If Amazon picked Philly, it would not have to pay construction tax to fund affordable housing

If Amazon decides to build its second headquarters in Philadelphia, it would not have to pay a proposed construction tax created to fund affordable housing.

City Council wants to make that explicitly clear.

Council on Thursday added an exemption for all Keystone Opportunity Zones from the proposed 1 percent tax on new construction. The three sites Philadelphia pitched Amazon, at the Schuylkill Yards and uCity Square sites in West Philadelphia and South Philadelphia’s Navy Yard, are in Keystone Opportunity Zones.

Those zones, designated by the state and typically vacant land in underdeveloped areas, already are exempt from most local and state taxes.

The amendment came out of discussions between City Council and the Kenney administration, which has criticized the tax.

Council President Darrell L. Clarke said Kenney’s office asked for the amendment to make explicit that the tax would not have applied to Keystone Opportunity Zones.

“They will not be eligible for the construction tax,” Clarke said. “This issue about Amazon was of concern to some members of the administration.”

Deana Gamble, a spokesperson for Kenney, said that the administration did not ask for the amendment but that there had been conversations about whether or not construction in KOZs would be exempt.

The administration has been critical of the levy. Last week, Commerce Director Harold Epps said the tax could affect Philadelphia’s chances at Amazon’s HQ2.

“One of the reasons Amazon has fallen out of favor with Seattle is some of the policies Seattle has put in place, which they concluded were too much to fast,” Epps said at the finance committee hearing.

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Seattle’s City Council recently repealed a tax on big businesses, which Amazon had fought. That tax would have funded homeless services and affordable housing.

In Philadelphia, KOZs are exempt from real estate taxes, the use and occupancy tax, the sales and use tax, and the business income and receipts tax. KOZs are still subject to the city’s wage tax and the state income tax.

There are about 185 KOZs in the city.

“It’s unfortunate that the state and Council have approved so many KOZs,” said Beth McConnell, policy director at the Philadelphia Association of Community Development Corporations. “And we’ll be watching those more carefully moving forward. Some of them are prime real estate and may not need those deep levels of subsidies.”

McConnell is researching whether state law explicitly would have exempted opportunity zones from new taxes such as the construction levy.

If passed, the construction impact tax is expected to raise about $19 million to go toward the construction of affordable housing at a time when the city is experiencing a dire shortage, proponents of the bill said.

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Angelita Ellison testified before City Council members last week about the difficulty of finding affordable housing in Point Breeze. The council is considering a 1 percent impact tax on all new construction.

Revenue from the tax would go into a Housing Trust Fund, where it could be used to build affordable housing for people making 120 percent of the area median income, or $105,000 for a family of four. Funds could also go toward down payments, closing costs, and home repairs.

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The tax would exempt nonprofits, including the biggest property-owners in the city: universities. In some cases, affordable housing projects might be taxed.

Habitat for Humanity and Project HOME, for example, sometimes partner with  LLCs on affordable housing projects in order to collect low-income housing tax credits. Those hybrid projects would be taxed. The project would then be eligible for money from the Housing Trust Fund.

Councilwoman Maria Quinones-Sanchez, who has long pushed for a tax to fund affordable housing, said that although it might seem like a “conflicting message” the city should provide incentives for Amazon and also address the city’s affordable housing problem.

“On the one hand we have a recognition that there’s some high need,” she said. “On the other hand, we’re willing to roll out the red carpet for new folks, and I think that’s why the construction tax, at this point, is even more important because when people see the public plan of what we gave to Amazon, if we win they, they need to feel that we were just as forthright and as focused on current needs.”

A final vote on the construction tax is scheduled for next week. It passed out of committee by a vote of 6-3.

Gamble said Kenney “has concerns about this particular piece of legislation.

“Philadelphia is already considered by many to have a pretty onerous tax system,” she said. “And it is certainly not clear that adding another tax is the best way to address our housing crisis. … We will be reviewing it very closely should it gain final passage.”

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