PRINTER'S NO. 1056
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No.
812
Session of
2017
INTRODUCED BY TARTAGLIONE AND COSTA, JUNE 29, 2017
REFERRED TO FINANCE, JUNE 29, 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 imposition of tax, for reports and
payments of tax 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 4(c)(1) and (5) of the act
of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of
1971, are amended, (3)1(t) is amended by adding a paragraph,
(3)2(a)(16.1) is amended by adding a subparagraph, (3)2 is
amended by adding a clause, (3)4(c) is amended by adding
subparagraphs and the section is amended by adding definitions
to read:
Section 401. Definitions.--The following words, terms, and
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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.
* * *
(t) * * *
(5) The adjustment required by paragraph (1) shall not apply
to a transaction between the taxpayer and an affiliated entity
where the taxpayer and the affiliated entity file a combined
report in this State and the intangible expense or cost, or
interest expense or cost, are eliminated pursuant to the
definition of "combined business income" set forth under
paragraph (15).
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
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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.
* * *
(16.1) * * *
(D) Sales from the licensing of intangible property are in
this State if a licensee utilized the property in this State. If
the property was utilized both inside and outside this State,
the sale is in this State in proportion to the utilization of
the intangible property in this State to the utilization of the
intangible property everywhere.
* * *
(f) Corporations That are Members of a Unitary Business.
(1) For taxable years beginning after December 31, 2018,
business income of a unitary business that consists of two or
more corporations is the combined business income of all
members, as determined on a water's-edge basis.
(2) Each member of a unitary business shall apportion the
combined business income of the unitary business by multiplying
the combined business income of the unitary business by the
member's sales factor, the numerator of which shall be the
member's sales attributable to this State and the denominator of
which shall be the combined sales of all members of the unitary
business. In computing the sales of each member for purposes of
apportionment, the following are excluded from the numerator and
denominator:
(i) Receipts from transactions between or among members of
the unitary business that are deferred under 26 CFR 1.1502-13
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(relating to intercompany transactions) for Federal taxable
income purposes.
(ii) Business income of certain entities excluded from the
definition of combined business income.
(iii) Dividends excluded from the definition of "combined
business income."
(3) For taxable years beginning after December 31, 2018, any
member of the group that would otherwise apportion its business
income under paragraph (3)2(b), (c), (d) or (e) shall convert
its apportionment formula into a single sales fraction, as
prescribed by the department.
(4) Nonbusiness income of each member of a unitary business
shall be allocated as provided under paragraphs (5) through (8)
of phrase (a) of subclause 2 of the definition of "taxable
income."
(5) The taxable income of a member of a unitary business
includes 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) The Secretary of Revenue has 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 combined business income
as provided herein. 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.
* * *
4. * * *
(c) (1) [The] For taxable years beginning prior to January
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1, 2018, the net loss deduction shall be the lesser of:
* * *
(3) (A) For taxable years beginning after December 31,
2017, through December 31, 2018, the net loss deduction shall be
thirty per cent of the taxable income as determined under
subclause 1 or, if applicable, subclause 2.
(B) For taxable years beginning after December 31, 2018, the
net loss deduction shall be the sum of:
a. thirty per cent of the taxable income as determined under
subclause 1 or, if applicable, subclause 2 for net losses
carried over from taxable years beginning prior to January 1,
2019; plus
b. the total net losses carried over from taxable years
beginning after December 31, 2018.
(C) Net losses may be carried over twenty taxable years. The
earliest net loss shall be carried over to the earliest taxable
year to which it may be carried.
(4) Any member of a unitary business that has unused net
loss from taxable years that began prior to January 1, 2019, or
that generate net losses while a member of a unitary business
may only use the net loss for taxable years beginning after
December 31, 2018, and only to the extent of the member's
apportionable share of combined business income and may not be
used by other members of the same unitary business.
(5) Any net loss realized for a taxable year that begins
after December 31, 2018, unused by a corporation which
subsequently becomes a member of another unitary business may
only be used by that corporation.
* * *
(5) "Taxable year." [The] 1. Except as set forth in
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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
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 members of a unitary business shall have a common
taxable year for purposes of computing tax due under this
article. The taxable year for such purposes is the common
taxable year adopted, in a manner prescribed by the department,
by all members of a unitary business. The common taxable year
must be used by all members of the unitary business in the year
of adoption and all future years unless otherwise permitted by
the department.
* * *
(11) "Tax haven." Means:
(A) A jurisdiction that at the beginning of a taxable year
is a tax haven as identified by the Organisation for Economic
Co-operation and Development;
(B) Bermuda;
(C) The Cayman Islands;
(D) The Bailiwick of Jersey;
(E) The Grand Duchy of Luxembourg.
(12) "Unitary business." A single economic enterprise that
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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 includes all those parts and corporations that are
included in a unitary business under the Constitution of the
United States.
(13) "Water's-edge basis." A system of reporting that
includes the business income and apportionment factors of
certain entities of a unitary business, described as follows:
1. 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.
2. Any 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. Any 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 sections 921, 922, 923, 924, 925, 926 and 927 of
the Internal Revenue Code of 1986; or any member which is an
export trade corporation, as described in sections 970 and 971
of the Internal Revenue Code of 1986.
4. Any member not described in subclause 1, 2 or 3 shall
include the portion of its business income derived from or
attributable to sources within the United States, as determined
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under the Internal Revenue Code of 1986 without regard to
Federal treaties, and its apportionment factors related thereto.
5. Any member that is a "controlled foreign corporation" as
defined in section 957 of the Internal Revenue Code of 1986, to
the extent the business income of that member is income defined
in section 952 of the Internal Revenue Code of 1986, Subpart F
income, not excluding lower-tier subsidiaries' distributions of
such income which were previously taxed, determined without
regard to Federal treaties, and the apportionment factors
related to that income; any item of income received by a
controlled foreign corporation and the apportionment factors
related to such income shall be excluded if the corporation
establishes to the satisfaction of the Secretary of Revenue that
such 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. The effective rate of income tax
determination shall be based upon the methodology set forth
under 26 CFR 1.954-1 (relating to foreign base company income).
6. Any member that is not described in subclause 1, 2, 3, 4
or 5 and that is doing business in a tax haven. The business
income and apportionment factors 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.
(14) "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, or controlling
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interest, 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.
(15) "Combined business income." The aggregate taxable
income or loss of all members of a unitary business, subject to
apportionment except:
(A) Income from an intercompany transaction between members
of a unitary business shall be deferred in a manner similar to
26 CFR 1.1502-13 (relating to intercompany transactions) for
Federal taxable income purposes.
(B) Dividends paid by one member of a unitary business to
another to the extent those dividends are included in business
income of the payee corporation.
(C) Income of the following corporations is not included in
the determination of combined business income:
(i) any entity subject to taxation under Article VII, VIII,
IX or XV;
(ii) any entity specified in the definition of "institution"
in section 701.5 that would be subject to taxation under Article
VII were it doing business in this Commonwealth as that phrase
is defined in section 701.5;
(iii) any entity commonly known as a title insurance company
that would be subject to taxation under Article VIII were it
incorporated in this State;
(iv) any entity specified as an insurance company,
association or exchange in Article IX that would be subject to
taxation under Article IX were it transacting insurance business
in this State;
(v) any entity specified in the definition of "institution"
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in section 1501 that would be subject to taxation under Article
XV were it located, as defined in section 1501, in this State;
or
(vi) any entity that is a small corporation, as defined in
section 301(s.2).
(16) "Member." A corporation that is a member of the
unitary business. The term does not include a corporation listed
under paragraph (15)(C).
Section 2. Section 402(b) of the act is amended to read:
Section 402. Imposition of Tax.--* * *
(b) The annual rate of tax on corporate net income imposed
by subsection (a) for taxable years beginning for the calendar
year or fiscal year on or after the dates set forth shall be as
follows:
Taxable Year Tax Rate
January 1, 1995[, and
each taxable year
thereafter] through
December 31, 2018
January 1, 2019 through
December 31, 2019
January 1, 2020 through
December 31, 2020
January 1, 2021 through
December 31, 2021
January 1, 2022 and
each taxable year
thereafter
9.99%
8.99%
7.99%
6.99%
6.49 %
* * *
Section 3. Section 403 of the act is amended by adding a
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subsection to read:
Section 403. Reports and Payment of Tax.--* * *
(a.1) (1) 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 members of the unitary business.
Each corporation that is a member of a unitary business is
liable for its tax liability under this article. The agent is
also liable for the aggregate tax liability amount of the
unitary business 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.
(4) In addition to the information required under subsection
(a), the report shall set forth:
(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 sets forth the
determination of tax liability for each corporation of the
unitary business.
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(iii) Any other information that the department may require.
(a.2) A corporation that is a member of a unitary business
of two or more corporations must determine its business income
and apportionment factors on a water's-edge basis.
* * *
Section 4. 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
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 5. Section 3003.3(d) of the act is amended and the
section is amended by adding a subsection to read:
Section 3003.3. Underpayment of Estimated Tax.--* * *
(d) Notwithstanding the provisions of the preceding
subsections, and other than as set forth 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
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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
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) With respect to any underpayment of an installment of
estimated corporate net income tax for any tax year that begins
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in year 2019 or 2020 by a corporation required to file a
combined report pursuant to section 403(a.1)(1), interest 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 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 combined tax shown on the reports of all the members of the
unitary business for the safe harbor base year computed at the
rate applicable to the taxable year.
Section 6. This act shall take effect as follows:
(1) Except as provided under paragraph (2), the
amendment of sections 401, 402, 403, 404 and 3003.3 shall
apply to taxable years beginning after December 31, 2018.
(2) The amendment of section 401(3)4 shall apply to
taxable years beginning after December 31, 2017.
Section 7. This act shall take effect July 1, 2018, or
immediately, whichever is later.
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