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HB 2685

An Act amending the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971, in tax credit and tax benefit administration, further providing for definitions and providing for tax credits relating to economic development.

2025-2026 Regular Session Introduced by Danilo Burgos and 12 co-sponsors

Creates an economic development tax credit with audits and penalties to ensure recipient wage, PA residency, and 100% PA or US material sourcing.

Referred to Finance
0
WeVote Research Nonpartisan
Bill Summary · HB 2685

Overview

HB 2685 (2025-2026, Pennsylvania) would create an “economic development tax credit” within the Tax Reform Code of 1971 and establish related requirements, audits, and penalties. The bill adds a new definition of economic development tax credit and sets conditions for recipients, plus enforcement provisions. It would apply to tax credits awarded on or after the act’s effective date.

Purpose and Intent

  • Establish a targeted tax credit aimed at long-term, strategic improvements in a community’s financial well-being and quality of life.
  • Focus areas include business creation/attraction/retention/expansion, economic growth, expansion of the local tax base for public services, and infrastructure improvements to attract and support living and working in the community.

Key Provisions

1) New Definition: "Economic development tax credit" (Section 1701-A.1)

  • Defines the credit as a tool for long-term, strategic community improvement.
  • Primary focus areas:
    • (1) Business creation, attraction, retention, or expansion.
    • (2) Economic growth.
    • (3) Expanding local tax base to fund public services (schools, roads, parks).
    • (4) Improving infrastructure to enhance livability and work environment.

2) Conditions for Tax Credit Awards (Section 1710-A.1)

Entities receiving an economic development tax credit must:
- (1) Comply with the Pennsylvania Prevailing Wage Act (minimum wage/compliance for public works).
- (2) Employ only Pennsylvania residents.
- (3) Source 100% of materials from Pennsylvania. If 100% cannot be sourced from PA, then 100% must be sourced from the United States (no materials from outside the U.S. allowed).

3) Auditor Role and Compliance (Section 1710-A.1)

  • The Department of Community and Economic Development (DCED) must annually audit all entities awarded an economic development tax credit to verify compliance with the above requirements (wage, residency, material sourcing).

4) Penalties for Noncompliance (Section 1710-A.1)

  • An entity that receives the credit and fails to comply must repay the full amount of the economic development tax credit awarded.

5) Effective Date and Application (Section 1710-A.1; Section 3)

  • The new section (1710-A.1) applies to tax credits awarded on or after the act’s effective date.

6) Timing (Section 4)

  • The act would take effect 60 days after enactment.

Affected Parties

  • Primary: Taxpayers/entities awarded the economic development tax credit (likely businesses, developers, or investment entities engaged in qualifying activities).
  • State agencies: Department of Community and Economic Development (DCED) tasked with auditing recipients.
  • General public: Beneficiaries of improved infrastructure, services, and economic activity in communities that qualify for the credit.

Potential Impact

  • Encourages local hiring of Pennsylvania residents and procurement of PA-sourced materials, aiming to boost local employment and the state economy.
  • Introduces an accountability mechanism via annual DCED audits and a repayment penalty for noncompliance.
  • May influence project structuring to meet wage, residency, and sourcing requirements to qualify for the credit.
  • Acts as a strategic tool to promote community-level economic development outcomes such as infrastructure upgrades and expanded tax bases to fund public services.

Procedural and Timeline Aspects

  • Referred to the House Finance Committee (June 30, 2026).
  • Enactment timeline: 60-day entrance into effect after enactment (as provided in Section 4).
  • Compliance and monitoring: Ongoing annual audits by DCED for all awarded credits.
  • Application of new provisions: Only to tax credits awarded on or after the effective date.

Compiled from official sources — confirm details with the bill’s official record.

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