Regular Session 2017-2018 House Bill 1719 P.N. 2304

PRINTER'S NO. 2304

THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

No.

1719

Session of

2017

INTRODUCED BY CONKLIN, V. BROWN, BULLOCK, D. COSTA, DEAN,

DeLUCA, DRISCOLL, FREEMAN, McNEILL, MULLERY, NEILSON, SOLOMON

AND THOMAS, AUGUST 16, 2017

REFERRED TO COMMITTEE ON FINANCE, AUGUST 16, 2017

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," in corporate net income tax, further providing

for definitions, for reports and payment and for consolidated

reports; and, in general provisions, further providing for

underpayment of estimated tax.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1. Section 401(3)1(a) and (b) and 2(a) and (5) of

the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform

Code of 1971, are amended, clause (3)2 is amended by adding a

phrase and the section is amended by adding clauses to read:

Section 401. Definitions.--The following words, terms, and

phrases, when used in this article, shall have the meaning

ascribed to them in this section, except where the context

clearly indicates a different meaning:

* * *

(3) "Taxable income." 1. (a) In case the entire business

of the corporation is transacted within this Commonwealth, for

any taxable year which begins on or after January 1, 1971,

taxable income for the calendar year or fiscal year as returned

to and ascertained by the Federal Government, or in the case of

a corporation participating in the filing of consolidated

returns to the Federal Government or that is not required to

file a return with the Federal Government, the taxable income

which would have been returned to and ascertained by the Federal

Government if separate returns had been made to the Federal

Government for the current and prior taxable years, subject,

however, to any correction thereof, for fraud, evasion, or error

as finally ascertained by the Federal Government.

(b) Additional deductions shall be allowed from taxable

income on account of any dividends received from any other

corporation but only to the extent that such dividends are

included in taxable income as returned to and ascertained by the

Federal Government. For tax years beginning on or after January

1, 1991, additional deductions shall only be allowed for amounts

included, under section 78 of the Internal Revenue Code of 1986

(Public Law 99-514, 26 U.S.C. § 78), in taxable income returned

to and ascertained by the Federal Government and for the amount

of any dividends received from a foreign corporation included in

taxable income to the extent such dividends would be deductible

in arriving at Federal taxable income if received from a

domestic corporation. For taxable years beginning on or after

January 1, 2018, if not otherwise allowed as a deduction, an

additional deduction is allowed for all dividends paid by one to

another of the included corporations of a unitary business to

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the extent those dividends are included in business income of a

corporation that is required to determine its business income

under paragraph (1) of phrase (e) of subclause 2.

* * *

2. In case the entire business of any corporation, other

than a corporation engaged in doing business as a regulated

investment company as defined by the Internal Revenue Code of

1986, is not transacted within this Commonwealth, the tax

imposed by this article shall be based upon such portion of the

taxable income of such corporation for the fiscal or calendar

year, as defined in subclause 1 hereof, and may be determined as

follows:

(a) Division of Income.

(1) As used in this definition, unless the context otherwise

requires:

(A) "Business income" means income arising from transactions

and activity in the regular course of the taxpayer's trade or

business and includes income from tangible and intangible

property if either the acquisition, the management or the

disposition of the property constitutes an integral part of the

taxpayer's regular trade or business operations. The term

includes all income which is apportionable under the

Constitution of the United States.

(B) "Commercial domicile" means the principal place from

which the trade or business of the taxpayer is directed or

managed.

any other form of remuneration paid to employes for personal

services.

(D) "Nonbusiness income" means all income other than

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business income. The term does not include income which is

apportionable under the Constitution of the United States.

(E) "Sales" means all gross receipts of the taxpayer not

allocated under this definition other than dividends received,

interest on United States, state or political subdivision

obligations and gross receipts heretofore or hereafter received

from the sale, redemption, maturity or exchange of securities,

except those held by the taxpayer primarily for sale to

customers in the ordinary course of its trade or business.

(F) "State" means any state of the United States, the

District of Columbia, the Commonwealth of Puerto Rico, any

territory or possession of the United States, and any foreign

country or political subdivision thereof.

(G) "This state" means the Commonwealth of Pennsylvania or,

in the case of application of this definition to the

apportionment and allocation of income for local tax purposes,

the subdivision or local taxing district in which the relevant

tax return is filed.

(2) Any taxpayer having income from business activity which

is taxable both within and without this State other than

activity as a corporation whose allocation and apportionment of

income is specifically provided for in section 401(3)2(b)(c) and

(d) shall allocate and apportion taxable income as provided in

this definition.

(3) For purposes of allocation and apportionment of income

under this definition, a taxpayer is taxable in another state if

in that state the taxpayer is subject to a net income tax, a

franchise tax measured by net income, a franchise tax for the

privilege of doing business, or a corporate stock tax or if that

state has jurisdiction to subject the taxpayer to a net income

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tax regardless of whether, in fact, the state does or does not.

(4) Rents and royalties from real or tangible personal

property, gains, interest, patent or copyright royalties, to the

extent that they constitute nonbusiness income, shall be

allocated as provided in paragraphs (5) through (8).

(5) (A) Net rents and royalties from real property located

in this State are allocable to this State.

(B) Net rents and royalties from tangible personal property

are allocable to this State if and to the extent that the

property is utilized in this State, or in their entirety if the

taxpayer's commercial domicile is in this State and the taxpayer

is not organized under the laws of or taxable in the state in

which the property is utilized.

in a state is determined by multiplying the rents and royalties

by a fraction, the numerator of which is the number of days of

physical location of the property in the state during the rental

or royalty period in the taxable year and the denominator of

which is the number of days of physical location of the property

everywhere during all rental or royalty periods in the taxable

year. If the physical location of the property during the rental

or royalty period is unknown or unascertainable by the taxpayer,

tangible personal property is utilized in the state in which the

property was located at the time the rental or royalty payer

obtained possession.

(6) (A) Gains and losses from sales or other disposition of

real property located in this State are allocable to this State.

(B) Gains and losses from sales or other disposition of

tangible personal property are allocable to this State if the

property had a situs in this State at the time of the sale, or

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the taxpayer's commercial domicile is in this State and the

taxpayer is not taxable in the state in which the property had a

situs.

intangible personal property are allocable to this State if the

taxpayer's commercial domicile is in this State.

(7) Interest is allocable to this State if the taxpayer's

commercial domicile is in this State.

(8) (A) Patent and copyright royalties are allocable to

this State if and to the extent that the patent or copyright is

utilized by the payer in this State, or if and to the extent

that the patent copyright is utilized by the payer in a state in

which the taxpayer is not taxable and the taxpayer's commercial

domicile is in this State.

(B) A patent is utilized in a state to the extent that it is

employed in production, fabrication, manufacturing, or other

processing in the state or to the extent that a patented product

is produced in the state. If the basis of receipts from patent

royalties does not permit allocation to states or if the

accounting procedures do not reflect states of utilization, the

patent is utilized in the state in which the taxpayer's

commercial domicile is located.

printing or other publication originates in the state. If the

basis of receipts from copyright royalties does not permit

allocation to states or if the accounting procedures do not

reflect states of utilization, the copyright is utilized in the

state in which the taxpayer's commercial domicile is located.

(9) (A) Except as provided in subparagraph (B):

(i) For taxable years beginning before January 1, 2007, all

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business income shall be apportioned to this State by

multiplying the income by a fraction, the numerator of which is

the property factor plus the payroll factor plus three times the

sales factor and the denominator of which is five.

(ii) For taxable years beginning after December 31, 2006,

all business income shall be apportioned to this State by

multiplying the income by a fraction, the numerator of which is

the sum of fifteen times the property factor, fifteen times the

payroll factor and seventy times the sales factor and the

denominator of which is one hundred.

(iii) For taxable years beginning after December 31, 2008,

all business income shall be apportioned to this State by

multiplying the income by a fraction, the numerator of which is

the sum of eight and a half times the property factor, eight and

a half times the payroll factor and eighty-three times the sales

factor and the denominator of which is one hundred.

(iv) For taxable years beginning after December 31, 2009,

all business income shall be apportioned to this State by

multiplying the income by a fraction, the numerator of which is

the sum of five times the property factor, five times the

payroll factor and ninety times the sales factor and the

denominator of which is one hundred.

(v) For taxable years beginning after December 31, 2012, all

business income shall be apportioned to this State by

multiplying the income by the sales factor.

(B) For purposes of apportionment of the capital stock -

franchise tax as provided in section 602 of Article VI of this

act, the apportionment fraction shall be the property factor

plus the payroll factor plus the sales factor as the numerator,

and the denominator shall be three.

20170HB1719PN2304 - 7 -

(10) The property factor is a fraction, the numerator of

which is the average value of the taxpayer's real and tangible

personal property owned or rented and used in this State during

the tax period and the denominator of which is the average value

of all the taxpayer's real and tangible personal property owned

or rented and used during the tax period but shall not include

the security interest of any corporation as seller or lessor in

personal property sold or leased under a conditional sale,

bailment lease, chattel mortgage or other contract providing for

the retention of a lien or title as security for the sales price

of the property.

(11) Property owned by the taxpayer is valued at its

original cost. Property rented by the taxpayer is valued at

eight times the net annual rental rate. Net annual rental rate

is the annual rental rate paid by the taxpayer less any annual

rental rate received by the taxpayer from subrentals.

(12) The average value of property shall be determined by

averaging the values at the beginning and ending of the tax

period but the tax administrator may require the averaging of

monthly values during the tax period if reasonably required to

reflect properly the average value of the taxpayer's property.

(13) The payroll factor is a fraction, the numerator of

which is the total amount paid in this State during the tax

period by the taxpayer for compensation and the denominator of

which is the total compensation paid everywhere during the tax

period.

(14) Compensation is paid in this State if:

(A) The individual's service is performed entirely within

the State;

(B) The individual's service is performed both within and

20170HB1719PN2304 - 8 -

without this State, but the service performed without the State

is incidental to the individual's service within this State; or

base of operations or if there is no base of operations, the

place from which the service is directed or controlled is in

this State, or the base of operations or the place from which

the service is directed or controlled is not in any state in

which some part of the service is performed, but the

individual's residence is in this State.

(15) The sales factor is a fraction, the numerator of which

is the total sales of the taxpayer in this State during the tax

period, and the denominator of which is the total sales of the

taxpayer everywhere during the tax period.

(16) Sales of tangible personal property are in this State

if the property is delivered or shipped to a purchaser, within

this State regardless of the f.o.b. point or other conditions of

the sale.

(16.1) (A) Sales from the sale, lease, rental or other use

of real property, if the real property is located in this State.

If a single parcel of real property is located both in and

outside this State, the sale is in this State based upon the

percentage of original cost of the real property located in this

State.

(B) (I) Sales from the rental, lease or licensing of

tangible personal property, if the customer first obtained

possession of the tangible personal property in this State.

(II) If the tangible personal property is subsequently taken

out of this State, the taxpayer may use a reasonably determined

estimate of usage in this State to determine the extent of sale

in this State.

20170HB1719PN2304 - 9 -

delivered to a location in this State. If the service is

delivered both to a location in and outside this State, the sale

is in this State based upon the percentage of total value of the

service delivered to a location in this State.

(II) If the state or states of assignment under unit (I)

cannot be determined for a customer who is an individual that is

not a sole proprietor, a service is deemed to be delivered at

the customer's billing address.

(III) If the state or states of assignment under unit (I)

cannot be determined for a customer, except for a customer under

unit (II), a service is deemed to be delivered at the location

from which the services were ordered in the customer's regular

course of operations. If the location from which the services

were ordered in the customer's regular course of operations

cannot be determined, a service is deemed to be delivered at the

customer's billing address.

(17) Sales, other than sales under paragraphs (16) [and],

(16.1), (17.1) and (17.2) are in this State if:

(A) The income-producing activity is performed in this

State; or

(B) The income-producing activity is performed both in and

outside this State and a greater proportion of the income-

producing activity is performed in this State than in any other

state, based on costs of performance.

(17.1) Sales of services are in this State if sales are

derived from customers within this State. If part of the sales

with respect to a specific contract or other agreement to

perform services is derived from customers from within this

State, sales are in this State in proportion to the sales

20170HB1719PN2304 - 10 -

derived from customers within this State to total sales with

respect to that contract or agreement.

(17.2) In order to determine sales in this State of any

railroad, truck, bus, airline, pipeline, natural gas or water

transportation company that is required to determine its

business income under paragraph (1) of phrase (e) of this

subclause the company must convert the relevant fraction

provided under phrase (b), (c) or (d) of this subclause to gross

receipts. Sales in this State are the result of multiplying

total gross receipts from relevant transportation activities by

the decimal equivalent of the relevant fraction provided under

phrase (b), (c) or (d) of this subclause.

(18) If the allocation and apportionment provisions of this

definition do not fairly represent the extent of the taxpayer's

business activity in this State, the taxpayer may petition the

Secretary of Revenue or the Secretary of Revenue may require, in

respect to all or any part of the taxpayer's business activity:

(A) Separate accounting;

(B) The exclusion of any one or more of the factors;

will fairly represent the taxpayer's business activity in this

State; or

(D) The employment of any other method to effectuate an

equitable allocation and apportionment of the taxpayer's income.

In determining the fairness of any allocation or apportionment,

the Secretary of Revenue may give consideration to the

taxpayer's previous reporting and its consistency with the

requested relief.

* * *

(f) Corporations That are Members of a Unitary Business.

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(1) Notwithstanding any contrary provisions of this article,

for taxable years that begin on or after January 1, 2018,

business income of a corporation that is a member of a unitary

business that consists of two or more corporations, at least one

of which does not transact its entire business in this State, is

determined by combining the business income of either all

corporations, other than as provided under this paragraph, that

are water's-edge basis members or all corporations, other than

as provided under this paragraph, that are worldwide members of

the unitary business. Business income from an intercompany

transaction between included corporations of a unitary business

shall be deferred in the manner provided under 26 CFR 1.1502-13

(relating to intercompany transactions) in determining the

business income of a corporation that is a member of that

unitary business. Business income of the following corporations

is not included in the determination of combined business

income:

(i) a corporation subject to taxation under Article VII,

VIII, IX or XV;

(ii) a corporation specified in the definition of

"institution" in section 701.5 that would be subject to taxation

under Article VII if it was located, as defined in section

701.5, in this State;

(iii) a corporation commonly known as a title insurance

company that would be subject to taxation under Article VIII if

it was incorporated in this State;

(iv) a corporation specified as an insurance company,

association or exchange in Article IX that would be subject to

taxation under Article IX if its insurance business was

transacted in this State;

20170HB1719PN2304 - 12 -

(v) a corporation specified in the definition of

"institution" in section 1501 that would be subject to taxation

under Article XV if it was located, as defined in section 1501,

in this State; or

(vi) a corporation that is a small corporation, as defined

in section 301(s.2), or a qualified Subchapter S subsidiary, as

defined in section 301(o.3).

(2) Notwithstanding any contrary provisions of this article,

all corporations that are required to compute business income

under paragraph (1) are entitled to apportion the business

income when one corporation of the same unitary business is

entitled to apportion the business income. Notwithstanding any

contrary provisions of this article, for taxable years that

begin on or after January 1, 2018, the denominator of the

apportionment fraction of a corporation that is required to

compute its business income under paragraph (1) shall be

computed on a combined basis for all included corporations of

the unitary business. Gross receipts from an intercompany

transaction between included corporations of a unitary business

shall be eliminated unless the gross receipts are derived from

transactions that are deferred in the manner set forth under 26

CFR 1.1502-13 in computing the numerator and denominator of the

apportionment fraction of a corporation that is required to

compute its business income under paragraph (1). Gross receipts

from transactions that had been deferred in the manner provided

under 26 CFR 1.1502-13 are included in a corporation's

apportionment fraction during the same taxable year that it

realizes business income that had been deferred due to the

transaction. The apportionment fraction of the following

corporations shall not be included in the determination of the

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combined apportionment fraction:

(i) a corporation subject to taxation under Article VII,

VIII, IX or XV;

(ii) a corporation specified in the definition of

"institution" in section 701.5 that would be subject to taxation

under Article VII if it was located, as defined in section

701.5, in this State;

(iii) a corporation commonly known as a title insurance

company that would be subject to taxation under Article VIII if

it was incorporated in this State;

(iv) a corporation specified as an insurance company,

association or exchange in Article IX that would be subject to

taxation under Article IX if its insurance business was

transacted in this State;

(v) a corporation specified in the definition of

"institution" in section 1501 that would be subject to taxation

under Article XV if it was located, as defined in section 1501,

in this State;

(vi) a corporation that is a small corporation, as defined

in section 301(s.2), or a qualified Subchapter S subsidiary, as

defined in section 301(o.3).

(3) A corporation that is required to compute its business

income under paragraph (1) shall apportion the combined business

income by multiplying the combined business income by a fraction

which is the combined apportionment fraction provided under

paragraph (2).

(4) Nonbusiness income of a corporation that is required to

compute business income under paragraph (1) shall be allocated

as provided in paragraphs (5), (6), (7) and (8) of phrase (a) of

subclause 2 of the definition of "taxable income."

20170HB1719PN2304 - 14 -

(5) Each corporation that is a member of a unitary business

that consists of two or more corporations shall determine its

tax liability based on its apportioned share of the combined

business income of the unitary business plus its nonbusiness

income or loss allocated to this State, minus its net loss

deduction.

(6) If any provision of this phrase operates so that an

amount is added to or deducted from taxable income for a taxable

year for a corporation of a unitary business that previously had

been added to or deducted from taxable income of a corporation

of the same unitary business, an appropriate adjustment shall be

made for the taxable year in order to prevent double taxation or

double deduction. If this adjustment is not made by the

appropriate corporation of the unitary business, the Secretary

of Revenue is authorized to make this adjustment.

(7) The Secretary of Revenue shall have the authority and

responsibility to make adjustments to insure that a corporation

does not incur an unfair penalty nor realize an unfair benefit

because it is required to compute its business income under

paragraph (1). Fairness shall be measured by whether the

corporation's income allocated and apportioned to this State

fairly reflects the corporation's share of the unitary business

conducted in this State in the taxable year.

* * *

(5) "Taxable year." [The] 1. Except as provided in

subclause 2, the taxable year which the corporation, or any

consolidated group with which the corporation participates in

the filing of consolidated returns, actually uses in reporting

taxable income to the Federal Government[.], or which the

corporation would have used in reporting taxable income to the

20170HB1719PN2304 - 15 -

Federal Government had it been required to report its taxable

income to the Federal Government. With regard to the tax imposed

by Article IV of this act (relating to the Corporate Net Income

Tax), the terms "annual year," "fiscal year," "annual or fiscal

year," "tax year" and "tax period" shall be the same as the

corporation's taxable year, as defined in this [paragraph.]

subclause or subclause 2.

2. All corporations of a unitary business shall have a

common taxable year for purposes of computing tax due under this

article. The taxable year for the purposes shall be the common

taxable year adopted, in a manner prescribed by the department,

by all corporations of a unitary business. The common taxable

year must be used by all corporations of that unitary business

in the year of adoption and all future years unless otherwise

permitted by the department.

* * *

(8) "Tax haven." A jurisdiction that, during the tax year

in question, has no or nominal effective tax on the relevant

income and meets any of the following:

(i) Has laws or practices that prevent effective exchange of

information for tax purposes with other governments on taxpayers

benefiting from the tax regime.

(ii) Has a tax regime which lacks transparency. A tax regime

lacks transparency if the details of legislative, legal or

administrative provisions are not open and apparent or are not

consistently applied among similarly situated taxpayers, or if

the information needed by tax authorities to determine a

taxpayer's correct tax liability, including accounting records

and underlying documentation, is not adequately available.

(iii) Facilitates the establishment of foreign-owned

20170HB1719PN2304 - 16 -

entities without the need for a local substantive presence or

prohibits these entities from having a commercial impact on the

local economy.

(iv) Explicitly or implicitly excludes the jurisdiction's

resident taxpayers from taking advantage of the tax regime's

benefits or prohibits enterprises that benefit from the regime

operating in the jurisdiction's domestic market.

(v) Has created a tax regime which is favorable for tax

avoidance, based upon an overall assessment of relevant factors,

including whether the jurisdiction has a significant untaxed

off-shore financial and other services sector relative to its

overall economy.

(9) "Unitary business." A single economic enterprise that

is made up of separate parts of a single corporation, of a

commonly controlled group of corporations, or both, that are

sufficiently interdependent, integrated and interrelated through

their activities so as to provide a synergy and mutual benefit

that produces a sharing or exchange of value among them and a

significant flow of value to the separate parts. A unitary

business shall include only those parts and corporations which

may be included as a unitary business under the Constitution of

the United States.

(10) "Water's-edge basis." A system of reporting that

includes the business income and apportionment factor of certain

corporations of a unitary business, described as follows:

1. The business income and apportionment factor of any

member incorporated in the United States or formed under the

laws of any state of the United States, the District of

Columbia, any territory or possession of the United States or

the Commonwealth of Puerto Rico.

20170HB1719PN2304 - 17 -

2. The business income and apportionment factor of a member,

regardless of the place incorporated or formed, if the average

of its property, payroll and sales factors within the United

States is twenty per cent or more.

3. The business income and apportionment factor of a member

which is a domestic international sales corporation as described

in sections 991, 992, 993 and 994 of the Internal Revenue Code

of 1986 (Public Law 99-514, 26 U.S.C. §§ 991, 992, 993 and 994);

a foreign sales corporation as described in former sections 921,

922, 923, 924, 925, 926 and 927 of the Internal Revenue Code of

1986 (formerly 26 U.S.C. §§ 921, 922, 923, 924, 925, 926 and

927); or a member which is an export trade corporation, as

described in sections 970 and 971 of the Internal Revenue Code

of 1986 ( 26 U.S.C. §§ 970 and 971).

4. A member not described in subclauses 1, 2 and 3 shall

include the portion of its business income derived from or

attributable to sources within the United States, as determined

under the Internal Revenue Code of 1986 without regard to

Federal treaties, and its apportionment factor related thereto.

5. A member that is a "controlled foreign corporation" as

defined in section 957 of the Internal Revenue Code of 1986 (26

U.S.C. § 957), to the extent the business income of that member

is income defined in section 952 of the Internal Revenue Code of

1986 (26 U.S.C. § 952), Subpart F income, not excluding lower-

tier subsidiaries' distributions of the income which were

previously taxed, determined without regard to Federal treaties,

and the apportionment factor related to that income; any item of

income received by a controlled foreign corporation and the

apportionment factor related to the income shall be excluded if

the corporation establishes to the satisfaction of the Secretary

20170HB1719PN2304 - 18 -

of Revenue that the income was subject to an effective rate of

income tax imposed by a foreign country greater than ninety per

cent of the maximum rate of tax specified in section 11 of the

Internal Revenue Code of 1986 (26 U.S.C. § 11). The effective

rate of income tax determination shall be based upon the

methodology provided under 26 CFR 1.954-1 (relating to foreign

base company income).

6. The business income and apportionment factor of any

member that is not described in subclause 1, 2, 3, 4 and 5 and

that is doing business in a tax haven. The business income and

apportionment factor of a corporation doing business in a tax

haven shall be excluded if the corporation establishes to the

satisfaction of the Secretary of Revenue that its income was

subject to an effective rate of income tax imposed by a country

greater than ninety per cent of the maximum rate of tax

specified in section 11 of the Internal Revenue Code of 1986 (26

U.S.C. § 11).

(11) "Commonly controlled group." For a corporation, the

corporation is a member of a group of two or more corporations

and more than fifty per cent of the voting stock of each member

of the group is directly or indirectly owned by a common owner

or by common owners, either corporate or noncorporate, or by one

or more of the member corporations of the group.

(12) "Separate company." A corporation that is not a member

of a unitary business that consists of two or more corporations.

(13) "Tax." Includes interest, penalties and additions to

tax unless a more limited meaning is disclosed by the context.

Section 2. Section 403 of the act is amended by adding

subsections to read:

Section 403. Reports and Payment of Tax.--* * *

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(a.1) (1) Each corporation subject to tax under this

article shall file an annual report in accordance with this

section. Each corporation that is a member of a unitary business

that consists of two or more corporations, unless excluded by

the provisions of this article, shall file as part of a combined

annual report. The corporations of the unitary business shall

designate one member that is subject to tax under this article

to file the combined annual report and to act as agent on behalf

of all other corporations that are members of the unitary

business. Each corporation that is a member of a unitary

business shall be responsible for its tax liability under this

article.

(2) The oath or affirmation of the designated member's

president, vice president or other principal officer, and of its

treasurer or assistant treasurer shall constitute the oath or

affirmation of each corporation that is a member of that unitary

business.

(3) The designated member shall transmit to the department

upon a form prescribed by the department, an annual combined

report under oath or affirmation of its president, vice

president or other principal officer, and of its treasurer or

assistant treasurer. The report shall provide the following:

(i) All corporations included in the unitary business.

(ii) All necessary data, both in the aggregate and for each

corporation of the unitary business, that provides the

determination of tax liability for each corporation of the

unitary business.

(iii) Any other information that the department may require.

(a.2) (1) Activities that evidence a significant flow of

value among commonly controlled corporations shall include the

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following:

(i) Assisting in the acquisition of equipment.

(ii) Assisting with filling personnel needs.

(iii) Lending funds or guaranteeing loans.

(iv) Interplay in the area of corporate expansion.

(v) Providing technical assistance.

(vi) Supervising.

(vii) Providing general operational guidance.

(viii) Providing overall operational strategic advice.

(ix) Common use of trade names and patents.

(2) Significant flow of value must be more than the flow of

funds arising out of passive investment and shall consist of

more than periodic financial oversight.

(a.3) (1) With respect to a commonly controlled group of

corporations, the presence of any of these factors creates a

presumption of a unitary business:

(i) Corporations engaged in the same type of business.

(ii) Corporations engaged in different steps in a vertically

structured enterprise.

(iii) Strong centralized management of corporations.

(2) A corporation newly formed by a corporation that is a

member of a unitary business is rebuttably presumed to be a

member of the unitary business.

(3) A corporation that owns a controlling interest in two or

more corporations of a unitary business is rebuttably presumed

to be a member of the unitary business.

(4) A corporation that permits one or more other

corporations of a unitary business to substantially use its

patents, trademarks, service marks, logo-types, trade secrets,

copyrights or other proprietary assets or that is principally

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engaged in loaning money to one or more other corporations of a

unitary business is rebuttably presumed to be a member of the

unitary business. This presumption only applies to a commonly

controlled group of corporations.

(a.4) As far as applicable to a specific unitary business,

unless there is a revision of applicable State law or unless a

corporation is not included under the provisions of this

article, there is a rebuttable presumption for all tax years

that begin in years 2017 and 2018 that a unitary business of two

or more corporations includes at least all corporations that are

part of a unitary business under the law of any state of the

United States in which the corporation files a tax report or tax

return of combined net income for the same tax year.

(a.5) Unless an election is made to use a worldwide basis of

accounting, a corporation that is a member of a unitary business

of two or more corporations must determine its business income

and apportionment factor upon a water's-edge basis. This basis

shall apply to all corporations of the unitary business. If an

election is made to use a worldwide basis of accounting, all

corporations of the unitary business must make the election,

upon a form, prescribed, prepared and furnished by the

department. This election shall bind all corporations of the

unitary business for the period of time that the election

remains in effect. An initial election is binding for a period

of seven years. Subsequent elections shall be binding for a

period of five years.

* * *

Section 3. Section 404 of the act is amended to read:

Section 404. Consolidated Reports.--The department shall not

permit any corporation owning or controlling, directly or

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indirectly, any of the voting capital stock of another

corporation or of other corporations, subject to the provisions

of this article, to make a consolidated report[, showing the

combined net income].

Section 4. Section 3003.3(d) of the act is amended and the

section is amended by adding subsections to read:

Section 3003.3. Underpayment of Estimated Tax.--* * *

(d) Notwithstanding the provisions of the preceding

subsections, other than as provided under subsection (d.1),

interest with respect to any underpayment of any installment of

estimated tax shall not be imposed if the total amount of all

payments of estimated tax made on or before the last date

prescribed for the payment of such installment equals or exceeds

the amount which would have been required to be paid on or

before such date if the estimated tax were an amount equal to

the tax computed at the rates applicable to the taxable year,

including any minimum tax imposed, but otherwise on the basis of

the facts shown on the report of the taxpayer for, and the law

applicable to, the safe harbor base year, adjusted for any

changes to sections 401, 601, 602 and 1101 enacted for the

taxable year, if a report showing a liability for tax was filed

by the taxpayer for the safe harbor base year. If the total

amount of all payments of estimated tax made on or before the

last date prescribed for the payment of such installment does

not equal or exceed the amount required to be paid per the

preceding sentence, but such amount is paid after the date the

installment was required to be paid, then the period of

underpayment shall run from the date the installment was

required to be paid to the date the amount required to be paid

per the preceding sentence is paid. Provided, that if the total

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tax for the safe harbor base year exceeds the tax shown on such

report by ten per cent or more, the total tax adjusted to

reflect the current tax rate shall be used for purposes of this

subsection. In the event that the total tax for the safe harbor

base year exceeds the tax shown on the report by ten per cent or

more, interest resulting from the utilization of such total tax

in the application of the provisions of this subsection shall

not be imposed if, within forty-five days of the mailing date of

each assessment, payments are made such that the total amount of

all payments of estimated tax equals or exceeds the amount which

would have been required to be paid on or before such date if

the estimated tax were an amount equal to the total tax adjusted

to reflect the current tax rate. In any case in which the

taxable year for which an underpayment of estimated tax may

exist is a short taxable year, in determining the tax shown on

the report or the total tax for the safe harbor base year, the

tax will be reduced by multiplying it by the ratio of the number

of installment payments made in the short taxable year to the

number of installment payments required to be made for the full

taxable year.

(d.1) (1) Notwithstanding subsections (a), (b) and (c),

interest with respect to an underpayment of an installment of

estimated corporate net income tax for a tax year that begins in

year 2017 or 2018 shall not be imposed if the total amount of

all payments of estimated corporate net income tax made on or

before the last date prescribed for the payment of the

installment equals or exceeds the amount which would have been

required to be paid on or before that date if the estimated tax

were an amount equal to the tax shown on the report of the

taxpayer for the safe harbor base year, if a report showing a

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liability for tax was filed by the taxpayer for the safe harbor

base year.

(2) If the total amount of all payments of estimated tax

made on or before the last date prescribed for the payment of

the installment does not equal or exceed the amount required to

be paid under paragraph (1), but the amount is paid after the

date the installment was required to be paid, the period of

underpayment shall run from the date the installment was

required to be paid to the date the amount required to be paid

under paragraph (1) is paid.

(3) If the total tax for the safe harbor base year exceeds

the tax shown on the report by ten per cent or more, the total

tax shall be used for purposes of this subsection. If the total

tax for the safe harbor base year exceeds the tax shown on the

report by ten per cent or more, interest resulting from the

utilization of the total tax in the application of the

provisions of this subsection shall not be imposed if, within

forty-five days of the mailing date of a notice from the

department increasing the total tax, payments are made such that

the total amount of all payments of estimated tax equals or

exceeds the amount which would have been required to be paid on

or before the date if the estimated tax were an amount equal to

the total tax.

(4) If the taxable year for which an underpayment of

estimated tax may exist is a short taxable year, in determining

the tax shown on the report or the total tax for the safe harbor

base year, the tax shall be reduced by multiplying it by the

ratio of the number of installment payments made in the short

taxable year to the number of installment payments required to

be made for the full taxable year.

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(d.2) (1) If there is a substantial underpayment, as

defined in subsection (a), of an installment of estimated

corporate net income tax or estimated capital stock and

franchise tax for a taxable year beginning in 2017 or 2018,

there shall be imposed additional interest in an amount

determined at one hundred twenty per cent of the annual rate as

provided by law upon the entire underpayment for the period of

the substantial underpayment.

(2) The additional interest imposed under this subsection

shall be in addition to any other interest imposed on

underpayments under this section.

Section 5. The amendment or addition of the following

provisions shall apply to taxable years beginning after December

31, 2017:

(1) Section 401(3)1(a) and (b) and 2(a) and (5), (8),

(9), (10), (11), (12) and (13) of the act.

(2) Section 403(a.1), (a.2), (a.3), (a.4) and (a.5) of

the act.

(3) Section 404 of the act.

(4) Section 3003.3(d), (d.1) and (d.2) of the act.

Section 6. This act shall take effect immediately.

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