PA LERTA and KOZ: Tax Abatement for Commercial Redevelopment and Distressed Area Investment
Pennsylvania's two primary tax-incentive tools for commercial redevelopment are Local Economic Revitalization Tax Assistance (LERTA, Act 76 of 1977, 72 P.S. § 4722) and the Keystone Opportunity Zone program (KOZ, Act 92 of 1998, 73 P.S. § 820.101). LERTA is local — municipalities, counties, and school districts opt in via local ordinance to abate property tax on the increased assessed value from improvements for up to 10 years. KOZ is broader and state-designated — businesses and residents in authorized zones get substantial state and local tax exemptions. The two can stack on properties within a KOZ. For PA commercial developers targeting older urban or industrial-legacy parcels, LERTA and KOZ are the tools that shape pro formas most directly.
LERTA — Local Economic Revitalization Tax Assistance
Statutory framework
- Act 76 of 1977, P.L. 237, No. 76.
- 72 P.S. § 4722 et seq.
- Enabling statute; local taxing authorities opt in via ordinance.
Core mechanics
- Abatement on the increased assessed value resulting from improvements — not the existing base value.
- Maximum abatement period: 10 years.
- Abatement schedule set by local ordinance — common patterns: 100% abatement for years 1-5 stepping down to 0% by year 10; or graduated 10% per year declining abatement.
- Eligible improvements: new construction, reconstruction, alterations, additions, repairs — typically industrial, commercial, business; some municipalities extend to residential.
- Designated areas: local governments must pass ordinances designating "deteriorated areas" or "LERTA zones."
- Three taxing bodies must coordinate: municipality, county, and school district each adopt their own LERTA ordinance. A property can have LERTA benefits from some but not all three taxing bodies if not all opt in.
Application process
- Property owner applies after securing building permit and typically before or shortly after project completion.
- Assessor assesses the improvement value.
- Abatement applied per local ordinance schedule.
- Annual tax bill reflects abatement on improvement portion.
KOZ — Keystone Opportunity Zone
Statutory framework
- Act 92 of 1998, P.L. 705 — KOZ, KOEZ, KOIZ Act.
- 73 P.S. § 820.101 et seq.
- Administered by PA Department of Community and Economic Development (DCED).
Tax exemptions available
Businesses and residents in authorized KOZ zones receive exemptions, deductions, abatements, or credits on:
- State taxes: Corporate Net Income Tax, Capital Stock/Foreign Franchise Tax, Personal Income Tax (for residents), Sales and Use Tax (limited), Bank Shares Tax, Mutual Thrift Institutions Tax, Insurance Premiums Tax.
- Local taxes: Earned Income / Net Profits Tax, Business Gross Receipts, Business Occupancy, Business Privilege and Mercantile Taxes, Local Real Property Tax.
Zone designation and duration
- Deteriorated property is the baseline qualifier.
- Communities identify and designate parcels for KOZ status; DCED approves.
- Original KOZs typically ran up to 15 years (many ended by Dec 31, 2013).
- KOEZ (Expansion Zones) and KOIZ (Improvement Zones) added subsequently with varying durations — often 10 years.
- Extensions have been enacted for specific zones; current program parameters change over time — verify with DCED.
Compliance obligations
- Annual application required to maintain KOZ benefits.
- Business qualifications — specific criteria including employment thresholds and capital investment benchmarks in some programs.
- Full compliance with state and local tax laws required to maintain eligibility.
LERTA and KOZ compared
| Feature | LERTA | KOZ |
|---|---|---|
| Scope | Local property tax on improvements only | Broad state + local taxes |
| Duration | Up to 10 years | Up to 10-15 years by zone type |
| Designation | Local ordinance by each taxing body | Community-identified, DCED-approved |
| Applicability | Deteriorated area; improvements required | Deteriorated property in authorized zone |
| Application | Post-permit | Annual |
| Beneficiary | Property owner | Businesses + residents in zone |
When LERTA and KOZ can stack
A property within a KOZ may also use LERTA for additional local real estate tax relief on improvements. The two programs address different tax bases and aren't mutually exclusive.
Common stacking scenario: a commercial redevelopment in a KOZ gets broad state/local KOZ exemptions for the operating business, plus LERTA property tax abatement on improvement value. Developer pro forma benefits from both.
Where LERTA and KOZ apply in practice
LERTA
Widely used across PA — Pittsburgh, Philadelphia, Allentown, Bethlehem, Reading, Erie, Harrisburg, Lancaster, York, Scranton, Wilkes-Barre, Johnstown, and dozens of smaller cities and boroughs have LERTA zones. Philadelphia's version includes commercial and residential tiers; Pittsburgh uses LERTA aggressively in East Liberty, Strip District, and other revitalizing neighborhoods.
KOZ
Original KOZs targeted specific economically-distressed areas statewide. Subsequent expansion zones have included:
- Former industrial sites in Pittsburgh, Philadelphia, Erie, Scranton, and smaller cities.
- Specific rural economic development corridors.
- Designated expansion zones created through program extensions.
Integration with broader PA regulatory context
Commercial projects using LERTA or KOZ still engage:
- PA MPC zoning and SLDO — see our PA MPC essay.
- PA UCC construction permits — see our PA UCC essay.
- Act 537 sewage planning — see our PA Act 537 essay.
- PAG-02 stormwater — see our PA PAG-02 essay.
- Act 2 Land Recycling if brownfield — see our PA Act 2 essay.
- PennDOT HOP if fronting state highway — see our PennDOT HOP essay.
- Philadelphia energy benchmarking for large buildings — see our Philly energy essay.
How PA compares regionally
- New Jersey. LRHL + PILOT + Long-Term Tax Exemption — more comprehensive unified framework. See our NJ LRHL essay.
- Maryland. Urban Renewal Law + MHFA tools + Baltimore PILOT framework + state Sustainable Communities program.
- Virginia. Virginia Enterprise Zones + local tax abatement + Tax Increment Financing Act.
- Delaware. Targeted tax credits (HPIP — Historic Preservation Incentives, Targeted Growth programs).
- Pennsylvania. LERTA at local level + KOZ at state level + Tax Increment Financing Act + various targeted programs.
What developers should know
- Confirm LERTA status for each of the three taxing bodies separately. If only the municipality opted in but not the county or school district, only the municipal portion is abated.
- KOZ designation is finite. Check current designation status and expiration dates with DCED.
- Stacking LERTA with KOZ maximizes benefit where both apply.
- Application timing — apply after building permit, before or shortly after completion for LERTA.
- Annual KOZ compliance — missing annual application can void KOZ benefits.
- Historic tax credits — federal historic tax credits and PA Historic Preservation Tax Credits can stack further on qualifying rehabilitation projects.
What to do with this
If you're scoping PA urban redevelopment: check LERTA status of the parcel with the municipality. If KOZ-designated, confirm zone status with DCED.
If you're in an older commercial area: LERTA status affects project financial returns materially — factor into pro forma.
If you're considering a new zone designation: engage DCED and local officials early; zone creation is a multi-step process.
If historic building: explore federal historic tax credits + PA Historic Preservation Tax Credits stacking with LERTA.
For adjacent PA regulatory context, see our essays linked above.
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