PRINTER'S NO. 2581
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
2215
Session of
2022
INTRODUCED BY THOMAS, BOBACK, DRISCOLL, FARRY, GILLEN, HILL-
EVANS, PICKETT, POLINCHOCK, ROTHMAN, RYAN AND ZIMMERMAN,
JANUARY 10, 2022
REFERRED TO COMMITTEE ON FINANCE, JANUARY 10, 2022
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," establishing the Start-up Investment Tax Credit
Program.
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 an article to
read:
ARTICLE XIX-H
START-UP INVESTMENT TAX CREDIT
Section 1901-H. Scope of article.
This article relates to the Start-up Investment Tax Credit
Program.
Section 1902-H. Definitions.
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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:
"Business." An entity authorized to do business in this
Commonwealth and subject to taxes imposed under Article III or
IV.
"Business plan." An outline of business structures and a
formal statement of business goals, including an explanation of
how the goals are anticipated to be achieved.
"Department." The Department of Community and Economic
Development of the Commonwealth.
"Investment." A payment of money or its equivalent for a
private equity interest in a business.
"Pass-through entity." A partnership as defined in section
301(n.0) or a Pennsylvania S corporation as defined in section
301(n.1).
"Qualified investment" An investment which meets the
requirements under section 1907-H(f).
"Qualified start-up business." A business which has been
approved under section 1904-H.
"Qualified start-up investor." A start-up investor which
meets the requirements under section 1905-H.
"Start-up investor." An individual or business entity which
invests in start-up businesses.
"Tax credit." A tax credit awarded under this article.
Section 1903-H. Establishment of program.
The Start-up Investment Tax Credit Program is established
within the department.
Section 1904-H. Application for approval as qualified start-up
business.
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(a) Application.--A business may apply to the department for
approval as a qualified start-up business. The application shall
be submitted on a form and in a manner as required by the
department.
(b) Information.--An application under subsection (a) shall
include the following information:
(1) The name and address of the applicant.
(2) A copy of the applicant's business plan.
(3) Documentation that the applicant meets the
qualifications under subsection (d).
(4) Any other information required by the department.
(c) Review of application.--Upon receipt of an application
under subsection (a), the department shall review the
application.
(d) Qualifications.--An applicant under subsection (a) shall
be approved as a qualified start-up business by the department
if the applicant meets all of the following qualifications:
(1) The applicant meets one of the following:
(i) If the applicant's headquarters is located in
this Commonwealth at the time of submitting the
application, the applicant must certify to the department
that the applicant does not intend to locate the
headquarters outside of this Commonwealth and that the
applicant's headquarters will be located in this
Commonwealth at the time that each qualified investment
is made by each qualified start-up investor.
(ii) If the applicant's headquarters is not in this
Commonwealth at the time of submitting the application,
the applicant must certify to the department that the
applicant intends to locate the headquarters in this
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Commonwealth and that the applicant's headquarters will
be located in this Commonwealth at the time each
qualified investment is made by each qualified start-up
investor.
(2) The applicant certifies to the department that the
applicant will maintain the applicant's headquarters in this
Commonwealth for a period of time which is no less than five
years after the applicant makes each qualified investment.
(3) No fewer than 51% of the applicant's employees are
employed in this Commonwealth.
(4) The applicant certifies to the department that no
fewer than 51% of the applicant's employees will be employed
in this Commonwealth for a period of time which is no less
than five years after the applicant makes each qualified
investment.
(5) The applicant employs fewer than 100 employees at
the time of submitting the application to the department.
(6) The applicant was established no more than five
years before the time of submitting the application to the
department.
(7) The applicant has not received more than $5,000,000
in private equity investments at the time of submitting the
application to the department.
(e) Approval.--If an applicant under subsection (a) meets
the qualifications under subsection (d), the department shall
approve the applicant as a qualified start-up business within 30
days of receipt of the application.
(f) Duration of approval.--An approval under subsection (e)
shall expire one year after the business was approved as a
qualified start-up business. A qualified start-up business may
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reapply for approval under this section.
(g) List.--The department shall maintain a list of qualified
start-up businesses on the department's publicly accessible
Internet website. The list under this subsection shall include
the date of approval, the date of the expiration of the approval
and, if applicable, the amount of tax credits allocated to each
qualified start-up business under section 1906-H(e).
Section 1905-H. Application for approval as qualified start-up
investor.
(a) Application.--A start-up investor may apply to the
department for approval as a qualified start-up investor. The
application shall be submitted on a form and in a manner as
required by the department.
(b) Information.--An application under subsection (a) shall
include the following information:
(1) The name and address of the applicant.
(2) Documentation that the applicant meets the
qualifications under subsection (d).
(3) Any other information required by the department.
(c) Review of applications.--Upon receipt of an application
under subsection (a), the department shall review the
application.
(d) Qualifications.--An applicant under subsection (a) shall
be approved as a qualified start-up investor if the applicant
meets all of the following qualifications:
(1) The applicant invests in start-up businesses as the
applicant's primary occupation.
(2) The applicant demonstrates a history of investing in
start-up businesses that have been successful in bringing a
product to market or in being acquired by a business entity
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that brings a product to market.
(3) The net worth of the applicant is greater than
$1,000,000.
(4) One of the following apply:
(i) For an applicant who is an individual:
(A) the individual had an income of no less than
$200,000 in each of the two prior calendar years or
had a joint income with the individual's spouse of
not less than $300,000 in each of the two prior
calendar years; and
(B) the individual has a reasonable expectation
of reaching the income or joint income amounts under
clause (A) in the calendar year when the applicant
submits an application to the department.
(ii) For an applicant which is a business entity,
all of the owners or members of the business entity meet
the qualifications under subparagraph (i).
(e) Approval.--If an applicant under subsection (a) meets
the qualifications under subsection (d), the department shall
approve the applicant as a qualified start-up investor within 30
days of receipt of the application.
Section 1906-H. Application for allocation of tax credits by
qualified start-up business.
(a) Application.--A qualified start-up business may apply to
the department to receive an allocation of a tax credit under
this section. The application shall be submitted on a form and
in a manner as required by the department.
(b) Information.--An application under subsection (a) shall
include the following information:
(1) The name and address of the applicant.
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(2) A copy of the applicant's business plan.
(3) Documentation that the applicant meets the
qualifications under subsection (d).
(4) Any other information required by the department.
(c) Review of application.--Upon receipt of an application
under subsection (a), the department shall review the
application.
(d) Qualifications.--An applicant under subsection (a) may
be approved for a tax credit if the applicant meets all of the
following:
(1) The applicant's business plan demonstrates the
potential for increasing jobs in this Commonwealth.
(2) The applicant's business plan demonstrates the
potential for increasing capital investment in this
Commonwealth.
(3) The applicant's business plan is based on the
development or commercialization of intellectual property for
which patent protection under 35 U.S.C. (relating to patents)
applies.
(4) The applicant has applied for patent protection or
received patent protection for the intellectual property
under paragraph (3).
(5) Any other qualification required by the department.
(e) Allocation of tax credits.--If an applicant under
subsection (a) meets the qualifications under subsection (d),
the department may allocate tax credits to the applicant. The
department shall prioritize the allocation of tax credits under
this subsection for qualified start-up businesses which
demonstrate the strongest likelihood of increasing jobs in this
Commonwealth and increasing capital investment in this
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Commonwealth. An allocation of a tax credit under this
subsection shall expire one year after the allocation.
(f) Assignment.--A qualified start-up business which
receives an allocation under subsection (e) may assign an amount
of the tax credit that was allocated to a qualified start-up
investor. An assignment under this subsection shall be made by a
written contract between the qualified start-up business and a
qualified start-up investor. The written contract shall include
the assignment to a qualified start-up investor as partial
consideration for making a qualified investment.
Section 1907-H. Application for tax credits by qualified start-
up investor.
(a) Application.--A qualified start-up investor may apply to
the department for approval for a tax credit under this section.
The application shall be submitted on a form and in a manner as
required by the department.
(b) Information.--An application under subsection (a) shall
include the following information:
(1) The name and address of the applicant.
(2) Documentation that the applicant meets the
qualifications under subsection (d).
(3) Any other information required by the department.
(c) Review of application.--Upon receipt of an application
under subsection (a), the department shall review the
application.
(d) Qualifications.--An applicant under subsection (a) shall
be approved for a tax credit if the applicant meets all of the
following qualifications:
(1) The applicant is a qualified start-up investor and
meets the requirements under section 1905-H at the time of
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submitting the application to the department.
(2) The applicant made qualified investments in a
qualified start-up business.
(3) The applicant entered into a contract under section
1906-H(f) under which the applicant was assigned tax credits
by a qualified start-up business.
(4) The qualified start-up business which was the
subject of the qualified investment under paragraph (2) meets
the qualifications under section 1904-H(d) at the time of the
investment. The department may require the qualified start-up
business to recertify material as necessary to confirm
continued qualification as a qualified start-up business.
(5) The applicant has filed all required State tax
reports and returns for all taxable years and paid any
balance of State tax due as determined by the Department of
Revenue.
(6) The applicant provides all documentation necessary
to the department to verify compliance with this article.
(7) The qualified start-up business which was the
subject of the qualified investment under paragraph (2)
provides the necessary documentation and makes any necessary
certifications to the department for the verification under
subsection (e).
(8) The qualified start-up business which was the
subject of the qualified investment under paragraph (2)
provides the necessary documentation to the department to
verify compliance with this article.
(e) Verification.--Upon receipt of an application under
subsection (a), a qualified start-up business shall verify
information for the department.
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(f) Qualified investment.--An investment under subsection
(d)(2) shall be approved by the department as a qualified
investment if the investment was made by a qualified start-up
investor in a qualified start-up business.
(g) Amount of credit.--The amount of tax credit approved
under subsection (f) shall be 25% of the qualified investment.
(h) Approval.--If the application under subsection (a) meets
the qualifications under subsection (d) and if the necessary
information is verified under subsection (e), the department
shall approve the qualified start-up investor for a tax credit.
Section 1908-H. Sale, carryover and carryback.
(a) Carryover.--If a qualified start-up investor cannot use
the entire amount of a tax credit for the taxable year in which
the qualified start-up investor is eligible for the tax credit,
the excess may be carried over to succeeding taxable years and
used as a credit against the qualified tax liability of the
qualified start-up investor for those taxable years.
(b) Application.--A tax credit approved by the department in
a taxable year first shall be applied against the qualified
start-up investor's qualified tax liability for the current
taxable year as of the date on which the tax credit was approved
before the tax credit can be applied against any tax liability
under subsection (a).
(c) No carryback or refund.--A qualified start-up investor
may not carry back or obtain a refund of all or any portion of
an unused tax credit.
Section 1909-H. Pass-through entity.
(a) Election.--If a pass-through entity has any unused tax
credit under section 1908-H, the entity may elect, in writing,
according to the department's procedures, to transfer all or a
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portion of the tax credit to shareholders, members or partners
in proportion to the share of the entity's distributive income
to which the shareholder, member or partner is entitled.
(b) Application of credit.--The tax credit provided under
subsection (a) is in addition to any tax credit to which a
shareholder, member or partner of a pass-through entity is
otherwise entitled under this article. A pass-through entity and
a shareholder, member or partner of a pass-through entity may
not claim a tax credit under this article for the same qualified
investment.
(c) Claim.--A shareholder, member or partner of a pass-
through entity to whom a tax credit is transferred under
subsection (a) shall immediately claim the tax credit in the
taxable year in which the tax credit is transferred. The
shareholder, member or partner of the pass-through entity may
not carry forward, carry back, obtain a refund of or sell or
assign the tax credit.
Section 1910-H. Limitation on allocations.
(a) Total allocations.--The department may allocate an
amount of tax credits in a fiscal year not to exceed the amount
of unused keystone innovation zone tax credits under section
1906-F(c)(2) for the prior fiscal year.
(b) Limitation.--No more than 25% of the total amount
available for allocation in a fiscal year under subsection (a)
may be allocated to a single qualified start-up business.
Section 1911-H. Repayment.
(a) Investors.--A qualified start-up investor shall repay to
the Commonwealth the amount of tax credit claimed if the
qualified start-up investor withdraws or otherwise liquidates
the qualified investment less than five years after making a
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qualified investment. The repayment made under this subsection
shall be equal to the amount of tax liability reduced as a
result of the use of the tax credit.
(b) Businesses.--A qualified start-up business which fails
to complete any action which was the subject of a certification
under section 1904-H(d) shall repay to the Commonwealth the
amount of tax credit claimed by a qualified start-up investor
which received an allocation from the qualified start-up
business under section 1906-H(f).
Section 1912-H. Guidelines.
The department shall publish guidelines for the
implementation of this article within 60 days of the effective
date of this section.
Section 1913-H. Reports.
(a) Submission.--By October 1, 2022, and October 1 of each
year thereafter, the department shall submit a report on the tax
credit provided by this article to the chairperson and minority
chairperson of the Appropriations Committee of the Senate, the
chairperson and minority chairperson of the Appropriations
Committee of the House of Representatives, the chairperson and
minority chair of the Finance Committee of the Senate and the
chairperson and minority chairperson of the Finance Committee of
the House of Representatives. The department shall make a copy
of the report available on the department's publicly accessible
Internet website.
(b) Contents.--The report under subsection (a) shall include
the following information:
(1) The name of each qualified start-up business
approved under section 1904-H during the prior fiscal year.
(2) The number of qualified start-up investors approved
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under section 1905-H during the prior fiscal year.
(3) The amount of tax credits allocated to each
qualified start-up business under section 1906-H(e) during
the prior fiscal year.
(4) The amount of tax credits assigned by each qualified
start-up business to a qualified start-up investor under
1906-H(f) during the prior fiscal year.
(5) The amount of tax credits claimed by start-up
investors under section 1907-H during the prior fiscal year.
Section 1914-H. Expiration.
The department may not allocate a tax credit under this
article after July 1, 2027.
Section 2. This act shall take effect in 60 days.
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