1Amending Title 12 (Commerce and Trade) of the Pennsylvania
2Consolidated Statutes, further providing for keystone
3innovation zone tax credits; and providing for research and
4development tax credits for KIZ companies, for KIZ company
5corporate net income tax net loss deduction transfer program
6and for KIZ company tax credits for new jobs.

7The General Assembly of the Commonwealth of Pennsylvania
8hereby enacts as follows:

9Section 1. Section 3706(d) of Title 12 of the Pennsylvania
10Consolidated Statutes is amended to read:

11§ 3706. Keystone innovation zone tax credits.

12* * *

13(d) Application of tax credit and election.--[A]

14(1) Except as set forth in paragraph (2), a tax credit
15approved under this section must be first applied against the
16KIZ company's tax liability under Article III, IV or VI of
17the act of March 4, 1971 (P.L.6, No.2), known as the Tax
18Reform Code of 1971, for the taxable year during which the
19tax credit is approved. If the amount of tax liability owed
20by the KIZ company is less than the amount of the tax credit,

1the KIZ company may elect to carry forward the amount of the
2remaining tax credit for a period not to exceed four
3additional taxable years and to apply the credit against tax
4liability incurred during those tax years; or the KIZ company
5may elect to sell or assign a portion of the tax credit in
6accordance with the provisions of subsection (f). A KIZ
7company may not carry back or obtain a refund of an unused
8keystone innovation zone tax credit.

9(2) A KIZ company that is approved for a tax credit
10under this section may elect not to apply the credit against
11the KIZ company's tax liability as prescribed in this
12subsection if the KIZ company submitted with its tax credit
13application a current tax lien certificate issued by the
14department showing that the KIZ company has no unpaid tax
15liability due to the Commonwealth or a political subdivision.
16A KIZ company that submitted a current tax lien certificate
17with its application and is awarded a credit under subsection
18(b) may immediately sell or assign the tax credit upon
19receipt of notice of the award in accordance with subsection
20(f).

21* * *

22Section 2. Title 12 is amended by adding sections to read:

23§ 3706.1. Research and development tax credits for KIZ
24companies.

25In addition to the provisions of Article XVII-B of the act of 
26March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 
271971, the following shall apply to research and development tax 
28credits awarded to KIZ companies:

29(1) Notwithstanding any other provision of the Tax
30Reform Code of 1971, a KIZ company that is approved for a

1research and development tax credit under Article XVII-B of
2the Tax Reform Code of 1971 may elect not to apply the credit
3against the KIZ company's qualified tax liability, as defined
4in section 1702-B of the Tax Reform Code of 1971, if the
5company submitted with its research and development tax
6credit application a current tax lien certificate issued by
7the department showing that the KIZ company has no unpaid tax
8liability due to the Commonwealth or its political
9subdivisions. A KIZ company that submitted a current tax lien
10certificate with its application and is awarded a credit
11under Article XVII-B of the Tax Reform Code of 1971 may
12immediately sell or assign the tax credit upon receipt of
13notice of the award in accordance with section 3706(f)
14(relating to keystone innovation zone tax credits).

15(2) The purchaser or assignee of a research and
16development tax credit from a KIZ company also may claim the
17tax credit against tax liability of the purchaser or assignee
18under Article VII, VIII, IX or XV of the Tax Reform Code of
191971.

20§ 3706.2. KIZ company corporate net income tax net loss
21deduction transfer program.

22(a) Establishment.--The department shall establish a 
23corporate net income tax net loss deduction transfer program for 
24KIZ companies. The program shall allow KIZ companies in this 
25Commonwealth with unused net loss carryover deductions under 
26section 401 of the act of March 4, 1971 (P.L.6, No.2), known as 
27the Tax Reform Code of 1971, to transfer, in exchange for 
28private financial assistance, those unused deductions to other 
29corporate net income taxpayers in this Commonwealth, provided 
30that the taxpayer receiving the unused deductions is not 

1affiliated with the KIZ company that is surrendering its unused 
2deductions.

3(b) Affiliation.--For the purposes of subsection (a), the 
4test of affiliation is whether the same entity directly or 
5indirectly owns or controls 5% or more of the voting rights or 
65% or more of the value of the classes of stock of both the 
7taxpayer receiving the unused deductions and the KIZ company 
8that is surrendering the unused deductions.

9(c) Applications.--The department, in cooperation with the
10Department of Revenue, shall accept, review and approve
11applications by submitted KIZ companies. The application shall
12be on the form prescribed by the department and must be received
13on or before November 30 of each fiscal year.

14(d) Contents of application.--At a minimum, the application
15shall include:

16(1) The name and tax identification number of the
17applicant.

18(2) The name, location and tax identification number of
19the corporate net income taxpayer that will acquire the
20corporate net income tax net loss deduction transfer
21certificate from the applicant.

22(3) The total amount of the corporate net income tax net
23loss deduction the applicant seeks to transfer.

24(4) A brief description of the applicant's KIZ company.

25(5) A statement that the applicant is not prohibited
26from participating in the program based on subsection (f).

27(6) A brief summary of the intended use of the private
28financial assistance to be received by the applicant under
29subsection (h).

30(7) Any other information deemed relevant by the

1department.

2(e) Approvals.--Approvals of applications filed under 
3subsection (c) shall be issued in the form of corporate net 
4income tax net loss deduction transfer certificates. A corporate 
5net income tax net loss deduction transfer certificate shall not 
6be issued unless the applicant certifies that as of the date of 
7the receipt of the corporate net income tax net loss deduction 
8transfer certificate it is operating as a KIZ company and has no 
9current intention to cease operating as a KIZ company.

10(f) Prohibitions.--No application for a corporate net income
11tax net loss deduction transfer shall be approved if the KIZ
12company:

13(1) has demonstrated positive net operating income in
14any of the two previous full years of ongoing operations as
15determined on its financial statements issued according to
16generally accepted accounting standards; or

17(2) is directly or indirectly at least 50% owned or
18controlled by another corporation that has demonstrated
19positive net operating income in any of the two previous full
20years of ongoing operations as determined on its financial
21statements issued according to generally accepted accounting
22standards or is part of a consolidated group of affiliated
23corporations, as filed for Federal income tax purposes, that
24in the aggregate has demonstrated positive net operating
25income in any of the two previous full years of ongoing
26operations as determined on its combined financial statements
27issued according to generally accepted accounting standards.

28(g) Carryover, carryback and refund of corporate net income
29tax net operating loss deduction transfer certificate.--The
30following shall apply:

1(1) A corporate net income tax net loss deduction
2transfer certificate approved by the department in a taxable
3year first shall be applied against recipient taxpayer's
4corporate net income tax liability under Article IV of the
5Tax Reform Code of 1971 for the current taxable year as of
6the date on which the certificate was received.

7(2) If the recipient of a corporate net income tax net
8loss deduction transfer certificate cannot use the entire
9amount of the certificate for the taxable year in which the
10certificate is first approved, then the excess may be carried
11over to succeeding taxable years and used against the
12qualified tax liability of the taxpayer for those taxable
13years. Each time the tax certificate is carried over to a
14succeeding taxable year, it shall be reduced by the amount
15that was used during the immediately preceding taxable year.
16The certificate may be carried over and applied to succeeding
17taxable years for no more than three taxable years following
18the first taxable year for which the taxpayer received the
19certificate.

20(3) A recipient taxpayer is not entitled to carry back, 
21assign or obtain a refund of all or any portion of an unused 
22corporate net income tax net operating loss deduction 
23transfer certificate granted to the taxpayer under this
24chapter.

25(h) Use of private financial assistance.--

26(1) Private financial assistance shall assist in funding
27expenses incurred in connection with the operation of the KIZ
28company, including, but not limited to, the expenses of fixed
29assets, such as the construction, acquisition and development
30of real estate, materials, start-up, tenant fit-out, working

1capital, salaries, research and development expenditures and
2other expenses determined by the department to be necessary
3to carry out the purposes of this section.

4(2) The department shall require a corporate net income
5taxpayer that acquires a corporate net income tax net loss
6deduction transfer certificate to enter into a written
7agreement with the KIZ company concerning the terms and
8conditions of the private financial assistance made in
9exchange for the certificate. The written agreement may
10contain terms concerning the maintenance by the KIZ company
11of a headquarters or a base of operation in this
12Commonwealth.

13(i) Recapture.--The department, in consultation with the
14Department of Revenue, shall establish rules for the recapture
15of all of, or a portion of, the amount of a grant of a corporate
16net income tax net loss deduction transfer from the KIZ company
17having surrendered tax benefits under this section if the KIZ
18company fails to use the private financial assistance received
19for the surrender of tax benefits as required by this section or
20fails to maintain a headquarters or a base of operation in this
21Commonwealth during the five years following receipt of the
22private financial assistance, except if the failure to maintain
23a headquarters or a base of operation in this Commonwealth is
24due to the liquidation of the KIZ company.

25(j) Annual report.--Not later than one year following the
26effective date of this section, and for each succeeding year in
27which a financial assistance agreement entered into under this
28section is in effect, the department shall prepare a report on
29the program. The report shall include, but need not be limited
30to:

1(1) A description of the demand for the program from KIZ
2companies and financial institutions.

3(2) The efforts made by the department to promote the
4program.

5(3) The total amount of financial assistance approved by
6the department under the program.

7(4) An assessment of the effectiveness of the program in
8meeting the goals of this section.

9(5) Recommendations for legislation to improve the
10effectiveness of the program.

11The department shall submit its report to the Governor and the
12General Assembly.

13(k) Limitations.--

14(1) In no case shall the department approve the transfer
15of more than $25,000,000 in corporate net income tax net
16operating loss deductions in a year.

17(2) The maximum lifetime value of net loss deduction
18that a KIZ company shall be permitted to transfer is
19$10,000,000.

20(3) If the total amount of transferable tax benefits
21requested to be transferred by approved applicants exceeds
22$25,000,000 in a year, the department, in cooperation with
23the Department of Revenue, shall develop a formula to
24allocate the transfer of tax benefits by approved companies,
25provided that:

26(i) An eligible applicant with $250,000 or less of
27transferable tax benefits shall be authorized to
28surrender the entire amount of its transferable tax
29benefits.

30(ii) An eligible applicant with more than $250,000

1of transferable tax benefits shall be authorized to
2surrender a minimum of $250,000 of its transferable tax
3benefits.

4§ 3706.3. KIZ company tax credits for new jobs.

5(a) Sale or assignment.--Notwithstanding any other provision 
6of the act of March 4, 1971 (P.L.6, No.2), known as the Tax 
7Reform Code of 1971, upon application to and approval by the 
8department, a KIZ company that is approved for a tax credit for 
9new jobs under Article XVIII-B of the Tax Reform Code of 1971 
10may sell or assign, in whole or in part, a tax credit granted to 
11the KIZ company under the article. The department shall 
12establish guidelines for the approval of applications under this 
13section.

14(b) Purchaser or assignee.--The purchaser or assignee of a
15portion of a tax credit under subsection (a) shall immediately
16claim the credit in the taxable year in which the purchase or
17assignment is made. The purchaser or assignee may claim the
18credit against the tax liability of the purchaser or assignee
19imposed under Article III, IV, VI, VII, VIII, IX or XV of the
20Tax Reform Code of 1971. The credit may not be claimed against a
21tax withheld by an employer from an employee under Article III
22of the Tax Reform Code of 1971. The amount of the credit that a
23purchaser or assignee may use against a tax liability may not
24exceed 75% of the tax liability for the taxable year. The
25purchaser or assignee may not carry over, carry back, obtain a
26refund of or assign the tax credit. The purchaser or assignee
27shall notify the Department of Revenue of the seller or assignor
28of the tax credit in compliance with procedures specified by the
29Department of Revenue.

30Section 3. This act shall take effect in 60 days.