PRIOR PRINTER'S NO. 1859 PRINTER'S NO. 3006
No. 1472 Session of 2003
INTRODUCED BY J. TAYLOR, ADOLPH, BARRAR, BUNT, CAPPELLI,
CORRIGAN, CRAHALLA, DALLY, FICHTER, HORSEY, LAUGHLIN,
LEDERER, LEH, LEWIS, McILHATTAN, S. MILLER, PHILLIPS,
REICHLEY, R. STEVENSON, E. Z. TAYLOR, WATSON AND YOUNGBLOOD,
MAY 29, 2003
AS REPORTED FROM COMMITTEE ON FINANCE, HOUSE OF REPRESENTATIVES,
AS AMENDED, NOVEMBER 24, 2003
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," adding definitions; and further providing for the
11 capital stock franchise tax.
12 The General Assembly of the Commonwealth of Pennsylvania
13 hereby enacts as follows:
14 Section 1. Section 601(a) of the act of March 4, 1971
15 (P.L.6, No.2), known as the Tax Reform Code of 1971, is amended
16 by adding definitions to read:
17 Section 601. Definitions and Reports.--(a) The following
18 words, terms and phrases when used in this Article VI shall have
19 the meaning ascribed to them in this section, except where the
20 context clearly indicates a different meaning:
1 * * *
2 "Exchange-related activities." Include the activities: <--
3 (1) of:
4 (i) acting as a market maker, specialist, broker, floor
5 broker, introducing broker, dealer, floor trader, futures
6 commission merchant, commodity trading advisory, commodity pool
7 operator, or foreign currency option participant or in a similar
8 capacity that is registered with the Securities Exchange
9 Commission, the Pennsylvania Securities Commission or the
10 Commodity Futures Trading Commission;
11 (ii) otherwise dealing in, trading or hedging securities,
12 municipal securities, commodities, futures, options, hybrid
13 instruments, derivative security products, derivative commodity
14 products, security futures, security futures products, foreign
15 currencies or foreign currency derivative products; or
16 (iii) performing clearing or settlement functions in
17 securities, commodities, futures, options, hybrid instruments,
18 derivative security products, derivative commodity products,
19 security futures, security futures products, foreign currencies
20 or foreign currency derivative products;
21 and
22 (2) on or through a national securities exchange, a
23 registered securities association, a registered clearing agency,
24 a foreign financial regulatory authority, a facility, a trading
25 facility, an alternative trading system, an electronic
26 communications network, an electronic trading facility, a
27 designated contract market, a derivatives transaction execution
28 facility, a derivatives clearing organization or clearing house
29 or similar trading market or facility. The terms "market maker,"
30 "specialist," "national securities exchange," "registered
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1 securities association," "foreign financial regulatory
2 authority," "facility," "registered clearing agency,"
3 "alternative trading system," "electronic communications
4 network," "security," "broker," "dealer," "security future" and
5 "security futures product" shall have the same meaning as set
6 forth under the Securities Exchange Act of 1934 (15 U.S.C. § 78a
7 et seq.), as amended, and the rules promulgated thereunder. The
8 terms "commodity," "future," "option," "hybrid instrument,"
9 "floor broker," "introducing broker," "floor trader," "trading
10 facility," "electronic trading facility," "futures commission
11 merchant," "commodity trading advisor," "commodity pool
12 operator," "designated contract market," "derivatives
13 transaction execution facility" and "derivatives clearing
14 organization" shall have the same meaning as set forth under the
15 Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended, The
16 Municipal Securities Rulemaking Board and the rules promulgated
17 thereunder.
18 "Exchange-related assets." Tangible and intangible assets
19 used in exchange-related activities. Exchange-related assets
20 include all of the following, whether dealt, traded or used as
21 hedges in connection with securities exchange activities:
22 securities, municipal securities, commodities, futures, options,
23 hybrid instruments, derivative security products, derivative
24 commodity products, security futures, security futures products,
25 foreign currencies, foreign currency derivative products,
26 exchange memberships and cash and deposits to the extent such
27 cash and deposits are used in or to support exchange-related
28 activities. Exchange-related assets of an entity shall be deemed
29 to include:
30 (1) Any exchange-related assets of any direct or indirect
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1 subsidiary of the entity.
2 (2) Any receivable resulting from a loan to another entity
3 of funds or other assets for use in exchange-related activities,
4 to the extent that the value of such exchange-related assets is
5 reflected in the value of assets held by the entity.
6 "EXCHANGE-RELATED ACTIVITIES." ACTIVITIES WHICH ARE ALL OF <--
7 THE FOLLOWING:
8 (1) CONDUCTED BY:
9 (I) A MARKET MAKER, SPECIALIST OR FLOOR BROKER THAT IS
10 REGISTERED WITH THE UNITED STATES SECURITIES EXCHANGE COMMISSION
11 OR THE COMMODITIES FUTURES TRADING COMMISSION; OR
12 (II) A PERSON PERFORMING REGISTERED CLEARING OR SETTLEMENT
13 FUNCTIONS WITH RESPECT TO SECURITIES.
14 (2) OCCURS ON OR THROUGH A NATIONAL SECURITIES EXCHANGE, A
15 REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY, DESIGNATED
16 COMMODITIES MARKET, FOREIGN FINANCIAL AUTHORITY OR A REGISTERED
17 ELECTRONIC TRADING, EXECUTION, MARKET OR CLEARING FACILITY FOR
18 SECURITIES AS THESE TERMS ARE DEFINED IN THE SECURITIES EXCHANGE
19 ACT OF 1934 (48 STAT. 881, 15 U.S.C. § 78A ET SEQ.) AND THE
20 COMMODITY EXCHANGE ACT (42 STAT. 988, 7 U.S.C. § 1 ET SEQ.).
21 "EXCHANGE-RELATED ASSET." A TANGIBLE OR INTANGIBLE ASSET TO
22 THE EXTENT THAT IT IS USED IN EXCHANGE-RELATED ACTIVITIES. THE
23 TERM INCLUDES SECURITIES USED IN CONNECTION WITH EXCHANGE-
24 RELATED ACTIVITIES; EXCHANGE MEMBERSHIPS; CASH AND DEPOSITS USED
25 IN SUPPORT OF EXCHANGE-RELATED ACTIVITIES; INVESTMENTS IN
26 ORGANIZATIONS TO THE EXTENT THAT THE ORGANIZATIONS USE THE
27 INVESTMENT AS EXCHANGE-RELATED ASSETS; AND DEBT EXTENDED BY A
28 LENDER UNDER COMMON CONTROL WITH THE BORROWER IF THE FUNDS
29 BORROWED ARE USED AS EXCHANGE-RELATED ASSETS.
30 * * *
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1 "SECURITIES." A SECURITY, MUNICIPAL SECURITY, FINANCIAL
2 INSTRUMENT, COMMODITY, CURRENCY, OPTION OR FUTURE AS THOSE TERMS
3 ARE DEFINED IN THE SECURITIES EXCHANGE ACT OF 1934 (48 STAT.
4 881, 15 U.S.C. § 78A ET SEQ.) AND THE COMMODITY EXCHANGE ACT (42
5 STAT. 988, 7 U.S.C. § 1 ET SEQ.).
6 * * *
7 Section 2. Section 602(a) of the act, amended May 24, 2000
8 (P.L.106, No.23), is amended and the section is amended by <--
9 adding a subsection to read:
10 Section 602. Imposition of Tax.--(a) That every domestic <--
11 entity from which a report is required under section 601 hereof
12 shall be subject to, and pay to the department annually, a tax
13 which is the amount computed by multiplying each dollar of the
14 capital stock value as defined in section 601(a) by the
15 appropriate rate of tax as set forth in subsection (h); except
16 that any domestic entity or company subject to the tax
17 prescribed herein may elect to compute and pay its tax under and
18 in accordance with the provisions of subsection (b) of this
19 section 602: Provided, That the provisions of this section shall
20 not apply to the taxation of the capital stock of entities
21 organized for manufacturing, processing, research or development
22 purposes, which is invested in and actually and exclusively
23 employed in carrying on manufacturing, processing, research or
24 development within the State, except such entities as enjoy and
25 exercise the right of eminent domain, but every entity organized
26 for the purpose of manufacturing, processing, research or
27 development except such entities as enjoy and exercise the right
28 of eminent domain shall pay the State tax of the amount computed
29 by multiplying each dollar of the capital stock value as defined
30 in section 601(a) by the appropriate rate of tax as set forth in
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1 subsection (h) upon such proportion of its capital stock, if
2 any, as may be invested in any property or business not strictly
3 incident or appurtenant to the manufacturing, processing,
4 research or development business, in addition to the local taxes
5 assessed upon its property in the district where located, it
6 being the object of this provision to relieve from State
7 taxation only so much of the capital stock as is invested purely
8 in the manufacturing, processing, research or development plant
9 and business: [and] Provided further, That the provisions of
10 this section shall not apply to the taxation of so much of the
11 capital stock value attributable to student loan assets owned or
12 held by an entity created for the securitization of student
13 loans or by a trustee on its behalf[.]: and Provided further,
14 That the provisions of this section shall not apply to the
15 taxation of so much of the capital stock value of an entity
16 attributable to exchange-related assets calculated by including
17 exchange-related assets as assets relieved from taxation under
18 the act of June 22, 1931 (P.L.685, No.250), entitled "An act
19 providing for the settlement of capital stock tax in the cases
20 of corporations, joint-stock associations, limited partnerships,
21 and companies which own assets which are exempted or relieved
22 from capital stock tax."
23 * * *
24 (b.1) The capital stock value before apportionment of an
25 entity subject to the capital stock or franchise tax shall not
26 include that portion of the entity's capital stock value
27 attributable to exchange-related assets. The portion of capital
28 stock value attributable to exchange-related assets shall be
29 calculated by multiplying the entity's capital stock value,
30 otherwise determined under section 601, times the value of
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1 exchange-related assets over the value of all assets. An entity
2 may apportion its capital stock value after the exclusion
3 provided hereunder, as provided by law.
4 SECTION 602. IMPOSITION OF TAX.--(A) THAT EVERY DOMESTIC <--
5 ENTITY FROM WHICH A REPORT IS REQUIRED UNDER SECTION 601 HEREOF
6 SHALL BE SUBJECT TO, AND PAY TO THE DEPARTMENT ANNUALLY, A TAX
7 WHICH IS THE AMOUNT COMPUTED BY MULTIPLYING EACH DOLLAR OF THE
8 CAPITAL STOCK VALUE AS DEFINED IN SECTION 601(A) BY THE
9 APPROPRIATE RATE OF TAX AS SET FORTH IN SUBSECTION (H); EXCEPT
10 THAT ANY DOMESTIC ENTITY OR COMPANY SUBJECT TO THE TAX
11 PRESCRIBED HEREIN MAY ELECT TO COMPUTE AND PAY ITS TAX UNDER AND
12 IN ACCORDANCE WITH THE PROVISIONS OF SUBSECTION (B) OF THIS
13 SECTION 602: PROVIDED, THAT THE PROVISIONS OF THIS SECTION SHALL
14 NOT APPLY TO THE TAXATION OF THE CAPITAL STOCK OF ENTITIES
15 ORGANIZED FOR MANUFACTURING, PROCESSING, RESEARCH OR DEVELOPMENT
16 PURPOSES, WHICH IS INVESTED IN AND ACTUALLY AND EXCLUSIVELY
17 EMPLOYED IN CARRYING ON MANUFACTURING, PROCESSING, RESEARCH OR
18 DEVELOPMENT WITHIN THE STATE, EXCEPT SUCH ENTITIES AS ENJOY AND
19 EXERCISE THE RIGHT OF EMINENT DOMAIN, BUT EVERY ENTITY ORGANIZED
20 FOR THE PURPOSE OF MANUFACTURING, PROCESSING, RESEARCH OR
21 DEVELOPMENT EXCEPT SUCH ENTITIES AS ENJOY AND EXERCISE THE RIGHT
22 OF EMINENT DOMAIN SHALL PAY THE STATE TAX OF THE AMOUNT COMPUTED
23 BY MULTIPLYING EACH DOLLAR OF THE CAPITAL STOCK VALUE AS DEFINED
24 IN SECTION 601(A) BY THE APPROPRIATE RATE OF TAX AS SET FORTH IN
25 SUBSECTION (H) UPON SUCH PROPORTION OF ITS CAPITAL STOCK, IF
26 ANY, AS MAY BE INVESTED IN ANY PROPERTY OR BUSINESS NOT STRICTLY
27 INCIDENT OR APPURTENANT TO THE MANUFACTURING, PROCESSING,
28 RESEARCH OR DEVELOPMENT BUSINESS, IN ADDITION TO THE LOCAL TAXES
29 ASSESSED UPON ITS PROPERTY IN THE DISTRICT WHERE LOCATED, IT
30 BEING THE OBJECT OF THIS PROVISION TO RELIEVE FROM STATE
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1 TAXATION ONLY SO MUCH OF THE CAPITAL STOCK AS IS INVESTED PURELY
2 IN THE MANUFACTURING, PROCESSING, RESEARCH OR DEVELOPMENT PLANT
3 AND BUSINESS: [AND] PROVIDED FURTHER, THAT THE PROVISIONS OF
4 THIS SECTION SHALL NOT APPLY TO THE TAXATION OF SO MUCH OF THE
5 CAPITAL STOCK VALUE ATTRIBUTABLE TO STUDENT LOAN ASSETS OWNED OR
6 HELD BY AN ENTITY CREATED FOR THE SECURITIZATION OF STUDENT
7 LOANS OR BY A TRUSTEE ON ITS BEHALF[.]; AND PROVIDED FURTHER,
8 THAT THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO THE
9 TAXATION OF SO MUCH OF THE CAPITAL STOCK VALUE OF AN ENTITY
10 ATTRIBUTABLE TO EXCHANGE-RELATED ASSETS CALCULATED BY INCLUDING
11 EXCHANGE RELATED ASSETS AS ASSETS RELIEVED FROM TAXATION UNDER
12 THE ACT OF JUNE 22, 1931 (P.L.685, NO.250), ENTITLED "AN ACT
13 PROVIDING FOR THE SETTLEMENT OF CAPITAL STOCK TAX IN THE CASES
14 OF CORPORATIONS, JOINT-STOCK ASSOCIATIONS, LIMITED PARTNERSHIPS,
15 AND COMPANIES WHICH OWN ASSETS WHICH ARE EXEMPTED OR RELIEVED
16 FROM CAPITAL STOCK TAX."
17 * * *
18 Section 3. This act shall apply retroactively to tax years
19 beginning on or after January 1, 2003.
20 Section 4. This act shall take effect immediately.
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