Dechert can get a second round of KOZ tax breaks, court rules

Pennsylvania’s Commonwealth Court ruled that Dechert LLP, one of Philadelphia’s richest law firms, can collect a second round of Keystone Opportunity Zone tax breaks if it moves from the Cira Centre into a new building that Brandywine Realty Trust wants to build in the Schuylkill Yards development near 30th Street Station.

The Pennsylvania Department of Community and Economic Development, which administers the KOZ program, argued before a full panel of seven judges in February that Dechert should not be rewarded for leaving the Cira Centre, where the tax breaks expired in 2018.

That would defeat the purpose of the 1998 law, which was to bring development to distressed areas, an agency lawyer told the judges.

But the court ruled Tuesday that the economic development agency, known as DCED, overstepped its authority when it told Dechert last summer that the law firm could not get a pass on virtually all state and local business taxes if it moved from the expired building to Brandywine’s planned JFK Towers in a different zone nearby.

“DCED’s prohibition on ‘zone-hopping’ is simply not contained in the statute,” Judge J. Andrew Crompton wrote in the decision. “The KOZ Act does not impose a ‘one and done’ rule whereby a qualified business may only receive KOZ tax benefits once.”

A DCED spokesperson said the agency is reviewing the opinion and had no further comment. The agency could appeal the decision to the Pennsylvania Supreme Court.

“Dechert is generally pleased with the decision,” said Joseph C. Bright, a Cozen O’Connor lawyer, who represented Dechert in Commonwealth Court. Bright has additional clients seeking the same relief.

It is not clear how much Dechert, which moved from what was then called the Bell Atlantic Tower at 1717 Arch St. to the Cira Centre at 2929 Arch St., benefited from the tax breaks. Under the KOZ program, the city alone provided an estimated $400 million in tax breaks to firms in the Cira Centre from the time it opened in 2005 until they expired at the end of 2018.

Officials who helped develop and administer the KOZ program more than 20 years ago told The Inquirer last winter that they never imagined companies would go from one zone to another.

“That’s not what it was created for,” said Rich Hudic, a former state official who was the first manager of the KOZ program.

However, the law did not say companies could get the benefits only once because they are tied to a location, not a particular business.

“DCED may not engraft restrictions upon a statute it administers to advance its policy goals,” Crompton said in his decision.