PRINTER'S NO. 1115
No. 1009 Session of 1997
INTRODUCED BY SEMMEL, NAILOR, BATTISTO, BROWNE, GORDNER, DENT,
HERSHEY, ARMSTRONG, LEH, ROONEY, FICHTER, L. I. COHEN, COY,
LYNCH, BAKER, MILLER, DeLUCA, STERN, HUTCHINSON, GLADECK,
ALLEN, GODSHALL, BUNT, ADOLPH, STAIRS, SATHER, SANTONI,
KENNEY, WAUGH, YOUNGBLOOD, McCALL, HENNESSEY, RAYMOND,
RUBLEY, FARGO, LAUGHLIN, SCHRODER, E. Z. TAYLOR, BELFANTI,
ARGALL, WALKO, McGEEHAN, LEVDANSKY, SAINATO, SEYFERT,
STEELMAN, PETRARCA, MANDERINO, CIVERA, COLAFELLA, TRICH AND
PISTELLA, MARCH 19, 1997
REFERRED TO COMMITTEE ON FINANCE, MARCH 19, 1997
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," providing for a research tax credit.
11 The General Assembly of the Commonwealth of Pennsylvania
12 hereby enacts as follows:
13 Section 1. The act of March 4, 1971 (P.L.6, No.2), known as
14 the Tax Reform Code of 1971, is amended by adding an article to
15 read:
16 ARTICLE XVII-B
17 RESEARCH TAX CREDIT
18 Section 1701-B. Short Title of Article.--This article shall
1 be known and may be cited as the "Research Tax Credit Law."
2 Section 1702-B. Definitions.--The following words, terms and
3 phrases, when used in this article, shall have the meanings
4 ascribed to them in this section, except where the context
5 clearly indicates a different meaning:
6 "Department." The Department of Revenue of the Commonwealth.
7 "Internal Revenue Code." The Internal Revenue Code of 1986
8 (Public Law 99-514, 26 U.S.C. § 1 et seq.).
9 "Pennsylvania base amount." Base amount as defined in
10 section 41(c) of the Internal Revenue Code of 1986 (Public Law
11 99-514, 26 U.S.C. § 1 et seq.) except that references to
12 "qualified research expenses" shall mean "Pennsylvania qualified
13 research expenses" and references to "qualified research" shall
14 mean "Pennsylvania qualified research."
15 "Pennsylvania qualified research." Qualified research as
16 defined in section 41(d) of the Internal Revenue Code of 1986
17 (Public Law 99-514, 26 U.S.C. § 1 et seq.), except that the term
18 does not include qualified research conducted outside
19 Pennsylvania.
20 "Pennsylvania qualified research expense." Qualified
21 research expense as defined in section 41(d) of the Internal
22 Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.),
23 except that the term does not include expenses incurred for
24 qualified research conducted outside Pennsylvania.
25 "Qualified tax liability." The liability for taxes imposed
26 under the act of June 22, 1935 (P.L.414, No.182), known as the
27 "State Personal Property Tax Act," or Articles IV or VI of this
28 act.
29 "Research tax credit." The credit provided under this
30 article.
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1 "Secretary." The Secretary of Revenue of the Commonwealth.
2 "Taxpayer." An entity subject to tax under the act of June
3 22, 1935 (P.L.414, No.182), known as the "State Personal
4 Property Tax Act," or Articles IV or VI of this act.
5 Section 1702-B. Credit for Research Expense.--(a) A
6 taxpayer who incurs Pennsylvania qualified research expense in a
7 particular taxable year is entitled to a research tax credit as
8 provided in this article.
9 (b) A taxpayer who is qualified under subsection (a) of this
10 section shall receive a research tax credit for the taxable year
11 in the amount of ten per cent multiplied by the remainder of the
12 taxpayer's total Pennsylvania qualified research expenses for
13 the taxable year, minus the taxpayer's Pennsylvania base amount.
14 Section 1703-B. Amount of Credit; Carryover and Carryback of
15 Credit; Refund of Credit.--(a) The amount of the credit
16 provided by this article that a taxpayer uses during a
17 particular taxable year may not exceed fifty per cent of the
18 qualified tax liability for the taxable year. If the credit
19 provided by this article exceeds fifty per cent of the qualified
20 tax liability for the taxable year for which the credit is first
21 claimed, then the excess may be carried over to succeeding
22 taxable years and used as a credit against the qualified tax
23 liability otherwise due and payable by the taxpayer during those
24 taxable years; provided that the total amount of credit used in
25 any tax year may not exceed fifty per cent of the qualified tax
26 liability for that taxable year. Each time that the credit is
27 carried over to a succeeding taxable year, it is to be reduced
28 by the amount which was used as a credit during the immediately
29 preceding taxable year. The credit provided by this article may
30 be carried forward and applied to succeeding taxable years for
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1 not more than seven taxable years following the unused credit
2 year.
3 (b) A credit earned by a taxpayer in a particular taxable
4 year shall be applied against the taxpayer's qualified tax
5 liability for that taxable year before any credit carryover is
6 applied against that liability under subsection (a) of this
7 section.
8 (c) A taxpayer is not entitled to any carryback or refund of
9 any unused credit.
10 Section 1704-B. Application of Internal Revenue Code.--The
11 provisions of section 41 of the Internal Revenue Code and the
12 regulations promulgated in respect to those provisions are
13 applicable to the interpretation and administration by the
14 department of the credit provided by this article.
15 Section 1705-B. Determination of Qualified Research
16 Expenses.--In prescribing standards for determining which
17 qualified research expenses are considered Pennsylvania
18 qualified research expenses for purposes of computing the credit
19 provided by this article, the department may consider:
20 (1) the place where the services are performed;
21 (2) the residence or business location of the person or
22 persons performing the service;
23 (3) the place where qualified research supplies are
24 consumed; and
25 (4) other factors that the department determines are
26 relevant for the determination.
27 Section 1706-B. Time Limitations.--Notwithstanding the other
28 provisions of this article, a taxpayer is not entitled to a
29 credit for Pennsylvania qualified research expense incurred in
30 tax years beginning after December 31, 2002. Notwithstanding
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1 section 41 of the Internal Revenue Code, the termination date in
2 section 41(h) of the Internal Revenue Code does not apply to a
3 taxpayer who is eligible for the credit under this article for
4 the taxable year in which the Pennsylvania qualified research
5 expense is incurred.
6 Section 1707-B. Transitional Rule.--(a) For the purpose of
7 calculating Pennsylvania qualified research expenses used in
8 calculating the Pennsylvania base amount for taxable years from
9 1992-1995, inclusive, if the taxpayer has qualified research
10 expenses within and without Pennsylvania and is unable to
11 determine the amount of Pennsylvania qualified research
12 expenses, the taxpayer may make a substitute calculation as
13 provided in subsection (b) of this section.
14 (b) As provided in subsection (a) of this section, the
15 secretary may allow the taxpayer to calculate Pennsylvania
16 qualified research expenses by multiplying qualified research
17 expenses everywhere by the average of the payroll and property
18 factors calculated in accordance with Article IV of this act for
19 the corresponding years in question.
20 Section 1708-B. Limitation on Credits.--(a) The total
21 amount of credits authorized by this article and awarded by the
22 secretary shall not exceed ten millions dollars ($10,000,000) in
23 any taxable year. For the purposes of this section, the term
24 "taxable year" shall mean the fiscal year of every taxpayer
25 which begins in a specified calendar year.
26 (b) The secretary shall adopt such procedures as may be
27 necessary for the administration of this section to insure that
28 the limits provided in subsection (a) are not exceeded. These
29 procedures may, at the discretion of the secretary, include
30 provisions for an estimated award of credit and adjustments in
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1 the awards based on settled tax returns.
2 (c) Notwithstanding any other provision of law, a taxpayer
3 who has an unpaid qualified tax liability due to a change in the
4 amount of credit awarded by the secretary and who pays that
5 liability within 45 days of being notified by the department of
6 such liability shall not be liable for any interest or penalty
7 with respect to that unpaid qualified tax liability.
8 Section 2. The Secretary of Revenue shall submit a report to
9 the General Assembly indicating the effectiveness of the credit
10 provided by this act no later than May 1, 2002. Such report
11 shall include the change in research activities in Pennsylvania
12 since the credit was authorized, the number of taxpayers
13 utilizing the credit as of the date of the report, the amount of
14 credits earned and utilized, and estimates of the number and
15 annual earnings of jobs which can be directly attributed to the
16 existence of the credit provided by this act. The report should
17 also include any recommendations for changes in the calculation
18 or administration of the credit.
19 Section 3. This act shall apply to tax years beginning on or
20 after January 1, 1997.
21 Section 4. This act shall be retroactive to January 1, 1997.
22 Section 5. This act shall take effect immediately.
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