PRINTER'S NO. 243
No. 226 Session of 1985
INTRODUCED BY DORR, CAPPABIANCA, F. E. TAYLOR, L. E. SMITH,
GALLEN, PRESTON, HALUSKA, BURD, LESCOVITZ, LIVENGOOD,
SEVENTY, GREENWOOD, VAN HORNE, GEIST, BELFANTI, KENNEDY,
VROON, BOOK, MACKOWSKI, BOWSER, BUSH, G. M. SNYDER, B. SMITH,
CLYMER, NOYE, HAYES, HERMAN, McVERRY, HAGARTY, SERAFINI,
DeVERTER, WASS, JOHNSON, E. Z. TAYLOR, PITTS, BUNT, SEMMEL,
HONAMAN, REBER, NAHILL, CORNELL, BLACK, CARLSON, GRUPPO,
SCHULER, JACKSON, ROBBINS, DAVIES, LANGTRY, BOYES, FARGO,
SCHEETZ, MERRY, FOX, DISTLER AND LINTON, FEBRUARY 11, 1985
REFERRED TO COMMITTEE ON BUSINESS AND COMMERCE,
FEBRUARY 11, 1985
AN ACT
1 Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
2 act relating to tax reform and State taxation by codifying
3 and enumerating certain subjects of taxation and imposing
4 taxes thereon; providing procedures for the payment,
5 collection, administration and enforcement thereof; providing
6 for tax credits in certain cases; conferring powers and
7 imposing duties upon the Department of Revenue, certain
8 employers, fiduciaries, individuals, persons, corporations
9 and other entities; prescribing crimes, offenses and
10 penalties," further defining net profits and net gains with
11 respect to certain persons.
12 The General Assembly of the Commonwealth of Pennsylvania
13 hereby enacts as follows:
14 Section 1. Section 303(a)(2) and (3) of the act of March 4,
15 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971, added
16 August 31, 1971 (P.L.362, No.93) and amended June 17, 1974
17 (P.L.325, No.105), are amended to read:
18 Section 303. Classes of Income.--(a) The classes of income
1 referred to above are as follows:
2 * * *
3 (2) Net profits. The net income from the operation of a
4 business, profession, or other activity, after provision for all
5 costs and expenses incurred in the conduct thereof, determined
6 either on a cash or accrual basis in accordance with accepted
7 accounting principles and practices but without deduction of
8 taxes based on income. In the case of small business investment
9 companies organized under the laws of Pennsylvania and licensed
10 by the United States Small Business Administration, the term
11 "net profits" shall not include profits attributable to the
12 provision of financial assistance after the effective date of
13 the amendment adding this limitation to business organizations
14 operating in Pennsylvania, if such business organizations
15 certify to the small business investment companies that the
16 assistance has produced additional employment for Pennsylvania
17 residents.
18 (3) Net gains or income from disposition of property. Net
19 gains or net income, less net losses, derived from the sale,
20 exchange or other disposition of property, including real or
21 personal, whether tangible or intangible as determined in
22 accordance with accepted accounting principles and practices.
23 For the purpose of this act, for the determination of the basis
24 of any property, real and personal, if acquired prior to June 1,
25 1971, the date of acquisition shall be adjusted to June 1, 1971
26 as if the property had been acquired on that date. If the
27 property was acquired after June 1, 1971, the actual date of
28 acquisition shall be used in determination of the basis.
29 The term "net gains or income" shall not include gains or
30 income derived from obligations which are statutorily free from
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1 State or local taxation under any other act of the General
2 Assembly of the Commonwealth of Pennsylvania or under the laws
3 of the United States or gains or income derived from the
4 securities, whether debt or equity, of small business investment
5 companies organized under the laws of Pennsylvania and licensed
6 by the United States Small Business Administration if such small
7 business investment companies can present certifications from
8 small business organizations which received assistance from such
9 investment companies stating that the assistance furnished
10 produced additional employment for Pennsylvania residents. The
11 term "sale, exchange or other disposition" shall not include the
12 exchange of stock or securities in a corporation a party to a
13 reorganization in pursuance of a plan of reorganization, solely
14 for stock or securities in such corporation or in another
15 corporation a party to the reorganization and the transfer of
16 property to a corporation by one or more persons solely in
17 exchange for stock or securities in such corporation if
18 immediately after the exchange such person or persons are in
19 control of the corporation. For purposes of this clause, stock
20 or securities issued for services shall not be considered as
21 issued in return for property.
22 For purposes of this clause, the term "reorganization"
23 means--
24 (i) a statutory merger or consolidation;
25 (ii) the acquisition by one corporation, in exchange solely
26 for all or a part of its voting stock (or in exchange solely for
27 all or a part of the voting stock of a corporation which is in
28 control of the acquiring corporation) of stock of another
29 corporation if, immediately after the acquisition, the acquiring
30 corporation has control of such other corporation (whether or
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1 not such acquiring corporation had control immediately before
2 the acquisition);
3 (iii) the acquisition by one corporation, in exchange solely
4 for all or a part of its voting stock (or in exchange solely for
5 all or a part of the voting stock of a corporation which is in
6 control of the acquiring corporation), of substantially all of
7 the properties of another corporation, but in determining
8 whether the exchange is solely for stock the assumption by the
9 acquiring corporation of a liability of the other, or the fact
10 that property acquired is subject to a liability, shall be
11 disregarded;
12 (iv) a transfer by a corporation of all or a part of its
13 assets to another corporation if immediately after the transfer
14 the transferor, or one or more of its shareholders (including
15 persons who were shareholders immediately before the transfer),
16 or any combination thereof, is in control of the corporation to
17 which the assets are transferred;
18 (v) a recapitalization;
19 (vi) a mere change in identity, form, or place of
20 organization however effected; or
21 (vii) the acquisition by one corporation, in exchange for
22 stock of a corporation (referred to in this subclause as
23 "controlling corporation") which is in control of the acquiring
24 corporation, of substantially all of the properties of another
25 corporation which in the transaction is merged into the
26 acquiring corporation shall not disqualify a transaction under
27 subclause (i) if such transaction would have qualified under
28 subclause (i) if the merger had been into the controlling
29 corporation, and no stock of the acquiring corporation is used
30 in the transaction;
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1 (viii) a transaction otherwise qualifying under subclause
2 (i) shall not be disqualified by reason of the fact that stock
3 of a corporation (referred to in this subclause as the
4 "controlling corporation") which before the merger was in
5 control of the merged corporation is used in the transaction, if
6 after the transaction, the corporation surviving the merger
7 holds substantially all of its properties and of the properties
8 of the merged corporation (other than stock of the controlling
9 corporation distributed in the transaction); and in the
10 transaction, former shareholders of the surviving corporation
11 exchanged, for an amount of voting stock of the controlling
12 corporation, an amount of stock in the surviving corporation
13 which constitutes control of such corporation.
14 For purposes of this clause, the term "control" means the
15 ownership of stock possessing at least eighty per cent of the
16 total combined voting power of all classes of stock entitled to
17 vote and at least eighty per cent of the total number of shares
18 of all other classes of stock of the corporation.
19 For purposes of this clause, the term "a party to a
20 reorganization" includes a corporation resulting from a
21 reorganization, and both corporations, in the case of a
22 reorganization resulting from the acquisition by one corporation
23 of stock or properties of another. In the case of a
24 reorganization qualifying under subclause (i) by reason of
25 subclause (vii) the term "a party to a reorganization" includes
26 the controlling corporation referred to in such subclause (vii).
27 Notwithstanding any provisions hereof, upon every such
28 exchange or conversion, the taxpayer's base for the stock or
29 securities received shall be the same as the taxpayer's actual
30 or attributed base for the stock, securities or property
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1 surrendered in exchange therefor.
2 * * *
3 Section 2. This act shall take effect immediately.
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