Photo: Diego M. Radzinschi/ALM

Pennsylvania's Commonwealth Court has ruled that Dechert can receive a second round of Keystone Opportunity Zone tax benefits if it moves its Philadelphia headquarters from a zone where tax credits expired to a newly created zone.

The state Department of Community and Economic Development maintained that a business moving from an expired KOZ to an active one was not entitled to tax benefits. But the court granted declaratory relief to Dechert, finding the state's interpretation of the KOZ act contrary to the act's plain language.

Dechert asked the state in April 2019 to issue a ruling on the availability of tax benefits if it moved from its present location in the Cira Centre, at 2929 Arch St., to a new office complex under construction, JFK Towers, at 3001 JFK Blvd. During its tenancy at the Cira Centre, Dechert received nearly 15 years of KOZ tax benefits, but that zone's active period ended Dec. 31, 2018.

The DCED rejected Dechert's request for tax benefits, responding that "its interpretation of the KOZ Act precludes a beneficiary of tax benefits of an expired zone to receive full benefits should it relocate to an active zone," and that "the KOZ program is designed to encourage businesses to locate in economically distressed communities; to become economic anchors of the communities; and to re-enter the state and local tax rolls at the end of the KOZ term."

But Judge J. Andrew Crompton, writing for an en banc panel of seven jurists, said Dechert is relocating "from outside a subzone" because its location in the Cira Centre lost its KOZ status in 2018. "Further, it is relocating 'from outside' the active zone covering the location of JFK Towers. Relocation in this context focuses only on the zone into which a business is relocating, and the statute is silent regarding the KOZ status of the area the business is leaving. Thus, by its plain language, the KOZ Act permits 'relocation' from outside a zone," Crompton wrote.

"DCED's prohibition on 'zone-hopping' is simply not contained in the statute. Contrary to DCED's proffered application, the KOZ Act does not impose a 'one and done' rule whereby a qualified business may only receive KOZ tax benefits once. Because DCED cannot engraft additions upon the KOZ Act that the legislature did not impose, its extension of the KOZ Act to bar Dechert's proposed movement from the expired zone into the active zone is not supportable," Crompton wrote.

DCED conceded that the statute is silent on whether a party can receive benefits from a newly created KOZ after relocating from an expired one, yet it maintains that construing the act to allow such a move "would yield an absurd result," the court said.

"However, this court may not ignore the plain meaning of the statute under the pretext of pursuing its spirit. By construing that silence as a prohibition on movement out of the expired zone into the active zone, DCED disregarded established principles of statutory construction and exceeded its authority," the court said.

According to the DCED website, total taxes on economic activity are "significantly reduced" for businesses that take part in the KOZ program, including state corporate income tax, personal income tax, sales and use tax, and local earned income tax, business gross receipts tax, business occupancy tax, business privilege tax, sales and use tax and property tax.

Dechert was represented in the case by Cozen O'Connor's Thomas Leonard, Robert Dell'Osa and Joseph Bright. Bright said in an e-mail that Dechert is "generally pleased with the decision." A Dechert spokeswoman, Ashley Baldev, declined to comment.

DCED was represented by in-house attorneys J. Michael Adams, Scott Longwell, Justin Zimmerman and Sean Campbell. A spokeswoman, Casey Smith, said the agency is reviewing the opinion.