In defense of Dechert, they’re doing exactly what crafty lawyers eyeing a loophole should be doing.
The Am Law 50 firm moved its headquarters to Philadelphia’s Cira Centre in 2005, taking advantage of a tax break program that Pennsylvania offers businesses to move into developments in formerly run-down areas. Since taking up residence in Cira Centre, Dechert’s paid virtually no state or local business taxes in exchange for Dechert’s role in making the area an attractive business destination.
But the program expired in 2018, so when the Keystone Opportunity Zone program eyed a new tax-free area in Schuylkill Yards, Dechert walked up and asked to move there too.
There’s nothing in the law to say companies can’t hop from zone to zone to remain permanently tax-free, and when authorities denied Dechert’s request to continue not paying its taxes, the firm took the government to court.
On the one hand, by moving to the new location, Dechert’s asking to be rewarded for bailing on the first opportunity zone. On the other hand, Dechert’s right that the law doesn’t account for the stopping businesses from “zone hopping” and Dechert’s attorneys argue that Dechert’s already done its job and that Cira Centre can now fill its potential Dechert-sized vacancy with any number of willing tenants who won’t mind paying their taxes. They feel the firm should be rewarded for volunteering to march into a new frontier a second time.
These stadium deal-style tax breaks have a pretty bad record for the cities when all is said and done, but states keep doing them, one of the many “race to the bottom” side effects of Federalism in the modern age where entities can play state governments off each other. At one point there was a concerted effort to force the businesses taking these tax breaks to aid in the development of the neighborhood — not so much anymore. From the Inquirer:
Originally a company had to either boost employment by 20% or invest at least 10% of its total revenue from the previous year. The new way to qualify just required a company to sign a lease covering the duration of the zone and to spend at least 5% of the previous year’s revenue on rent.
Much like the much-publicized Amazon headquarters deal in New York, the logic is that increased taxes on wages will pay for the business tax cuts. During the run of the deal, Dechert reduced headcount from 700 in 2005 to 461 last year.
But that’s surely going to totally turn around with these new tax breaks!
One of Philadelphia’s richest law firms wants tax breaks, again. Why it might get its way. [Philadelphia Inquirer]
Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.