THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY WILLIAMS AND SOLOBAY, MARCH 28, 2011

REFERRED TO FINANCE, MARCH 28, 2011  

AN ACT

Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An

act relating to tax reform and State taxation by codifying

and enumerating certain subjects of taxation and imposing

taxes thereon; providing procedures for the payment,

collection, administration and enforcement thereof; providing

for tax credits in certain cases; conferring powers and

imposing duties upon the Department of Revenue, certain

employers, fiduciaries, individuals, persons, corporations

and other entities; prescribing crimes, offenses and

penalties," providing for expiration for corporate net income

tax; establishing a commercial activity tax; and imposing

penalties.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  The act of March 4, 1971 (P.L.6, No.2), known as

the Tax Reform Code of 1971, is amended by adding a section to

read:

Section 413.  Expiration.--This article shall expire three

years from the effective date of this section.

Section 2.  The act is amended by adding an article to read:

ARTICLE IV-A

COMMERCIAL ACTIVITY TAX

Section 401-A.  Definitions.

The following words and phrases when used in this article

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Agent."  A person authorized by another person to act on its

behalf to undertake a transaction for the other, including any

of the following:

(1)  A person receiving a fee to sell financial instruments.

(2)  A person retaining only a commission from a transaction

with the other proceeds from the transaction being remitted to

another person.

(3)  A person issuing licenses and permits under 34 Pa.C.S.

§ 2901 (relating to authority to issue permits).

(4)  A lottery sales agent holding a valid license issued

under section 305 of the act of August 26, 1971 (P.L.351,

No.91), known as the State Lottery Law.

"Bank Holding Company Act."  The Bank Holding Company Act of

1956 (70 Stat. 133, 12 U.S.C. § 1841 et seq.).

"Bright-line presence."  A condition which a person has in

this Commonwealth for a reporting period and for the remaining

portion of the calendar year if any of the following applies:

(1)  The person owns at any time during the calendar year

property in this Commonwealth with an aggregate value of not

less than $50,000. For the purpose of this paragraph, owned

property is valued at original cost and rented property is

valued at eight times the net annual rental charge.

(2)  The person has during the calendar year payroll in

this Commonwealth of not less than $50,000.

(3)  The person has during the calendar year taxable

gross receipts of not less than $500,000.

(4)  The person has at any time during the calendar year

within this Commonwealth not less than 25% of the person's

total property, total payroll or total gross receipts.

(5)  The person is domiciled in this Commonwealth as an

individual or for corporate, commercial or other business

purposes.

"Calendar quarter."

(1)  Except as provided under paragraph (2), a three-

month period ending on the 31st day of March, the 30th day of

June, the 30th day of September or the 31st day of December.

(2)  For fiscal year filers, the last day of the third

month of the taxpayer's fiscal year.

"Calendar quarter taxpayer."  A taxpayer for which the tax

period is a calendar quarter.

"Calendar year taxpayer."  A taxpayer for which the tax

period is a calendar year.

"Combined company."  Any person engaged in the activity of an

electric company or rural electric company that is also engaged

in the activity of a heating company or a natural gas company,

or any combination thereof.

"Combined taxpayer."  A group of two or more persons treated

as a single taxpayer.

"Consolidated elected taxpayer."  A group of two or more

persons treated as a single taxpayer for purposes of this

article as the result of an election made under section 401.1-A.

"Dealer in intangibles."

(1)  The term includes every person who keeps an office

or other place of business in this Commonwealth and engages

at the office or other place in a business whether on the

person's own account with a view to profit, or as agent or

broker for others, with a view to profit or personal earnings

that consists primarily of:

(i)  Lending money.

(ii)  Discounting, buying or selling bills of

exchange, drafts, acceptances, notes, mortgages or other

evidences of indebtedness.

(iii)  Buying or selling bonds, stocks or other

investment securities.

(2)  The term does not include institutions used

exclusively for charitable purposes, insurance companies and

financial institutions. The investment of funds as personal

accumulations or as business reserves or as working capital

does not constitute engaging in a business within the meaning

of this paragraph, except that a person who, having engaged

in a business that consists primarily of lending money or

discounting, buying or selling bills of exchange, drafts,

acceptances, notes, mortgages or other evidences of

indebtedness on the person's own account, remains in business

primarily for the purpose of realizing upon the assets of the

business is deemed a dealer in intangibles, though not

presently engaged in a business that consists primarily of

lending money or discounting or buying the securities.

"Department."  The Department of Revenue of the Commonwealth.

"Doing business."  Engaging in any activity, whether legal or

illegal, that is conducted for or results in gain, profit or

income, at any time during the calendar year.

"Excluded person."  Any of the following:

(1)  Any person with not more than $150,000 of taxable

gross receipts during the calendar year. The term does not

include a person that is a member of a consolidated elected

taxpayer.

(2)  A public utility that paid the excise tax imposed

under section 1101 based on one or more measurement periods

that include the entire tax period under this article. A

public utility that is a combined company is a taxpayer with

regard to the following gross receipts:

(i)  Taxable gross receipts directly attributed to a

public utility activity, but not directly attributed to

an activity that is subject to the excise tax imposed by

section 1101.

(ii)  Taxable gross receipts that cannot be directly

attributed to any activity, multiplied by a fraction

whose numerator is the taxable gross receipts described

under subparagraph (i) and whose denominator is the total

taxable gross receipts that can be directly attributed to

any activity.

(iii)  Except for any differences resulting from the

use of an accrual basis method of accounting for purposes

of determining gross receipts under this article and the

use of the cash basis method of accounting for purposes

of determining gross receipts under section 1101, the

gross receipts directly attributed to the activity of a

natural gas company shall be determined in a manner

consistent with section 1101.

(iv)  As used in paragraph (2), the term "public

utility" shall have the same meanings as in section

1101‑A.

(3)  A financial institution, as defined in section 2 of

the act of December 1, 1959 (P.L.1647, No.606), known as the

Business Development Credit Corporation Law, that paid the

corporation franchise tax imposed under section 602 based on

one or more taxable years that include the entire tax period

under this article.

(4)  A dealer in intangibles based on one or more

measurement periods that include the entire tax period under

this article.

(5)  A financial holding company as defined in the Bank

Holding Company Act.

(6)  A bank holding company as defined in the Bank

Holding Company Act.

(7)  A savings and loan holding company as defined in the

Home Owners' Loan Act that is engaging only in activities or

investments permissible for a financial holding company under

section 4 of the Bank Holding Company Act (12 U.S.C. §

1843(k)).

(8)  A person directly or indirectly owned by one or more

financial institutions, financial holding companies, bank

holding companies or savings and loan holding companies

described under paragraph (3), (5), (6) or (7) that is

engaged in activities permissible for a financial holding

company under section 4(k) of the Bank Holding Company Act

(12 U.S.C. § 1843(k)). A person held under merchant banking

authority under section 4(k)(4)(H) or (I) of the Bank Holding

Company Act (12 U.S.C. § 1843(k)(4)(H) or (I)) is not an

excluded person, or a person directly or indirectly owned by

one or more insurance companies described under paragraph (9)

that is authorized to do the business of insurance in this

Commonwealth. For the purposes of this paragraph, a person

owns another person under the following circumstances:

(i)  In the case of corporations issuing capital

stock, one corporation owns another corporation if it

owns 50% or more of the other corporation's capital stock

with current voting rights.

(ii)  In the case of a limited liability company, one

person owns the company if that person's membership

interest, as defined in 15 Pa.C.S. § 8903 (relating to

definitions and index of definitions), is 50% or more of

the combined membership interests of all persons owning

the interests in the company.

(iii)  In the case of a partnership, trust or other

unincorporated business organization other than a limited

liability company, one person owns the organization if,

under the articles of organization or other instrument

governing the affairs of the organization, that person

has a beneficial interest in the organization's profits,

surpluses, losses or distributions of 50% or more of the

combined beneficial interests of all persons having that

interest in the organization.

(iv)  In the case of multiple ownership, the

ownership interests of more than one person may be

aggregated to meet the 50% ownership tests only when each

owner is described under paragraph (3), (5), (6) or (7)

and is engaged in activities permissible for a financial

holding company under section 4(k) of the Bank Holding

Company Act (12 U.S.C. § 1843(k)) or is a person directly

or indirectly owned by one or more insurance companies

described under paragraph (9) that is authorized to do

the business of insurance in this Commonwealth.

(9)  A domestic insurance company or foreign insurance

company that paid the insurance company premiums tax imposed

under section 2 of the act of May 12, 1943 (P.L.259, No.120),

referred to as the Foreign Casualty Insurance Premium Tax

Allocation Law, based on one or more measurement periods that

include the entire tax period under this article.

(10)  A person that solely facilitates or services one or

more securitizations or similar transactions for any person

described under paragraph (3), (5), (6), (7), (8) or (9). For

purposes of this definition, "securitization" means

transferring one or more assets to one or more persons and

then issuing securities backed by the right to receive

payment from the asset or assets so transferred.

(11)  (Reserved).

(12)  Nonprofit organizations or the Commonwealth and its

agencies, instrumentalities or political subdivisions.

"Gross receipts."  Except as provided under this definition,

the total amount realized by a person, without deduction for the

cost of goods sold or other expenses incurred, that contributes

to the production of gross income of the person, including the

fair market value of any property and any services received, and

any debt transferred or forgiven as consideration.

(1)  The following are examples of gross receipts:

(i)  Amounts realized from the sale, exchange or

other disposition of the taxpayer's property to or with

another person.

(ii)  Amounts realized from the taxpayer's

performance of services for another person.

(iii)  Amounts realized from another's use or

possession of the taxpayer's property or capital.

(iv)  Any combination of subparagraphs (i), (ii) and

(iii).

(2)  The following amounts are excluded from gross

receipts:

(i)  Interest income except interest on credit sales.

(ii)  Dividends and distributions from corporations,

and distributive or proportionate shares of receipts and

income from a pass-through entity as defined under

section 1702.

(iii)  Receipts from the sale, exchange or other

disposition of an asset described under section 1221 or

1231 of the Internal Revenue Code, without regard to the

length of time the person held the asset. Notwithstanding

section 1221 of the Internal Revenue Code, receipts from

hedging transactions also are excluded to the extent the

transactions are entered into primarily to protect a

financial position, such as managing the risk of exposure

to:

(A)  foreign currency fluctuations that affect

assets, liabilities, profits, losses, equity, or

investments in foreign operations;

(B)  interest rate fluctuations; or

(C)  commodity price fluctuations.

As used in this paragraph, "hedging transaction" has the

same meaning as used in section 1221 of the Internal Revenue

Code. The actual transfer of title of real or tangible

personal property to another entity is not a hedging

transaction.

(iv)  Proceeds received attributable to the

repayment, maturity or redemption of the principal of a

loan, bond, mutual fund, certificate of deposit or

marketable instrument.

(v)  The principal amount received under a repurchase

agreement or on account of any transaction properly

characterized as a loan to the person.

(vi)  Contributions received by a trust, plan or

other arrangement, any of which is described in section

501(a) of the Internal Revenue Code, or to which Title

26, Subtitle A, Chapter 1, Subchapter (D) of the Internal

Revenue Code applies.

(vii)  Compensation, whether current or deferred, and

whether in cash or in kind, received or to be received by

an employee, a former employee or the employee's legal

successor for services rendered to or for an employer,

including reimbursements received by or for an individual

for medical or education expenses, health insurance

premiums or employee expenses or on account of a

dependent care spending account, legal services plan, any

cafeteria plan described in section 125 of the Internal

Revenue Code or any similar employee reimbursement.

(viii)  Proceeds received from the issuance of the

taxpayer's own stock, options, warrants, puts or calls,

or from the sale of the taxpayer's treasury stock.

(ix)  Proceeds received on the account of payments

from insurance policies, except those proceeds received

for the loss of business revenue.

(x)  Any of the following:

(A)  Gifts or charitable contributions received;

membership dues received by trade, professional,

homeowners' or condominium associations.

(B)  Payments received for educational courses,

meetings, meals or similar payments to a trade,

professional or other similar association.

(C)  Fundraising receipts received by any person

when any excess receipts are donated or used

exclusively for charitable purposes.

(xi)  Damages received as the result of litigation in

excess of amounts that, if received without litigation,

would be gross receipts.

(xii)  Property, money and other amounts received or

acquired by an agent on behalf of another in excess of

the agent's commission, fee or other remuneration.

(xiii)  Tax refunds, other tax benefit recoveries and

reimbursements for the tax imposed under this article

made by entities that are part of the same combined

taxpayer or consolidated elected taxpayer group, and

reimbursements made by entities that are not members of a

combined taxpayer or consolidated elected taxpayer group

that are required to be made for economic parity among

multiple owners of an entity whose tax obligation under

this article is required to be reported and paid entirely

by one owner, pursuant to the requirements of sections 

401.1-A and 401.2-A.

(xiv)  Pension reversions.

(xv)  Contributions to capital.

(xvi)  Sales or use taxes collected as a vendor or an

out-of-State seller on behalf of the taxing jurisdiction

from a consumer or other taxes the taxpayer is required

by law to collect directly from a purchaser and remit to

a Federal, State or local tax authority.

(xvii)  In the case of receipts from the sale of

cigarettes or tobacco products by a wholesale dealer,

retail dealer, distributor, manufacturer or seller, as

defined in section 202-A of the act of April 9, 1929

(P.L.343, No.176), known as The Fiscal Code, an amount

equal to the Federal and State excise taxes paid by any

person on or for the cigarettes or tobacco products under

subtitle E of the Internal Revenue Code.

(xviii)  In the case of receipts from the sale of

motor fuel by a licensed motor fuel dealer, licensed

retail dealer or licensed permissive motor fuel dealer,

an amount equal to Federal and State excise taxes paid by

any person on the motor fuel under section 4081 of the

Internal Revenue Code. The terms "licensed motor fuel

dealer," "licensed retail dealer" and "licensed

permissive motor fuel dealer" shall have the same meaning

as the term "dealer" in 75 Pa.C.S. § 9002 (relating to

definitions).

(xix)  In the case of receipts from the sale of beer

or intoxicating liquor, as defined in section 102 of the

act of April 12, 1951 (P.L.90, No.21), known as the

Liquor Code, by a person holding a license issued under

the Liquor Code, an amount equal to Federal and State

excise taxes paid by any person on or for such beer or

intoxicating liquor under subtitle E of the Internal

Revenue Code or the Liquor Code. The term "beer" shall

have the same meaning as the term "malt or brewed

beverage" in section 102 of the Liquor Code. The term

"intoxicating liquor" shall have the same meaning as the

term "liquor" in section 102 of the Liquor Code.

(xx)  Receipts realized by a motor vehicle dealer, as

defined in 75 Pa.C.S. § 102 (relating to definitions),

from the sale or other transfer of a motor vehicle, as

defined in 75 Pa.C.S. § 102, to another motor vehicle

dealer for the purpose of resale by the transferee motor

vehicle dealer, but only if the sale or other transfer

was based upon the transferee's need to meet a specific

customer's preference for a motor vehicle.

(xxi)  Receipts from a financial institution for

services provided to the financial institution in

connection with the issuance, processing, servicing and

management of loans or credit accounts, if the financial

institution and the recipient of the receipts have at

least 50% of their ownership interests owned or

controlled, directly or constructively through related

interests, by common owners.

(xxii)  Receipts realized from administering anti-

neoplastic drugs and other cancer chemotherapy,

biologicals, therapeutic agents and supportive drugs in a

physician's office to patients with cancer.

(xxiii)  Funds received or used by a mortgage broker

that is not a dealer in intangibles, other than fees or

other consideration, pursuant to a table-funding mortgage

loan or warehouse-lending mortgage loan. The terms used

in this subparagraph have the same meanings as in section

101 of the act of January 30, 1974 (P.L.13, No.6),

referred to as the Loan Interest and Protection Law, 

except "mortgage broker" means a person assisting a buyer

in obtaining a mortgage loan for a fee or other

consideration paid by the buyer or a lender or a person

engaged in table-funding or warehouse-lending mortgage

loans that are first lien mortgage loans.

(xxiv)  Property, money and other amounts received by

a professional employer arrangement or employee leasing

arrangement as described in section 4 of the act of

December 5, 1936 (2nd Sp.Sess., 1937 P.L.2897, No.1),

known as the Unemployment Compensation Law, from an

employer in excess of the administrative fee charged by

the professional employer arrangement.

(xxv)  In the case of amounts retained as commissions  

under section 222 of the act of December 17, 1981

(P.L.435, No.135), known as the Race Horse Industry

Reform Act, an amount equal to the amounts specified  

under section 222 of the Race Horse Industry Reform Act 

that must be paid to or collected by the department as a

tax and the amounts specified under section 222 of the

Race Horse Industry Reform Act to be used as purse money.

(xxvi)  Qualifying distribution center receipts. The

following shall apply:

(A)  For the purposes of this subparagraph:

(I)  "Qualifying distribution center

receipts."  The receipts of a supplier from

qualified property that is delivered to a

qualified distribution center, multiplied by a

quantity that equals one minus the Pennsylvania

delivery percentage.

(II)  "Qualified property."  The tangible

personal property delivered to a qualified

distribution center that is shipped to that

qualified distribution center solely for further

shipping by the qualified distribution center to

another location in this Commonwealth or

elsewhere. The term "further shipping" includes

storing and repackaging the property into smaller

or larger bundles, so long as the property is not

subject to further manufacturing or processing.

(III)  "Qualified distribution center."  The

warehouse or other similar facility in this

Commonwealth that, for the qualifying year, is

operated by a person that is not part of a

combined taxpayer group and that has a qualifying

certificate, except that all warehouses or other

similar facilities that are operated by persons

in the same taxpayer group and that are located

within one mile of each other shall be treated as

one qualified distribution center.

(IV)  "Qualifying year."  The calendar year

to which the qualifying certificate applies.

(V)  "Qualifying period."  The period of the

first day of July of the second year preceding

the qualifying year through the 30th day of June

of the year preceding the qualifying year.

(VI)  "Qualifying certificate."  The

certificate issued by the department after the

operator of a distribution center files an annual

application with the department. The application

and annual fee shall be filed and paid for each

qualified distribution center on or before the

first day of September before the qualifying year

or within 45 days after the distribution center

opens, whichever is later. The applicant must

substantiate to the department's satisfaction

that, for the qualifying period, all persons

operating the distribution center have more than

50% of the cost of the qualified property shipped

to a location such that it would be sitused

outside this Commonwealth under section

403.3‑A(5). The applicant must also substantiate

that the distribution center cumulatively had

costs from its suppliers equal to or exceeding

$500,000,000 during the qualifying period. For

purposes of this subclause, "supplier" excludes

any person that is part of the consolidated

elected taxpayer group, if applicable, of the

operator of the qualified distribution center.

The department may require the applicant to have

an independent certified public accountant

certify that the calculation of the minimum

thresholds required for a qualified distribution

center by the operator of a distribution center

has been made in accordance with generally

accepted accounting principles. The department

shall issue or deny the issuance of a certificate

within 60 days after the receipt of the

application. A denial is subject to appeal under

section 2702. If the operator files a timely

appeal under section 2702, the operator shall be

granted a qualifying certificate, provided that

the operator is liable for any tax, interest or

penalty upon amounts claimed as qualifying

distribution center receipts, other than those

receipts exempt under section 401.1-A(c)(1), that

would have otherwise not been owed by its

suppliers if the qualifying certificate was

valid.

(VII)  "Pennsylvania delivery percentage."

The proportion of the total property delivered to

a destination inside this Commonwealth from the

qualified distribution center during the

qualifying period compared with total deliveries

from the distribution center everywhere during

the qualifying period.

(B)  If the distribution center is new and was

not open for the entire qualifying period, the

operator of the distribution center may request that

the department grant a qualifying certificate. If the

certificate is granted and it is later determined

that more than 50% of the qualified property during

that year was not shipped to a location such that it

would be sitused outside of this Commonwealth under

section 403.3-A(5) or if it is later determined that

the person that operates the distribution center had

average monthly costs from its suppliers of less than

$40,000,000 during that year, then the operator of

the distribution center shall be liable for any tax,

interest or penalty upon amounts claimed as

qualifying distribution center receipts, other than

those receipts exempt under section 401.1-A(c)(1),

that would have not otherwise been owed by its

suppliers during the qualifying year if the

qualifying certificate was valid. For purposes of

this clause, "supplier" excludes any person that is

part of the consolidated elected taxpayer group, if

applicable, of the operator of the qualified

distribution center.

(C)  The following shall apply:

(I)  When filing an application for a

qualifying certificate under clause (A)(VI), the

operator of a qualified distribution center also

shall provide documentation, as the department

requires, for the department to ascertain the

Pennsylvania delivery percentage. The department,

upon issuing the qualifying certificate, also

shall certify the Pennsylvania delivery

percentage. The operator of the qualified

distribution center may appeal the department's

certification of the Pennsylvania delivery

percentage in the same manner as an appeal is

taken from the denial of a qualifying certificate

under clause (A).

(II)  Within 30 days after all appeals have

been exhausted, the operator of the qualified

distribution center shall notify the affected

suppliers of qualified property that the

suppliers are required to file, within 60 days

after receiving notice from the operator of the

qualified distribution center, amended reports

for the impacted calendar quarter, quarters or

year, whichever the case may be. Any additional

tax liability or tax overpayment shall be subject

to interest but shall not be subject to the

imposition of any penalty so long as the amended

returns are timely filed. The supplier of

tangible personal property delivered to the

qualified distribution center shall include in

its report of taxable gross receipts the receipts

from the total sales of property delivered to the

qualified distribution center for the calendar

quarter, quarters or year, whichever the case may

be, multiplied by the Pennsylvania delivery

percentage for the qualifying year. Nothing in

this clause shall be construed as imposing

liability on the operator of a qualified

distribution center for the tax imposed by this

article arising from any change to the

Pennsylvania delivery percentage.

(D)  In the case where the distribution center is

new and not open for the entire qualifying period,

the operator shall make a good faith estimate of a

Pennsylvania delivery percentage for use by suppliers

in their reports of taxable gross receipts for the

remainder of the qualifying period. The operator of

the facility shall disclose to the suppliers that the

Pennsylvania delivery percentage is an estimate and

is subject to recalculation. By the due date of the

next application for a qualifying certificate, the

operator shall determine the actual Pennsylvania

delivery percentage for the estimated qualifying

period and proceed as provided under clause (C) with

respect to the calculation and recalculation of the

Pennsylvania delivery percentage. The supplier is

required to file, within 60 days after receiving

notice from the operator of the qualified

distribution center, amended reports for the impacted

calendar quarter, quarters or year, whichever the

case may be. Any additional tax liability or tax

overpayment shall be subject to interest but shall

not be subject to the imposition of any penalty so

long as the amended returns are timely filed.

(E)  Qualifying certificates and Pennsylvania

delivery percentages issued by the department shall

be open to public inspection and shall be timely

published by the department. A supplier relying in

good faith on a certificate issued under this

subsection shall not be subject to tax on the

qualifying distribution center receipts under this

subparagraph. A person receiving a qualifying

certificate is responsible for paying the tax,

interest and penalty upon amounts claimed as

qualifying distribution center receipts that would

not otherwise have been owed by the supplier if the

qualifying certificate were available when it is

later determined that the qualifying certificate

should not have been issued because the statutory

requirements were in fact not met.

(F)  The annual fee for a qualifying certificate

shall be $100,000 for each qualified distribution

center. If a qualifying certificate is not issued,

the annual fee is subject to refund after the

exhaustion of all appeals provided for under clause

(A)(VI). The fee imposed under this clause may be

assessed in the same manner as the tax imposed under

this article. The first $100,000 of the annual

application fees collected each calendar year shall

be credited to the Commercial Activity Tax

Administrative Fund.

(G)  The department may require that adequate

security be posted by the operator of the

distribution center on appeal when the department

disagrees that the applicant has met the minimum

thresholds for a qualified distribution center as set

forth under clauses (A) and (B).

(xxvii)  Receipts of an employer from payroll

deductions relating to the reimbursement of the employer

for advancing money to an unrelated third party on an

employee's behalf.

(xxviii)  Cash discounts allowed and taken.

(xxix)  Returns and allowances.

(xxx)  Bad debts from receipts on the basis of which

the tax imposed by this article was paid in a prior

quarterly tax payment period. For the purpose of this

subparagraph, "bad debts" means any debts that have

become worthless or uncollectible between the preceding

and current quarterly tax payment periods, have been

uncollected for at least six months, and that may be

claimed as a deduction under section 166 of the Internal

Revenue Code and the regulations adopted under that

section or that could be claimed as if the taxpayer kept

its accounts on the accrual basis. The term "bad debts"

does not include repossessed property, uncollectible

amounts on property that remains in the possession of the

taxpayer until the full purchase price is paid, or

expenses in attempting to collect any account receivable

or for any portion of the debt recovered.

(xxxi)  Any amount realized from the sale of an

account receivable to the extent the receipts from the

underlying transaction giving rise to the account

receivable were included in the gross receipts of the

taxpayer.

(xxxii)  Any receipts for which the tax imposed by

this article is prohibited by the Constitution of the

United States, Federal law or the Constitution of

Pennsylvania.

(3)  In the case of a taxpayer when acting as a real

estate broker, the term includes only the portion of any fee

for the service of a real estate broker, or service of a real

estate salesperson associated with that broker, that is

retained by the broker and not paid to an associated real

estate salesperson or another real estate broker. For the

purposes of this paragraph, the term "real estate broker"

shall mean someone licensed under the terms of the

Commonwealth to act as a real estate broker.

(4)  A taxpayer's method of accounting for gross receipts

for a tax period shall be the same as the taxpayer's method

of accounting for Federal income tax purposes for the

taxpayer's Federal taxable year that includes the tax period.

If a taxpayer's method of accounting for Federal income tax

purposes changes, its method of accounting for gross receipts

under this article shall be changed accordingly.

"Home Owners' Loan Act."  The Home Owners' Loan Act (48 Stat.

128, 12 U.S.C. § 1467a).

"Internal Revenue Code."  The Internal Revenue Code of 1986

(100 Stat. 2085, 26 U.S.C. § 1 et seq.), as amended. Any term

used in this article that is not otherwise defined has the same

meaning as when used in a comparable context in the laws of the

United States relating to Federal income taxes unless a

different meaning is clearly required. Any reference in this

article to the Internal Revenue Code includes other laws of the

United States relating to Federal income taxes.

"Payroll."  Any of the following:

(1)  Any amount subject to withholding by the person

under section 316.

(2)  Any other amount the person pays as compensation to

an individual under the supervision or control of the person

for work done in this Commonwealth.

(3)  Any amount the person pays for services performed in

this Commonwealth on its behalf by another.

"Person."  Individuals, combinations of individuals of any

form, receivers, assignees, trustees in bankruptcy, firms,

companies, joint-stock companies, business trusts, estates,

partnerships, limited liability partnerships, limited liability

companies, associations, joint ventures, clubs, societies, for-

profit corporations, Pennsylvania S corporations, qualified

subchapter S subsidiaries, qualified subchapter S trusts,

trusts, entities that are disregarded for Federal income tax

purposes and any other entities.

"Qualifying controlled group."  Two or more corporations in

which any taxpayer of one corporation owns or controls either

directly or indirectly more than 50% of the capital stock with

voting rights of one or more of the other corporations.

"Qualifying dealer."  A dealer in intangibles that is a

qualifying dealer in intangibles or a member of a qualifying

controlled group of which an insurance company also is a member

on the first day of January of the year in and for which the tax

is required to be paid by the dealer.

"Qualifying dealer in intangibles."  A dealer in intangibles

that is a member of a qualifying controlled group of which a

financial institution is also a member on the first day of the

financial institution's tax year.

"Received."  The term includes amounts accrued under the

accrual method of accounting.

"Reporting person."  A person in a consolidated elected

taxpayer or combined taxpayer group that is designated by that

group to legally bind the group for all filings and tax

liabilities and to receive all legal notices with respect to

matters under this article or, for the purposes of section

404‑A, a separate taxpayer that is not a member of the group.

"Substantial nexus with this Commonwealth."  Attributed to a

person who:

(1)  Owns or uses a part or all of its capital in this

Commonwealth.

(2)  Holds a certificate of compliance with the laws of

this Commonwealth authorizing the person to do business in

this Commonwealth.

(3)  Has bright-line presence in this Commonwealth.

(4)  Otherwise has nexus with this Commonwealth to an

extent that the person can be required to remit the tax

imposed under this article under the Constitution of the

United States.

"Table-funding mortgage loan."  A residential mortgage loan

transaction in which the residential mortgage loan is initially

payable to the mortgage broker, the mortgage broker does not use

the mortgage broker's own funds to fund the transaction and, by

the terms of the mortgage or other agreement, the mortgage is

simultaneously assigned to another person.

"Tangible personal property."  The term shall have the same

meaning as in section 201(m).

"Tax period."  The calendar quarter or calendar year on the

basis of which a taxpayer is required to pay the tax imposed

under this article.

"Taxable gross receipts."  Gross receipts sitused to this

Commonwealth under section 403.3.

"Taxpayer."  Any person, or any group of persons in the case

of a consolidated elected taxpayer or combined taxpayer treated

as one taxpayer, required to register or pay tax under this

article. The term does not include excluded persons.

"Warehouse-mortgage loan."  A residential mortgage loan

transaction in which the residential mortgage loan is initially

payable to the mortgage broker, the mortgage broker uses the

mortgage broker's own funds to fund the transaction and the

mortgage is sold or assigned before the mortgage broker receives

a scheduled payment on the residential mortgage loan.

Section 401.1-A.  Consolidation of related taxpayers, election

and requirements.

(a)  Election.--A group of two or more persons may elect to

be a consolidated elected taxpayer for the purposes of this

article if the group satisfies all of the following

requirements:

(1)  The group elects to include all persons, including

persons enumerated under paragraphs (2), (3), (4), (5), (6),

(7), (8), (9) and (10) of the definition of "excluded

person," having at least 80%, or having at least 50%, of the

value of their ownership interests owned or controlled,

directly or constructively through related interests, by

common owners during all or any portion of the tax period,

together with the common owners. A group making its initial

election on the basis of the 80% ownership test may change

its election so that its consolidated elected taxpayer group

is formed on the basis of the 50% ownership test if all of

the following are satisfied:

(i)  When the initial election was made, the group

did not have any persons satisfying the 50% ownership

test.

(ii)  One or more of the persons in the initial group

subsequently acquires ownership interests in a person

such that the 50% ownership test is satisfied, the 80%

ownership test is not satisfied and the acquired person

would be required to be included in a combined taxpayer

group under section 401.2-A.

(iii)  The group requests the change in a written

request to the department on or before the due date for

filing the first return due under section 405.1-A after

the date of the acquisition.

(iv)  The group has not previously changed its

election. At the election of the group, all entities that

are not incorporated or formed under Federal or State

laws and that meet the consolidated elected ownership

test shall either be included in the group or all shall

be excluded from the group. If, at the time of

registration, the group does not include the entities

that meet the consolidated elected ownership test, the

group shall elect to either include or exclude the newly

acquired entities before the due date of the first return

due after the date of the acquisition. Each group shall

notify the department of the elections before the due

date of the return for the period in which the election

becomes binding. If 50% of the value of a person's

ownership interests is owned or controlled by each of two

consolidated elected taxpayer groups formed under the

50% ownership or control test, that person is a member of

each group for the purposes, and each group shall include

in the group's taxable gross receipts 50% of that

person's taxable gross receipts. Otherwise, all of that

person's taxable gross receipts shall be included in the

taxable gross receipts of the consolidated elected

taxpayer group of which the person is a member. In no

event shall the ownership or control of 50% of the value

of a person's ownership interests by two otherwise

unrelated groups form the basis for consolidating the

groups into a single consolidated elected taxpayer group

or permit any exclusion under subsection (c) of taxable

gross receipts between members of the two groups.

Paragraph (3) applies with respect to the elections

described in this subsection.

(2)  The group makes the election to be treated as a

consolidated elected taxpayer in the manner prescribed under

paragraph (1).

(3)  Subject to review and audit by the department, the

group agrees that all of the following apply:

(i)  The group shall file reports as a single

taxpayer for at least the next eight calendar quarters

following the election so long as at least two or more of

the members of the group meet the requirements of

paragraph (1).

(ii)  Before the expiration of the eighth calendar

quarter, the group shall notify the department if it

elects to cancel its designation as a consolidated

elected taxpayer. If the group does not so notify the

department, the election remains in effect for another

eight calendar quarters.

(iii)  If, at any time during any of those eight

calendar quarters following the election, a former member

of the group no longer meets the requirements under

paragraph (1), that member shall report and pay the tax

imposed under this article separately, as a member of a

combined taxpayer or, if the former member satisfies the

requirements with respect to another consolidated elected

group, as a member of that consolidated elected group.

(iv)  The group agrees to the application of

subsection (b).

(b)  Report.--A group of persons making the election under

this section shall report and pay tax on all of the group's

taxable gross receipts even if substantial nexus with this

Commonwealth does not exist for one or more persons in the

group.

(c)  Exclusion.--

(1)  (i)  Members of a consolidated elected taxpayer

group shall exclude gross receipts among persons included

in the consolidated elected taxpayer group.

(ii)  Subject to paragraph (2), nothing in this

section shall have the effect of requiring a consolidated

elected taxpayer group to include gross receipts received

by a person enumerated under paragraphs (2), (3), (4),

(5), (6), (7), (8), (9) and (10) of the definition of

"excluded person" if that person is a member of the group

pursuant to the elections made by the group under

subsection (a)(1).

(1.1)  In the event of a dealer transfer, a consolidated

elected taxpayer group shall not exclude, under this

subsection, gross receipts from the transfer. For the

purposes of this paragraph, a "dealer transfer" shall mean a

transfer of property that satisfies both of the following:

(i)  The property is directly transferred by any

means from one member of the group to another member of

the group that is a dealer in intangibles but is not a

qualifying dealer.

(ii)  The property is subsequently delivered by the

dealer in intangibles to a person that is not a member of

the group.

(2)  Gross receipts related to the sale or transmission

of electricity through the use of an intermediary regional

transmission organization approved by the Federal Energy

Regulatory Commission shall be excluded from taxable gross

receipts under paragraph (1) if all other requirements of

paragraph (1) are met, even if the receipts are from and to

the same member of the group.

(d)  Notification.--To make the election to be a consolidated

elected taxpayer, a group of persons shall notify the department

of the election in the manner prescribed by the department and

pay the department a registration fee equal to the lesser of

$200 or $20 for each person in the group. No additional fee

shall be imposed for the addition of new members to the group

once the group has remitted a fee in the amount of $200. The

election shall be made and the fee paid before the beginning of

the first calendar quarter to which the election applies. The

fee shall be collected and used in the same manner as provided

under section 404-A. The election shall be made on a form

prescribed by the department for that purpose and shall be

signed by one or more individuals with authority, separately or

together, to make a binding election on behalf of all persons in

the group. Any person acquired or formed after the filing of the

registration shall be included in the group if the person meets

the requirements of subsection (a)(1). The group shall notify

the department of any additions to the group with the next tax

return it files with the department.

Section 401.2-A.  Combined taxpayers, registration fee and

liability.

(a)  Members.--All persons, other than persons enumerated

under paragraphs (2), (3), (4), (5), (6), (7), (8), (9) and (10)

of the definition of "excluded person," having more than 50% of

the value of their ownership interest owned or controlled,

directly or constructively through related interests, by common

owners during all or any portion of the tax period, together

with the common owners, shall be members of a combined taxpayer

group if those persons are not members of a consolidated elected

taxpayer pursuant to an election under section 401.1-A.

(b)  Register.--A combined taxpayer shall register, file

returns and pay taxes under this article as a single taxpayer.

(c)  Exclusion.--A combined taxpayer shall exclude neither

taxable gross receipts between its members nor from others that

are not members.

(d)  Payment.--A combined taxpayer shall pay to the

department a registration fee equal to the lesser of $200 or $20

for each person in the group. No additional fee shall be imposed

for the addition of new members to the group once the group has

remitted a fee in the amount of $200. The fee shall be timely

paid before the beginning of the first calendar quarter or

November 15, 2012, whichever is later. The fee shall be

collected and used in the same manner as provided under section

404-A. Any person acquired or formed after the filing of the

registration shall be included in the group if the person meets

the requirements of subsection (a). The group must notify the

department of any additions to the group with the next quarterly

tax return it files with the department.

Section 401.3-A.  Taxation of property transferred into

Commonwealth.

(a)  Inclusion.--Except as provided under subsection (b):

(1)  A person shall include as taxable gross receipts the

value of property the person transfers into this Commonwealth

for the person's own use within one year after the person

receives the property outside this Commonwealth.

(2)  In the case of a consolidated elected taxpayer group

or a combined taxpayer group, the taxpayer shall include as

taxable gross receipts the value of property that any of the

taxpayer's members transferred into this Commonwealth for the

use of any of the taxpayer's members within one year after

the taxpayer receives the property outside this Commonwealth.

(b)  Outside property.--Property brought into this

Commonwealth within one year after it is received outside this

Commonwealth by a person or group described under subsection (a)

(1) or (2) shall not be included as taxable gross receipts as

required under subsection (a)(1) or (2) if the department

ascertains that the property's receipt outside this Commonwealth

by the person or group followed by its transfer into this

Commonwealth within one year was not intended in whole or in

part to avoid in whole or in part the tax imposed under this

article.

(c)  Regulations.--The department may promulgate regulations

necessary to administer this section.

Section 401.4-A.  Joint and several liability.

All members of a consolidated elected taxpayer or combined

taxpayer group during the tax period for which additional tax,

penalty or interest is owed are jointly and severally liable for

the amounts. The reporting person will be assessed for the

liability and the amounts due may be pursued against any member

of the group.

Section 402-A.  Commercial activity tax levied on taxable gross

receipts.

(a)  Imposition.--For the purpose of funding the needs of

this Commonwealth and its local governments beginning with the

tax period that commences July 1, 2012, and continuing for every

tax period thereafter, there is levied a commercial activity tax

on each person with taxable gross receipts for the privilege of

doing business in this Commonwealth. Persons on which the

commercial activity tax is levied include, but are not limited

to, persons with substantial nexus with this Commonwealth. The

tax imposed under this section is not a transactional tax and is

not subject to the act of September 14, 1949 (Public Law No.

86-272, 73 Stat. 555). The tax imposed under this section is in

addition to any other taxes or fees imposed by statute. The tax

levied under this section is imposed on the person receiving the

gross receipts and is not a tax imposed directly on a purchaser.

The tax imposed by this section is an annual privilege tax for

the calendar year that, in the case of calendar year taxpayers,

is the annual tax period and, in the case of calendar quarter

taxpayers, contains all quarterly tax periods in the calendar

year. A taxpayer is subject to the annual privilege tax for

doing business during any portion of the calendar year.

(b)  Tax on taxpayer.--The tax imposed by this section is a

tax on the taxpayer and shall not be billed or invoiced to

another person. If the tax or any portion thereof is billed or

invoiced and separately stated, the amounts shall remain part of

the price for purposes of the sales and use taxes levied under

Article II. Nothing in this subsection shall prohibit:

(1)  a person from including in the price charged for a

good or service an amount sufficient to recover the tax

imposed by this section; or

(2)  a lessor from including an amount sufficient to

recover the tax imposed by this section in a lease payment

charged or from including the amount on a billing or invoice

pursuant to the terms of a written lease agreement providing

for the recovery of the lessor's tax costs. The recovery of

the costs shall be based on an estimate of the total tax cost

of the lessor during the tax period, as the tax liability of

the lessor cannot be calculated until the end of that period.

Section 403-A.  Commercial activity tax rate and computation.

(a)  Computation.--Except as provided under subsections (b)

and (d) and in sections 403.1-A and 403.2-A, the tax levied

under this section for each tax period shall be the product of

two and six-tenths mills per dollar times the remainder of the

taxpayer's taxable gross receipts for the tax period after

subtracting the exclusion amount provided for under subsection

(c).

(b)  Amounts.--Notwithstanding subsection (c), the tax on the

first $1,000,000 in taxable gross receipts each calendar year

shall be $150. For calendar year 2013, the tax imposed under

this subsection shall be paid not later than May 10, 2013, by

both calendar year taxpayers and calendar quarter taxpayers. For

calendar years 2014, 2015 and 2016, the tax imposed under this

subsection shall be paid with the fourth-quarter tax return or

annual tax return for the prior calendar year by both calendar

year taxpayers and calendar quarter taxpayers. For calendar

years 2017 and thereafter, the tax imposed under this subsection