PRINTER'S NO. 1725
No. 1378 Session of 2007
INTRODUCED BY LEVDANSKY, DeWEESE, McCALL AND D. EVANS,
MAY 29, 2007
REFERRED TO COMMITTEE ON FINANCE, MAY 29, 2007
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, in corporate net income tax,
11 for definitions, for reports and payment and for consolidated
12 reports; and further providing, in general provisions, for
13 underpayment of estimated tax.
14 The General Assembly of the Commonwealth of Pennsylvania
15 hereby enacts as follows:
16 Section 1. Section 401(3)1(a) and (b), 2(a) and 4(c) and (5)
17 of the act of March 4, 1971 (P.L.6, No.2), known as the Tax
18 Reform Code of 1971, amended or added December 23, 1983
19 (P.L.370, No.90), July 1, 1985 (P.L.78, No.29), August 4, 1991
20 (P.L.97, No.22), May 12, 1999 (P.L.26, No.4), June 22, 2001
21 (P.L.353, No.23), June 29, 2002 (P.L.559, No.89) and July 12,
22 2006 (P.L.1137, No.116) are amended, clause (3)2 is amended by
23 adding a phrase and the section is amended by adding clauses to
1 read:
2 Section 401. Definitions.--The following words, terms, and
3 phrases, when used in this article, shall have the meaning
4 ascribed to them in this section, except where the context
5 clearly indicates a different meaning:
6 * * *
7 (3) "Taxable income." 1. (a) In case the entire business
8 of the corporation is transacted within this Commonwealth, for
9 any taxable year which begins on or after January 1, 1971,
10 taxable income for the calendar year or fiscal year as returned
11 to and ascertained by the Federal Government, or in the case of
12 a corporation participating in the filing of consolidated
13 returns to the Federal Government or that is not required to
14 file a return with the Federal Government, the taxable income
15 which would have been returned to and ascertained by the Federal
16 Government if separate returns had been made to the Federal
17 Government for the current and prior taxable years, subject,
18 however, to any correction thereof, for fraud, evasion, or error
19 as finally ascertained by the Federal Government.
20 (b) Additional deductions shall be allowed from taxable
21 income on account of any dividends received from any other
22 corporation but only to the extent that such dividends are
23 included in taxable income as returned to and ascertained by the
24 Federal Government. For tax years beginning on or after January
25 1, 1991, additional deductions shall only be allowed for amounts
26 included, under section 78 of the Internal Revenue Code of 1986
27 (Public Law 99-514, 26 U.S.C. § 78), in taxable income returned
28 to and ascertained by the Federal Government and for the amount
29 of any dividends received from a foreign corporation included in
30 taxable income to the extent such dividends would be deductible
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1 in arriving at Federal taxable income if received from a
2 domestic corporation. For taxable years beginning on or after
3 January 1, 2009, if not otherwise allowed as a deduction, an
4 additional deduction is allowed for all dividends paid by one to
5 another of the included corporations of a unitary business to
6 the extent those dividends are included in business income of a
7 corporation that is required to determine its business income
8 pursuant to paragraph (1) of phrase (e) of subclause (2).
9 * * *
10 2. In case the entire business of any corporation, other
11 than a corporation engaged in doing business as a regulated
12 investment company as defined by the Internal Revenue Code of
13 1986, is not transacted within this Commonwealth, the tax
14 imposed by this article shall be based upon such portion of the
15 taxable income of such corporation for the fiscal or calendar
16 year, as defined in subclause 1 hereof, and may be determined as
17 follows:
18 (a) Division of Income.
19 (1) As used in this definition, unless the context otherwise
20 requires:
21 (A) "Business income" means income arising from transactions
22 and activity in the regular course of the taxpayer's trade or
23 business and includes income from tangible and intangible
24 property if either the acquisition, the management or the
25 disposition of the property constitutes an integral part of the
26 taxpayer's regular trade or business operations. The term
27 includes all income which is apportionable under the
28 Constitution of the United States.
29 (B) "Commercial domicile" means the principal place from
30 which the trade or business of the taxpayer is directed or
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1 managed.
2 (C) "Compensation" means wages, salaries, commissions and
3 any other form of remuneration paid to employes for personal
4 services.
5 (D) "Nonbusiness income" means all income other than
6 business income. The term does not include income which is
7 apportionable under the Constitution of the United States.
8 (E) "Sales" means all gross receipts of the taxpayer not
9 allocated under this definition other than dividends received,
10 interest on United States, state or political subdivision
11 obligations and gross receipts heretofore or hereafter received
12 from the sale, redemption, maturity or exchange of securities,
13 except those held by the taxpayer primarily for sale to
14 customers in the ordinary course of its trade or business.
15 (F) "State" means any state of the United States, the
16 District of Columbia, the Commonwealth of Puerto Rico, any
17 territory or possession of the United States, and any foreign
18 country or political subdivision thereof.
19 (G) "This state" means the Commonwealth of Pennsylvania or,
20 in the case of application of this definition to the
21 apportionment and allocation of income for local tax purposes,
22 the subdivision or local taxing district in which the relevant
23 tax return is filed.
24 (2) Any taxpayer having income from business activity which
25 is taxable both within and without this State other than
26 activity as a corporation whose allocation and apportionment of
27 income is specifically provided for in section 401(3)2(b)(c) and
28 (d) shall allocate and apportion taxable income as provided in
29 this definition.
30 (3) For purposes of allocation and apportionment of income
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1 under this definition, a taxpayer is taxable in another state if
2 in that state the taxpayer is subject to a net income tax, a
3 franchise tax measured by net income, a franchise tax for the
4 privilege of doing business, or a corporate stock tax or if that
5 state has jurisdiction to subject the taxpayer to a net income
6 tax regardless of whether, in fact, the state does or does not.
7 (4) Rents and royalties from real or tangible personal
8 property, gains, interest, patent or copyright royalties, to the
9 extent that they constitute nonbusiness income, shall be
10 allocated as provided in paragraphs (5) through (8).
11 (5) (A) Net rents and royalties from real property located
12 in this State are allocable to this State.
13 (B) Net rents and royalties from tangible personal property
14 are allocable to this State if and to the extent that the
15 property is utilized in this State, or in their entirety if the
16 taxpayer's commercial domicile is in this State and the taxpayer
17 is not organized under the laws of or taxable in the state in
18 which the property is utilized.
19 (C) The extent of utilization of tangible personal property
20 in a state is determined by multiplying the rents and royalties
21 by a fraction, the numerator of which is the number of days of
22 physical location of the property in the state during the rental
23 or royalty period in the taxable year and the denominator of
24 which is the number of days of physical location of the property
25 everywhere during all rental or royalty periods in the taxable
26 year. If the physical location of the property during the rental
27 or royalty period is unknown or unascertainable by the taxpayer,
28 tangible personal property is utilized in the state in which the
29 property was located at the time the rental or royalty payer
30 obtained possession.
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1 (6) (A) Gains and losses from sales or other disposition of
2 real property located in this State are allocable to this State.
3 (B) Gains and losses from sales or other disposition of
4 tangible personal property are allocable to this State if the
5 property had a situs in this State at the time of the sale, or
6 the taxpayer's commercial domicile is in this State and the
7 taxpayer is not taxable in the state in which the property had a
8 situs.
9 (C) Gains and losses from sales or other disposition of
10 intangible personal property are allocable to this State if the
11 taxpayer's commercial domicile is in this State.
12 (7) Interest is allocable to this State if the taxpayer's
13 commercial domicile is in this State.
14 (8) (A) Patent and copyright royalties are allocable to
15 this State if and to the extent that the patent or copyright is
16 utilized by the payer in this State, or if and to the extent
17 that the patent copyright is utilized by the payer in a state in
18 which the taxpayer is not taxable and the taxpayer's commercial
19 domicile is in this State.
20 (B) A patent is utilized in a state to the extent that it is
21 employed in production, fabrication, manufacturing, or other
22 processing in the state or to the extent that a patented product
23 is produced in the state. If the basis of receipts from patent
24 royalties does not permit allocation to states or if the
25 accounting procedures do not reflect states of utilization, the
26 patent is utilized in the state in which the taxpayer's
27 commercial domicile is located.
28 (C) A copyright is utilized in a state to the extent that
29 printing or other publication originates in the state. If the
30 basis of receipts from copyright royalties does not permit
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1 allocation to states or if the accounting procedures do not
2 reflect states of utilization, the copyright is utilized in the
3 state in which the taxpayer's commercial domicile is located.
4 (9) (A) Except as provided in subparagraph (B):
5 (i) For taxable years beginning before January 1, 2007, all
6 business income shall be apportioned to this State by
7 multiplying the income by a fraction, the numerator of which is
8 the property factor plus the payroll factor plus three times the
9 sales factor and the denominator of which is five.
10 (ii) For taxable years beginning after December 31, 2006,
11 all business income shall be apportioned to this State by
12 multiplying the income by a fraction, the numerator of which is
13 the sum of fifteen times the property factor, fifteen times the
14 payroll factor and seventy times the sales factor and the
15 denominator of which is one hundred.
16 (B) For purposes of apportionment of the capital stock -
17 franchise tax as provided in section 602 of Article VI of this
18 act, the apportionment fraction shall be the property factor
19 plus the payroll factor plus the sales factor as the numerator,
20 and the denominator shall be three.
21 (10) The property factor is a fraction, the numerator of
22 which is the average value of the taxpayer's real and tangible
23 personal property owned or rented and used in this State during
24 the tax period and the denominator of which is the average value
25 of all the taxpayer's real and tangible personal property owned
26 or rented and used during the tax period but shall not include
27 the security interest of any corporation as seller or lessor in
28 personal property sold or leased under a conditional sale,
29 bailment lease, chattel mortgage or other contract providing for
30 the retention of a lien or title as security for the sales price
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1 of the property.
2 (11) Property owned by the taxpayer is valued at its
3 original cost. Property rented by the taxpayer is valued at
4 eight times the net annual rental rate. Net annual rental rate
5 is the annual rental rate paid by the taxpayer less any annual
6 rental rate received by the taxpayer from subrentals.
7 (12) The average value of property shall be determined by
8 averaging the values at the beginning and ending of the tax
9 period but the tax administrator may require the averaging of
10 monthly values during the tax period if reasonably required to
11 reflect properly the average value of the taxpayer's property.
12 (13) The payroll factor is a fraction, the numerator of
13 which is the total amount paid in this State during the tax
14 period by the taxpayer for compensation and the denominator of
15 which is the total compensation paid everywhere during the tax
16 period.
17 (14) Compensation is paid in this State if:
18 (A) The individual's service is performed entirely within
19 the State;
20 (B) The individual's service is performed both within and
21 without this State, but the service performed without the State
22 is incidental to the individual's service within this State; or
23 (C) Some of the service is performed in this State and the
24 base of operations or if there is no base of operations, the
25 place from which the service is directed or controlled is in
26 this State, or the base of operations or the place from which
27 the service is directed or controlled is not in any state in
28 which some part of the service is performed, but the
29 individual's residence is in this State.
30 (15) The sales factor is a fraction, the numerator of which
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1 is the total sales of the taxpayer in this State during the tax
2 period, and the denominator of which is the total sales of the
3 taxpayer everywhere during the tax period.
4 (16) Sales of tangible personal property are in this State
5 if the property is delivered or shipped to a purchaser, within
6 this State regardless of the f.o.b. point or other conditions of
7 the sale.
8 (17) Sales, other than sales of tangible personal property
9 and sales set forth in paragraphs (17.1) and (17.2), are in this
10 State if:
11 (A) The income-producing activity is performed in this
12 State; or
13 (B) The income-producing activity is performed both in and
14 outside this State and a greater proportion of the income-
15 producing activity is performed in this State than in any other
16 state, based on costs of performance.
17 (17.1) Sales of services are in this State if sales are
18 derived from customers within this State. If part of the sales
19 with respect to a specific contract or other agreement to
20 perform services is derived from customers from within this
21 State, sales are in this State in proportion to the sales
22 derived from customers within this State to total sales with
23 respect to that contract or agreement.
24 (17.2) In order to determine sales in this State of any
25 railroad, truck, bus, airline, pipeline, natural gas or water
26 transportation company that is required to determine its
27 business income pursuant to paragraph (1) of phrase (e) of this
28 subclause such company must convert the relevant fraction set
29 forth in phrase (b), (c) or (d) of this subclause to gross
30 receipts. Sales in this State are the result of multiplying
20070H1378B1725 - 9 -
1 total gross receipts from relevant transportation activities by
2 the decimal equivalent of the relevant fraction set forth in
3 phrase (b), (c) or (d) of this subclause.
4 (18) If the allocation and apportionment provisions of this
5 definition do not fairly represent the extent of the taxpayer's
6 business activity in this State, the taxpayer may petition the
7 Secretary of Revenue or the Secretary of Revenue may require, in
8 respect to all or any part of the taxpayer's business activity:
9 (A) Separate accounting;
10 (B) The exclusion of any one or more of the factors;
11 (C) The inclusion of one or more additional factors which
12 will fairly represent the taxpayer's business activity in this
13 State; or
14 (D) The employment of any other method to effectuate an
15 equitable allocation and apportionment of the taxpayer's income.
16 In determining the fairness of any allocation or apportionment,
17 the Secretary of Revenue may give consideration to the
18 taxpayer's previous reporting and its consistency with the
19 requested relief.
20 * * *
21 (e) Corporations That are Members of a Unitary Business.
22 (1) Notwithstanding any contrary provisions of this article,
23 for taxable years that begin on or after January 1, 2009,
24 business income of a corporation that is a member of a unitary
25 business that consists of two or more corporations, at least one
26 of which does not transact its entire business in this State, is
27 determined by combining the business income of either all
28 corporations, other than as set forth below, that are water's-
29 edge basis members or all corporations, other than as set forth
30 below, that are worldwide members of the unitary business.
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1 Business income from an intercompany transaction between
2 included corporations of a unitary business shall be deferred in
3 the manner set forth under 26 CFR 1.1502-13 (relating to
4 intercompany transactions) in determining the business income of
5 a corporation that is a member of that unitary business.
6 Business income of the following corporations is not included in
7 the determination of combined business income:
8 (i) any corporation subject to taxation under Article VII,
9 VIII, IX or XV;
10 (ii) any corporation specified in the definition of
11 "institution" in section 701.5 that would be subject to taxation
12 under Article VII were it located, as defined in section 701.5,
13 in this State;
14 (iii) any corporation commonly known as a title insurance
15 company that would be subject to taxation under Article VIII
16 were it incorporated in this State;
17 (iv) any corporation specified as an insurance company,
18 association or exchange in Article IX that would be subject to
19 taxation under Article IX were its insurance business transacted
20 in this State;
21 (v) any corporation specified in the definition of
22 "institution" in section 1501 that would be subject to taxation
23 under Article XV were it located, as defined in section 1501, in
24 this State; or
25 (vi) any corporation that is a small corporation, as defined
26 in section 301(s.2), or a qualified Subchapter S subsidiary, as
27 defined in section 301(o.3).
28 (2) Notwithstanding any contrary provisions of this article,
29 all corporations that are required to compute business income
30 under paragraph (1) are entitled to apportion such business
20070H1378B1725 - 11 -
1 income when one corporation of the same unitary business is
2 entitled to apportion such business income. Notwithstanding any
3 contrary provisions of this article, for taxable years that
4 begin on or after January 1, 2009, the denominator of the
5 apportionment fraction of a corporation that is required to
6 compute its business income under paragraph (1) shall be
7 computed on a combined basis for all included corporations of
8 the unitary business. Gross receipts from an intercompany
9 transaction between included corporations of a unitary business
10 are eliminated unless the gross receipts are derived from
11 transactions that are deferred in the manner set forth under 26
12 CFR 1.1502-13 in computing the numerator and denominator of the
13 apportionment fraction of a corporation that is required to
14 compute its business income under paragraph (1). Gross receipts
15 from transactions that had been deferred in the manner set forth
16 in 26 CFR 1.1502-13 are included in a corporation's
17 apportionment fraction during the same taxable year that it
18 realizes business income that had been deferred due to the
19 transaction. The apportionment fraction of the following
20 corporations is not included in the determination of the
21 combined apportionment fraction:
22 (i) any corporation subject to taxation under Article VII,
23 VIII, IX or XV;
24 (ii) any corporation specified in the definition of
25 "institution" in section 701.5 that would be subject to taxation
26 under Article VII were it located, as defined in section 701.5,
27 in this State;
28 (iii) any corporation commonly known as a title insurance
29 company that would be subject to taxation under Article VIII
30 were it incorporated in this State;
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1 (iv) any corporation specified as an insurance company,
2 association or exchange in Article IX that would be subject to
3 taxation under Article IX were its insurance business transacted
4 in this State;
5 (v) any corporation specified in the definition of
6 "institution" in section 1501 that would be subject to taxation
7 under Article XV were it located, as defined in section 1501, in
8 this State;
9 (vi) any corporation that is a small corporation, as defined
10 in section 301(s.2), or a qualified Subchapter S subsidiary, as
11 defined in section 301(o.3).
12 (3) A corporation that is required to compute its business
13 income under paragraph (1) shall apportion such combined
14 business income by multiplying such combined business income by
15 a fraction which is the combined apportionment fraction set
16 forth in paragraph (2).
17 (4) Nonbusiness income of a corporation that is required to
18 compute business income under paragraph (1) shall be allocated
19 as provided in paragraphs (5) through (8) of phrase (a) of
20 subclause 2 of the definition of "taxable income."
21 (5) Each corporation that is a member of a unitary business
22 that consists of two or more corporations determines its tax
23 liability based on its apportioned share of the combined
24 business income of the unitary business plus its nonbusiness
25 income or loss allocated to this State, minus its net loss
26 deduction.
27 (6) If any provision of this phrase operates so that an
28 amount is added to or deducted from taxable income for a taxable
29 year for any corporation of a unitary business that previously
30 had been added to or deducted from taxable income of any
20070H1378B1725 - 13 -
1 corporation of the same unitary business, an appropriate
2 adjustment shall be made for the taxable year in order to
3 prevent double taxation or double deduction. If this adjustment
4 is not made by the appropriate corporation of the unitary
5 business, the Secretary of Revenue is authorized to make this
6 adjustment.
7 (7) The Secretary of Revenue has the authority and
8 responsibility to make adjustments to insure that a corporation
9 does not incur an unfair penalty nor realize an unfair benefit
10 because it is required to compute its business income under
11 paragraph (1). Fairness shall be measured by whether the
12 corporation's income allocated and apportioned to this State
13 fairly reflects the corporation's share of the unitary business
14 conducted in this State in the taxable year.
15 * * *
16 4. * * *
17 (c) (1) The net loss deduction shall be the lesser of:
18 (A) (I) For taxable years beginning before January 1, 2007,
19 two million dollars ($2,000,000)[;] or the amount of the net
20 loss or losses which may be carried over to the taxable year or
21 taxable income as determined under subclause 1 or, if
22 applicable, subclause 2;
23 (II) For taxable years beginning after December 31, 2006,
24 the greater of twelve and one-half per cent of taxable income as
25 determined under subclause 1 or, if applicable, subclause 2 or
26 three million dollars ($3,000,000)[; or] or the amount of the
27 net loss or losses which may be carried over to the taxable year
28 or taxable income as determined under subclause 1 or, if
29 applicable, subclause 2; or
30 (B) The amount of the net loss or losses which may be
20070H1378B1725 - 14 -
1 carried over to the taxable year or taxable income as determined
2 under subclause 1 or, if applicable, subclause 2.
3 (1.1) In no event shall the net loss deduction include more
4 than five hundred thousand dollars ($500,000), in the aggregate,
5 of net losses from taxable years 1988 through 1994.
6 (2) (A) A net loss for a taxable year may only be carried
7 over pursuant to the following schedule:
8 Taxable Year Carryover
9 1981 1 taxable year
10 1982 2 taxable years
11 1983-1987 3 taxable years
12 1988 2 taxable years plus
13 1 taxable year
14 starting with the
15 1995 taxable year
16 1989 1 taxable year plus
17 2 taxable years
18 starting with the
19 1995 taxable year
20 1990-1993 3 taxable years
21 starting with the
22 1995 taxable year
23 1994 1 taxable year
24 1995-1997 10 taxable years
25 1998 and thereafter 20 taxable years
26 (B) The earliest net loss shall be carried over to the
27 earliest taxable year to which it may be carried under this
28 schedule. The total net loss deduction allowed in any taxable
29 year shall not exceed:
30 (I) Two million dollars ($2,000,000) for taxable years
20070H1378B1725 - 15 -
1 beginning before January 1, 2007.
2 (II) The greater of twelve and one-half per cent of the
3 taxable income as determined under subclause 1 or, if
4 applicable, subclause 2 or three million dollars ($3,000,000)
5 for taxable years beginning after December 31, 2006.
6 (3) The amount of unused net loss from all taxable years
7 that begin prior to January 1, 2009, that may be carried over to
8 any taxable year that begins on or after January 1, 2009, is
9 limited to two million dollars ($2,000,000) per taxable year and
10 may only be used by the corporation that realized the net loss.
11 If a corporation is required to determine its business income
12 pursuant to paragraph (1) of phrase (e) of subclause 2, it may
13 only use such loss in a year to the extent that it has taxable
14 income before use of such loss determined as if it were a
15 separate company.
16 (4) Any net loss realized for a taxable year that begins on
17 or after January 1, 2009, by one corporation of a unitary
18 business may be used by other corporations of the same unitary
19 business, provided that the corporation that realized the net
20 loss must first use the portion of such net loss to reduce its
21 taxable income to zero. Other corporations of the same unitary
22 business that have insufficient net losses of their own to
23 reduce their tax liabilities to zero may then use the remainder
24 of such net loss in proportion to their remaining taxable
25 incomes before the application of such loss.
26 (5) Any net loss realized for a taxable year that begins on
27 or after January 1, 2009, unused by a corporation which
28 subsequently becomes a member of another unitary business may
29 only be used by that corporation.
30 * * *
20070H1378B1725 - 16 -
1 (5) "Taxable year." [The] 1. Except as set forth in
2 subclause 2, the taxable year which the corporation, or any
3 consolidated group with which the corporation participates in
4 the filing of consolidated returns, actually uses in reporting
5 taxable income to the Federal Government[.], or which the
6 corporation would have used in reporting taxable income to the
7 Federal Government had it been required to report its taxable
8 income to the Federal Government. With regard to the tax imposed
9 by Article IV of this act (relating to the Corporate Net Income
10 Tax), the terms "annual year," "fiscal year," "annual or fiscal
11 year," "tax year" and "tax period" shall be the same as the
12 corporation's taxable year, as defined in this [paragraph.]
13 subclause or subclause 2.
14 2. All corporations of a unitary business shall have a
15 common taxable year for purposes of computing tax due under this
16 article. The taxable year for such purposes is the common
17 taxable year adopted, in a manner prescribed by the department,
18 by all corporations of a unitary business. The common taxable
19 year must be used by all corporations of that unitary business
20 in the year of adoption and all future years unless otherwise
21 permitted by the department.
22 * * *
23 (8) "Tax haven." A jurisdiction that at the beginning of a
24 taxable year is a tax haven as identified by the Organization
25 for Economic Co-operation and Development, plus the
26 sovereignties of Bermuda, the Cayman Islands, the Bailiwick of
27 Jersey and the Grand Duchy of Luxembourg.
28 (9) "Unitary business." A single economic enterprise that
29 is made up of separate parts of a single corporation, of a
30 commonly controlled group of corporations, or both, that are
20070H1378B1725 - 17 -
1 sufficiently interdependent, integrated and interrelated through
2 their activities so as to provide a synergy and mutual benefit
3 that produces a sharing or exchange of value among them and a
4 significant flow of value to the separate parts. A unitary
5 business includes only those parts and corporations which may be
6 included as a unitary business under the Constitution of the
7 United States.
8 (10) "Water's-edge basis." A system of reporting that
9 includes the business income and apportionment factor of certain
10 corporations of a unitary business, described as follows:
11 1. The business income and apportionment factor of any
12 member incorporated in the United States or formed under the
13 laws of any state of the United States, the District of
14 Columbia, any territory or possession of the United States or
15 the Commonwealth of Puerto Rico.
16 2. The business income and apportionment factor of any
17 member, regardless of the place incorporated or formed, if the
18 average of its property, payroll and sales factors within the
19 United States is twenty per cent or more.
20 3. The business income and apportionment factor of any
21 member which is a domestic international sales corporation as
22 described in sections 991, 992, 993 and 994 of the Internal
23 Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §§ 991, 992,
24 993 and 994); a foreign sales corporation as described in former
25 sections 921, 922, 923, 924, 925, 926 and 927 of the Internal
26 Revenue Code of 1986 (26 U.S.C. §§ 921, 922, 923, 924, 925, 926
27 and 927); or any member which is an export trade corporation, as
28 described in sections 970 and 971 of the Internal Revenue Code
29 of 1986 (26 U.S.C. §§ 970 and 971).
30 4. Any member not described in subclauses 1, 2 and 3 shall
20070H1378B1725 - 18 -
1 include the portion of its business income derived from or
2 attributable to sources within the United States, as determined
3 under the Internal Revenue Code of 1986 without regard to
4 Federal treaties, and its apportionment factor related thereto.
5 5. Any member that is a "controlled foreign corporation" as
6 defined in section 957 of the Internal Revenue Code of 1986 (26
7 U.S.C. § 957), to the extent the business income of that member
8 is income defined in section 952 of the Internal Revenue Code of
9 1986 (26 U.S.C. § 952), Subpart F income, not excluding lower-
10 tier subsidiaries' distributions of such income which were
11 previously taxed, determined without regard to Federal treaties,
12 and the apportionment factor related to that income; any item of
13 income received by a controlled foreign corporation and the
14 apportionment factor related to such income shall be excluded if
15 the corporation establishes to the satisfaction of the Secretary
16 of Revenue that such income was subject to an effective rate of
17 income tax imposed by a foreign country greater than ninety per
18 cent of the maximum rate of tax specified in section 11 of the
19 Internal Revenue Code of 1986 (26 U.S.C. § 11). The effective
20 rate of income tax determination shall be based upon the
21 methodology set forth under 26 CFR 1.954-1 (relating to foreign
22 base company income).
23 6. The business income and apportionment factor of any
24 member that is not described in subclause 1, 2, 3, 4 and 5 and
25 that is doing business in a tax haven. The business income and
26 apportionment factor of a corporation doing business in a tax
27 haven shall be excluded if the corporation establishes to the
28 satisfaction of the Secretary of Revenue that its income was
29 subject to an effective rate of income tax imposed by a country
30 greater than ninety per cent of the maximum rate of tax
20070H1378B1725 - 19 -
1 specified in section 11 of the Internal Revenue Code of 1986 (26
2 U.S.C. § 11).
3 (11) "Commonly controlled group." For a corporation, the
4 corporation is a member of a group of two or more corporations
5 and more than fifty per cent of the voting stock of each member
6 of the group is directly or indirectly owned by a common owner
7 or by common owners, either corporate or noncorporate, or by one
8 or more of the member corporations of the group.
9 (12) "Separate company." A corporation that is not a member
10 of a unitary business that consists of two or more corporations.
11 (13) "Tax." Includes interest, penalties and additions to
12 tax unless a more limited meaning is disclosed by the context.
13 Section 2. Section 403 of the act is amended by adding
14 subsections to read:
15 Section 403. Reports and Payment of Tax.--* * *
16 (a.1) (1) Each corporation subject to tax under this
17 article is required to file an annual report in accordance with
18 this section. Each corporation that is a member of a unitary
19 business that consists of two or more corporations, unless
20 excluded by the provisions of this article, shall file as part
21 of a combined annual report. The corporations of the unitary
22 business shall designate one member that is subject to tax under
23 this article to file the combined annual report and to act as
24 agent on behalf of all other corporations that are members of
25 the unitary business. Each corporation that is a member of a
26 unitary business is responsible for its tax liability under this
27 article.
28 (2) The oath or affirmation of the designated member's
29 president, vice president or other principal officer, and of its
30 treasurer or assistant treasurer shall constitute the oath or
20070H1378B1725 - 20 -
1 affirmation of each corporation that is a member of that unitary
2 business.
3 (3) The designated member shall transmit to the department
4 upon a form prescribed by the department, an annual combined
5 report under oath or affirmation of its president, vice
6 president or other principal officer, and of its treasurer or
7 assistant treasurer. Such report shall set forth:
8 (i) All corporations included in the unitary business.
9 (ii) All necessary data, both in the aggregate and for each
10 corporation of the unitary business, that sets forth the
11 determination of tax liability for each corporation of the
12 unitary business.
13 (iii) Any other information that the department may require.
14 (a.2) (1) Activities that evidence a significant flow of
15 value among commonly controlled corporations, include, but are
16 not limited to, the following:
17 (i) Assisting in the acquisition of equipment.
18 (ii) Assisting with filling personnel needs.
19 (iii) Lending funds or guaranteeing loans.
20 (iv) Interplay in the area of corporate expansion.
21 (v) Providing technical assistance.
22 (vi) Supervising.
23 (vii) Providing general operational guidance.
24 (viii) Providing overall operational strategic advice.
25 (ix) Common use of trade names and patents.
26 (2) Significant flow of value must be more than the flow of
27 funds arising out of passive investment and consists of more
28 than periodic financial oversight.
29 (a.3) (1) With respect to a commonly controlled group of
30 corporations, the presence of any of these factors creates a
20070H1378B1725 - 21 -
1 presumption of a unitary business:
2 (i) Corporations engaged in the same type of business.
3 (ii) Corporations engaged in different steps in a vertically
4 structured enterprise.
5 (iii) Strong centralized management of corporations.
6 (2) A corporation newly formed by a corporation that is a
7 member of a unitary business is rebuttably presumed to be a
8 member of the unitary business.
9 (3) A corporation that owns a controlling interest in two or
10 more corporations of a unitary business is rebuttably presumed
11 to be a member of the unitary business.
12 (4) A corporation that permits one or more other
13 corporations of a unitary business to substantially use its
14 patents, trademarks, service marks, logo-types, trade secrets,
15 copyrights or other proprietary assets or that is principally
16 engaged in loaning money to one or more other corporations of a
17 unitary business is rebuttably presumed to be a member of the
18 unitary business. This presumption only applies to a commonly
19 controlled group of corporations.
20 (a.4) As far as applicable to a specific unitary business,
21 unless there is a revision of applicable State law or unless a
22 corporation is not included under the provisions of this
23 article, there is a rebuttable presumption for all tax years
24 that begin in years 2009 and 2010 that a unitary business of two
25 or more corporations includes at least all corporations that are
26 part of a unitary business under the law of any state of the
27 United States in which the corporation files a tax report or tax
28 return of combined net income for the same tax year.
29 (a.5) Unless an election is made to use a worldwide basis of
30 accounting, a corporation that is a member of a unitary business
20070H1378B1725 - 22 -
1 of two or more corporations must determine its business income
2 and apportionment factor upon a water's-edge basis. This basis
3 applies to all corporations of the unitary business. If an
4 election is made to use a worldwide basis of accounting, all
5 corporations of the unitary business must make the election,
6 upon a form, prescribed, prepared and furnished by the
7 department. This election binds all corporations of the unitary
8 business for the period of time that the election remains in
9 effect. An initial election is binding for a period of seven
10 years. Subsequent elections are binding for a period of five
11 years.
12 * * *
13 Section 3. Section 404 of the act is amended to read:
14 Section 404. Consolidated Reports.--The department shall not
15 permit any corporation owning or controlling, directly or
16 indirectly, any of the voting capital stock of another
17 corporation or of other corporations, subject to the provisions
18 of this article, to make a consolidated report[, showing the
19 combined net income].
20 Section 4. Section 3003.3(d) of the act, amended October 18,
21 2006 (P.L.1149, No.119), is amended and the section is amended
22 by adding subsections to read:
23 Section 3003.3. Underpayment of Estimated Tax.--* * *
24 (d) Notwithstanding the provisions of the preceding
25 subsections, other than as set forth in subsection (d.1),
26 interest with respect to any underpayment of any installment of
27 estimated tax shall not be imposed if the total amount of all
28 payments of estimated tax made on or before the last date
29 prescribed for the payment of such installment equals or exceeds
30 the amount which would have been required to be paid on or
20070H1378B1725 - 23 -
1 before such date if the estimated tax were an amount equal to
2 the tax computed at the rates applicable to the taxable year,
3 including any minimum tax imposed, but otherwise on the basis of
4 the facts shown on the report of the taxpayer for, and the law
5 applicable to, the safe harbor base year, adjusted for any
6 changes to sections 401, 601, 602 and 1101 enacted for the
7 taxable year, if a report showing a liability for tax was filed
8 by the taxpayer for the safe harbor base year. If the total
9 amount of all payments of estimated tax made on or before the
10 last date prescribed for the payment of such installment does
11 not equal or exceed the amount required to be paid per the
12 preceding sentence, but such amount is paid after the date the
13 installment was required to be paid, then the period of
14 underpayment shall run from the date the installment was
15 required to be paid to the date the amount required to be paid
16 per the preceding sentence is paid. Provided, that if the total
17 tax for the safe harbor base year exceeds the tax shown on such
18 report by ten per cent or more, the total tax adjusted to
19 reflect the current tax rate shall be used for purposes of this
20 subsection. In the event that the total tax for the safe harbor
21 base year exceeds the tax shown on the report by ten per cent or
22 more, interest resulting from the utilization of such total tax
23 in the application of the provisions of this subsection shall
24 not be imposed if, within forty-five days of the mailing date of
25 each assessment, payments are made such that the total amount of
26 all payments of estimated tax equals or exceeds the amount which
27 would have been required to be paid on or before such date if
28 the estimated tax were an amount equal to the total tax adjusted
29 to reflect the current tax rate. In any case in which the
30 taxable year for which an underpayment of estimated tax may
20070H1378B1725 - 24 -
1 exist is a short taxable year, in determining the tax shown on
2 the report or the total tax for the safe harbor base year, the
3 tax will be reduced by multiplying it by the ratio of the number
4 of installment payments made in the short taxable year to the
5 number of installment payments required to be made for the full
6 taxable year.
7 (d.1) (1) Notwithstanding the provisions of subsections
8 (a), (b) and (c), interest with respect to any underpayment of
9 any installment of estimated corporate net income tax for any
10 tax year that begins in year 2009 or 2010 shall not be imposed
11 if the total amount of all payments of estimated corporate net
12 income tax made on or before the last date prescribed for the
13 payment of such installment equals or exceeds the amount which
14 would have been required to be paid on or before such date if
15 the estimated tax were an amount equal to the tax shown on the
16 report of the taxpayer for the safe harbor base year, if a
17 report showing a liability for tax was filed by the taxpayer for
18 the safe harbor base year.
19 (2) If the total amount of all payments of estimated tax
20 made on or before the last date prescribed for the payment of
21 such installment does not equal or exceed the amount required to
22 be paid under paragraph (1), but such amount is paid after the
23 date the installment was required to be paid, then the period of
24 underpayment shall run from the date the installment was
25 required to be paid to the date the amount required to be paid
26 under paragraph (1) is paid.
27 (3) If the total tax for the safe harbor base year exceeds
28 the tax shown on such report by ten per cent or more, the total
29 tax shall be used for purposes of this subsection. In the event
30 that the total tax for the safe harbor base year exceeds the tax
20070H1378B1725 - 25 -
1 shown on the report by ten per cent or more, interest resulting
2 from the utilization of the total tax in the application of the
3 provisions of this subsection shall not be imposed if, within
4 forty-five days of the mailing date of a notice from the
5 department increasing the total tax, payments are made such that
6 the total amount of all payments of estimated tax equals or
7 exceeds the amount which would have been required to be paid on
8 or before such date if the estimated tax were an amount equal to
9 the total tax.
10 (4) In any case in which the taxable year for which an
11 underpayment of estimated tax may exist is a short taxable year,
12 in determining the tax shown on the report or the total tax for
13 the safe harbor base year, the tax shall be reduced by
14 multiplying it by the ratio of the number of installment
15 payments made in the short taxable year to the number of
16 installment payments required to be made for the full taxable
17 year.
18 (d.2) (1) If there is a substantial underpayment, as
19 defined in subsection (a), of any installment of estimated
20 corporate net income tax or estimated capital stock/franchise
21 tax for any taxable year beginning in 2009 or 2010, there shall
22 be imposed additional interest in an amount determined at one
23 hundred twenty per cent of the annual rate as provided by law
24 upon the entire underpayment for the period of the substantial
25 underpayment.
26 (2) The additional interest imposed by this subsection is in
27 addition to any other interest imposed on underpayments by this
28 section.
29 Section 5. The amendment or addition of the following
30 provisions shall apply to taxable years beginning after December
20070H1378B1725 - 26 -
1 31, 2008:
2 (1) Section 401(3)1(a) and (b), 2(a) and (e) and 4(c)
3 and (5), (8), (9), (10), (11), (12) and (13) of the act.
4 (2) Section 403(a.1), (a.2), (a.3), (a.4) and (a.5) of
5 the act.
6 (3) Section 404 of the act.
7 (4) Section 3003.3(d), (d.1) and (d.2) of the act.
8 Section 6. This act shall take effect July 1, 2007, or
9 immediately, whichever is later.
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