PRINTER'S NO. 1261
No. 1132 Session of 1995
INTRODUCED BY REINARD AND CONTI, MARCH 13, 1995
REFERRED TO COMMITTEE ON FINANCE, MARCH 13, 1995
AN ACT
1 Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
2 act relating to tax reform and State taxation by codifying
3 and enumerating certain subjects of taxation and imposing
4 taxes thereon; providing procedures for the payment,
5 collection, administration and enforcement thereof; providing
6 for tax credits in certain cases; conferring powers and
7 imposing duties upon the Department of Revenue, certain
8 employers, fiduciaries, individuals, persons, corporations
9 and other entities; prescribing crimes, offenses and
10 penalties," further providing for classes of personal income.
11 The General Assembly of the Commonwealth of Pennsylvania
12 hereby enacts as follows:
13 Section 1. Section 303(a)(3) and (5) of the act of March 4,
14 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971,
15 amended December 3, 1993 (P.L.473, No.68), are amended to read:
16 Section 303. Classes of Income.--(a) The classes of income
17 referred to above are as follows:
18 * * *
19 (3) Net gains or income from disposition of property. Net
20 gains or net income, less net losses, derived from the sale,
21 exchange or other disposition of property, including real
1 property, tangible personal property, intangible personal
2 property or obligations issued on or after the effective date of
3 this amendatory act by the Commonwealth; any public authority,
4 commission, board or other agency created by the Commonwealth;
5 any political subdivision of the Commonwealth or any public
6 authority created by any such political subdivision; or by the
7 Federal Government as determined in accordance with accepted
8 accounting principles and practices. For the purpose of this
9 act, for the determination of the basis of any property, real
10 and personal, if acquired prior to June 1, 1971, the date of
11 acquisition shall be adjusted to June 1, 1971, as if the
12 property had been acquired on that date. If the property was
13 acquired after June 1, 1971, the actual date of acquisition
14 shall be used in determination of the basis.
15 At the election of the taxpayer, the term "net gains or
16 income" shall not include net gain in an amount not to exceed
17 one hundred thousand dollars ($100,000), or a pro rata part of
18 one hundred thousand dollars ($100,000) if the property is owned
19 by more than one taxpayer, from the sale or exchange of the
20 taxpayer's principal residence if the taxpayer has attained
21 fifty-five years of age before the date of the sale or exchange.
22 If the property is held by a husband and wife and they make a
23 joint return for the taxable year of the sale or exchange and
24 one spouse satisfies the age, ownership and use requirements of
25 this clause with respect to the property, then both husband and
26 wife shall be treated as satisfying the age, ownership and use
27 requirements of this clause. For purposes of this clause, in the
28 case of an unremarried individual whose spouse is deceased on
29 the date of sale or exchange of the property, if the deceased
30 spouse, during the five-year period ending on the date of sale
19950H1132B1261 - 2 -
1 or exchange satisfied the holding and use requirements with
2 respect to such property, then such individual shall be treated
3 as satisfying holding and use requirements with respect to such
4 property. For the purposes of this clause, the term "sale or
5 exchange" shall include involuntary conversions such as the
6 destruction, theft, seizure, requisition or condemnation of the
7 property. For the purposes of this clause, the term "principal
8 residence" shall mean the property that has been owned and used
9 by the taxpayer as his principal residence for periods
10 aggregating three years or more during the five-year period
11 ending on the date of the sale or exchange. In the case of
12 property only a portion of which, during the five-year period
13 ending on the date of the sale or exchange, has been owned or
14 used by the taxpayer as the taxpayer's principal residence for
15 periods aggregating three years or more, this section shall
16 apply with respect to so much of the gain from the sale or
17 exchange of such property as is determined under regulations
18 prescribed by the department to be attributable to the portion
19 of the property so owned and used by the taxpayer. The term
20 "used" shall include time the property was not used for rental
21 purposes and was unoccupied by the taxpayer due to the taxpayer
22 being in a hospital, nursing home or personal care facility, or
23 for a period of less than ninety consecutive days. The
24 provisions of this clause shall not apply to any sale or
25 exchange made prior to July 1, 1987. An election under this
26 clause may be made or revoked at any time before the expiration
27 of the period for making a claim for a refund of the tax imposed
28 by this article for the taxable year in which the sale or
29 exchange occurred. The provisions of this clause shall be used
30 only once during the lifetime of the taxpayer.
19950H1132B1261 - 3 -
1 The term "net gains or income" and "net losses" shall not
2 include gains or income or loss derived from obligations which
3 are statutorily free from State or local taxation under the act
4 of August 31, 1971 (P.L.395, No.94), entitled "An act exempting
5 from taxation for State and local purposes within the
6 Commonwealth certain obligations, their transfer and the income
7 therefrom (including any profits made on the sale thereof),
8 issued by the Commonwealth, any public authority, commission,
9 board or other agency created by the Commonwealth, any political
10 subdivision of the Commonwealth or any public authority created
11 by any such political subdivision," or under the laws of the
12 United States. The term "sale, exchange or other disposition"
13 shall not include the exchange of stock or securities in a
14 corporation a party to a reorganization in pursuance of a plan
15 of reorganization, solely for stock or securities in such
16 corporation or in another corporation a party to the
17 reorganization and the transfer of property to a corporation by
18 one or more persons solely in exchange for stock or securities
19 in such corporation if immediately after the exchange such
20 person or persons are in control of the corporation. For
21 purposes of this clause, stock or securities issued for services
22 shall not be considered as issued in return for property.
23 For purposes of this clause, the term "reorganization"
24 means--
25 (i) a statutory merger or consolidation;
26 (ii) the acquisition by one corporation, in exchange solely
27 for all or a part of its voting stock (or in exchange solely for
28 all or a part of the voting stock of a corporation which is in
29 control of the acquiring corporation) of stock of another
30 corporation if, immediately after the acquisition, the acquiring
19950H1132B1261 - 4 -
1 corporation has control of such other corporation (whether or
2 not such acquiring corporation had control immediately before
3 the acquisition);
4 (iii) the acquisition by one corporation, in exchange solely
5 for all or a part of its voting stock (or in exchange solely for
6 all or a part of the voting stock of a corporation which is in
7 control of the acquiring corporation), of substantially all of
8 the properties of another corporation, but in determining
9 whether the exchange is solely for stock the assumption by the
10 acquiring corporation of a liability of the other, or the fact
11 that property acquired is subject to a liability, shall be
12 disregarded;
13 (iv) a transfer by a corporation of all or a part of its
14 assets to another corporation if immediately after the transfer
15 the transferor, or one or more of its shareholders (including
16 persons who were shareholders immediately before the transfer),
17 or any combination thereof, is in control of the corporation to
18 which the assets are transferred;
19 (v) a recapitalization;
20 (vi) a mere change in identity, form, or place of
21 organization however effected; or
22 (vii) the acquisition by one corporation, in exchange for
23 stock of a corporation (referred to in this subclause as
24 "controlling corporation") which is in control of the acquiring
25 corporation, of substantially all of the properties of another
26 corporation which in the transaction is merged into the
27 acquiring corporation shall not disqualify a transaction under
28 subclause (i) if such transaction would have qualified under
29 subclause (i) if the merger had been into the controlling
30 corporation, and no stock of the acquiring corporation is used
19950H1132B1261 - 5 -
1 in the transaction;
2 (viii) a transaction otherwise qualifying under subclause
3 (i) shall not be disqualified by reason of the fact that stock
4 of a corporation (referred to in this subclause as the
5 "controlling corporation") which before the merger was in
6 control of the merged corporation is used in the transaction, if
7 after the transaction, the corporation surviving the merger
8 holds substantially all of its properties and of the properties
9 of the merged corporation (other than stock of the controlling
10 corporation distributed in the transaction); and in the
11 transaction, former shareholders of the surviving corporation
12 exchanged, for an amount of voting stock of the controlling
13 corporation, an amount of stock in the surviving corporation
14 which constitutes control of such corporation.
15 For purposes of this clause, the term "control" means the
16 ownership of stock possessing at least eighty per cent of the
17 total combined voting power of all classes of stock entitled to
18 vote and at least eighty per cent of the total number of shares
19 of all other classes of stock of the corporation.
20 For purposes of this clause, the term "a party to a
21 reorganization" includes a corporation resulting from a
22 reorganization, and both corporations, in the case of a
23 reorganization resulting from the acquisition by one corporation
24 of stock or properties of another. In the case of a
25 reorganization qualifying under subclause (i) by reason of
26 subclause (vii) the term "a party to a reorganization" includes
27 the controlling corporation referred to in such subclause (vii).
28 Notwithstanding any provisions hereof, upon every such
29 exchange or conversion, the taxpayer's base for the stock or
30 securities received shall be the same as the taxpayer's actual
19950H1132B1261 - 6 -
1 or attributed base for the stock, securities or property
2 surrendered in exchange therefor.
3 In the case of a regulated investment company, as defined in
4 section 851 of the Internal Revenue Code of 1986 (Public Law 99-
5 514, 26 U.S.C. § 851), net gains or income from disposition of
6 property shall not include gains from the redemption or sale of
7 a share or unit in the regulated investment company to the
8 extent that the gains represent a proportionate share of
9 unrealized gains on obligations held by the investment company
10 which are statutorily free from State or local taxation under
11 any Federal or State statute; nor shall net gains or income from
12 disposition of property include that share of a dividend or
13 other distribution from the investment company which represents
14 gains realized by the investment company from the tax-exempt
15 obligations upon sale, exchange, redemption or payment at
16 maturity.
17 * * *
18 (5) Dividends. Dividends shall include corporate
19 distributions from current or accumulated earnings and profits.
20 Dividends shall not include distributions received from a
21 regulated investment company, as defined in section 851 of the
22 Internal Revenue Code of 1986 to the extent of the proportion
23 representing interest or gains from obligations which are
24 statutorily free from State or local taxation under any Federal
25 or State statute.
26 * * *
27 Section 2. This act shall take effect in 30 days.
A12L72JRW/19950H1132B1261 - 7 -