program were put into effect by Bill No. 190944-A in 2019. The current abatement program for residential properties allows an abatement for 100% of the value of improvements for 10 years. The changes enacted last year essentially reduce the value of the abatement by 50% for new construction projects involving the construction of residential units on vacant land. This bill would extend the filing deadline to qualify for the existing abatement by one year to December 31, 2021. Under this bill, the new abatement structure would apply to any application for tax abatement filed on or after January 1, 2022.
2. Reduction in Tax Abatement for Commercial & Industrial Properties
Bill No. 20065301, sponsored by Councilmember Parker for Council President Clarke
If approved, the bill would create a 10% reduction of the 10-year tax abatement for the value of improvements on commercial and industrial properties. The bill would affect all abatement applications submitted after December 31, 2021. Owner and developers of both commercial and industrial properties, who want to take advantage of the 100% abatement of improvement tax assessments, must ensure that their applications are filed along with a copy of the building permit before that deadline.
3. Imposition of Construction Tax
Bill No. 20055601, sponsored by Councilmember Parker
If approved, this bill would impose a 1% tax on the costs of constructing a building, or a portion of a building, for residential purposes. The scope of the “improvements” to residential properties that will trigger the tax will be defined by future regulations. Ordinary upkeep and maintenance will not be deemed an “improvement” for purposes of assessing the tax. If this bill is passed, the tax will apply to all building permit applications filed on or after January 1, 2022.
Before these bills can become effective, they must be considered and approved by a vote of City Council and signed by the Mayor. Please note that the bills may be amended before being considered for a second reading and final passage. Notwithstanding, the bills are expected to be approved by City Council on December 10, 2020.
Our team will continue to monitor the status of the pending bills and remain ready to assist you in all your tax abatement needs. Members of our Land Use and Zoning Team maintain constant communication with members of Council regarding any proposed legislation that will affect the development community. Questions about the pending legislation can be directed to our team.
Author Stephanie Boggs is an associate in the Real Estate & Finance Department at Klehr Harrison.