PRINTER'S NO. 1930
No. 1585 Session of 1987
INTRODUCED BY TRELLO, WILSON, DeLUCA, PETRONE, VAN HORNE,
GAMBLE, BUNT, CORNELL, FOX, NAHILL, FARMER, EVANS, MAYERNIK
AND KENNEY, JUNE 23, 1987
REFERRED TO COMMITTEE ON FINANCE, JUNE 23, 1987
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 providing for the imposition, collection
11 and apportionment of taxes on mutual thrift institutions.
12 The General Assembly of the Commonwealth of Pennsylvania
13 hereby enacts as follows:
14 Section 1. Section 1501 of the act of March 4, 1971 (P.L.6,
15 No.2), known as the Tax Reform Code of 1971, added December 1,
16 1983 (P.L.228, No.66), is amended to read:
17 Section 1501. Definitions.--[As used in this article "mutual
18 thrift institution" shall be construed to mean every savings
19 bank without capital stock incorporated by or under any law of
20 this Commonwealth, every building and loan association, every
21 savings and loan association incorporated under the laws of this
22 Commonwealth, every Federal savings and loan association
1 incorporated under the laws of the United States and every
2 savings institution having capital stock incorporated by or
3 under any law of this Commonwealth or under any law of the
4 United States and located within this Commonwealth.] The
5 following words, terms and phrases, when used in this article,
6 shall have the meaning ascribed to them in this section, except
7 where the context clearly indicates a different meaning:
8 (1) "Employe." An individual to whom wages are paid within
9 the meaning of section 3401 of the Internal Revenue Code of 1986
10 (Public Law 99-514, 26 U.S.C. § 3401).
11 (2) "Lease." A leasing transaction in which the lessor
12 would be treated as owner of the lease property under the
13 provisions of the Internal Revenue Code of 1954 (68A Stat. 3, 26
14 U.S.C. § 1 et seq.) prior to the enactment of the Economic
15 Recovery Tax Act of 1981 (Public Law 97-34, 95 Stat. 172). All
16 other transactions purporting to be leases shall be treated as
17 loans for purposes of this article.
18 (3) "Located."
19 (i) An institution is located in this Commonwealth in a
20 taxable year only if:
21 (A) such institution maintains an office in this
22 Commonwealth;
23 (B) one or more employes of the institution has or have a
24 regular presence in this Commonwealth; or
25 (C) such institution owns tangible property located in this
26 Commonwealth which it leases to others for their use, or such
27 institution owns or leases tangible property located in this
28 Commonwealth which it uses in connection with its activities in
29 this Commonwealth.
30 (ii) No employe shall be deemed to have a regular presence
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1 in this Commonwealth if the only activities engaged in by such
2 employe in this Commonwealth are, or are in connection with, one
3 or more of the following:
4 (A) Acquisition or purchase of loans, secured or unsecured,
5 or any interest therein.
6 (B) Participation in loans made by other depositories having
7 offices in this Commonwealth.
8 (C) Soliciting applications for loans which are sent outside
9 this Commonwealth for approval, deposits which are received and
10 maintained at an office outside this Commonwealth, or financial
11 or depository services which are performed outside this
12 Commonwealth.
13 (D) Making credit investigations and physical inspections
14 and appraisals of real and personal property securing or
15 proposed to secure any loan, or collecting and servicing loans
16 in any manner whatsoever.
17 (iii) Notwithstanding any other provision of this article,
18 unless the institution maintains an office in this Commonwealth,
19 an institution shall not be deemed to be located in this
20 Commonwealth if the only activities of the institution within
21 this Commonwealth are, or are in connection with:
22 (A) maintaining or defending any action or suit;
23 (B) filing, modifying, renewing, extending or transferring a
24 mortgage, deed of trust, or security interest;
25 (C) acquiring, holding, leasing, mortgaging, foreclosing,
26 contracting with respect to, or otherwise protecting or
27 conveying property in this Commonwealth as a result of default
28 under the terms of a mortgage, deed or trust, or other security
29 instrument relating thereto; or
30 (D) acting as an executor of an estate, trustee of a benefit
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1 plan, employes' pension, profit-sharing or other retirement
2 plan, testamentary or inter vivos trust; corporate indenture, or
3 in any other fiduciary capacity, including, but not limited to,
4 holding title to real property in this Commonwealth.
5 (4) "Maintains an office." An institution maintains an
6 office wherever it has established a regular, continuous and
7 fixed place of business.
8 (5) "Mutual thrift institution" or "institution." Every
9 savings bank without capital stock; building and loan
10 association; savings and loan association; and savings
11 institution having capital stock; located within this
12 Commonwealth, whether the institution is incorporated under any
13 law of this Commonwealth, under the law of the United States or
14 under the law of any other jurisdiction.
15 (6) "Net income or net loss." The net income or net loss
16 received or accrued by an institution, determined in accordance
17 with generally accepted principles of accounting, except that:
18 (i) Net income or net loss shall be determined on a separate
19 company unconsolidated basis, using cost in lieu of equity
20 accounting for investments in a subsidiary.
21 (ii) The accounting method may be on a cash, combined cash
22 and accrual, or accrual basis, depending on the method of
23 bookkeeping employed by the institution.
24 (iii) In the case of a business combination treated as a
25 reorganization for purposes of section 368 of the Internal
26 Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 368) (or
27 any similar successor provision) and accounted for under the
28 purchase accounting method, net income or net loss shall be
29 determined as though the acquisition had been accounted for
30 under the pooling of interest method.
19870H1585B1930 - 4 -
1 The term "net income or net loss" shall exclude amounts credited
2 or paid as interest to holders of accounts or depositors or as
3 dividends to shareholders, except that no deduction shall be
4 permitted for dividends paid by an institution having capital
5 stock to its stockholders with regard to their stock.
6 (7) "Origination of loans." A loan is deemed to have
7 originated in the state in which the office is located which
8 properly treats the loan as an asset on its books. However, if
9 an institution maintains an office within a state, loans made to
10 borrowers residing or having their commercial domicile within
11 the state are deemed to have originated at such office within
12 the state, unless neither negotiation, approval, nor
13 administrative responsibility of or for the loan by the
14 depository occurs in the state.
15 (8) "Property located in a state."
16 (i) Except as otherwise provided in this definition,
17 tangible property, including leased property, shall be deemed to
18 be located in the state in which such property is physically
19 situated.
20 (ii) Tangible personal property which is characteristically
21 moving property, such as motor vehicles, rolling stock,
22 aircraft, vessels, mobile equipment, and the like, shall be
23 deemed to be located in a state if:
24 (A) the operation of the property is entirely within the
25 state, or the operation without the state is occasional or
26 incidental to its operation within the state;
27 (B) the operation of the property is in two or more states,
28 but the principal base of operations from which the property is
29 sent out is in the state; or
30 (C) the state is the commercial domicile of the lessee or
19870H1585B1930 - 5 -
1 other user of the property, where there is no principal base of
2 operations and the operation of the property is in two or more
3 states.
4 (9) "Regular presence of employes." An employe shall be
5 deemed to have a regular presence in a state if:
6 (i) a majority of the employe's service is performed within
7 the state; or
8 (ii) the office from which his activities are directed or
9 controlled is located in the state, where a majority of the
10 employe's service is not performed in any one state.
11 (10) "State." Any of the several states of the United
12 States, the District of Columbia and any foreign state.
13 (11) "Taxable net income." The net income of an institution
14 after allocation and apportionment and after any deduction for a
15 net loss carryover.
16 (12) "Taxable year." The calendar year, fiscal year or
17 other period upon which an institution's taxable income is
18 computed for purposes of Federal income tax.
19 Section 2. Section 1502 of the act, added December 1, 1983
20 (P.L.228, No.66) and amended December 23, 1983 (P.L.360, No.89)
21 and July 1, 1985 (P.L.78, No.29), is amended to read:
22 Section 1502. Imposition; Report and Payment of Tax;
23 Exemptions.--(a) Every [mutual thrift] institution shall
24 [annually, upon April 15 of each year beginning in the year
25 1984], for each taxable year, make a report to the Department of
26 Revenue, setting forth the entire amount of net [earnings or]
27 income received or accrued by said [mutual thrift] institution
28 from all sources during the [preceding] taxable year, and such
29 other information as the department may require, and upon such
30 taxable net [earnings or] income the said [mutual thrift]
19870H1585B1930 - 6 -
1 institution shall pay into the State Treasury, through the
2 Department of Revenue, for the use of the Commonwealth, a State
3 excise tax at the rate of eleven and one-half per cent upon such
4 [annual net earnings or] taxable net income, for the privilege
5 of doing business in the Commonwealth. [Every mutual thrift
6 institution shall be required to make payment of tentative tax
7 pursuant to the provisions of Article XXX. The remaining portion
8 of the tax due shall be paid at the time the report prescribed
9 herein is required to be made.
10 (b) If, however, any such mutual thrift institution closes
11 its fiscal year, not upon December 31 but upon some other date,
12 the tax shall be imposed upon such annual net earnings or income
13 received or accrued during its fiscal year beginning in the year
14 1983 and during each fiscal year thereafter, and the annual
15 report of net earnings or income received or accrued during each
16 fiscal year shall be made, and the remaining tax due thereon
17 shall be paid within one hundred five days after the close of
18 such fiscal year. Each such mutual thrift institution shall be
19 required to make payment of tentative tax pursuant to the
20 provision of Article XXX.
21 (c) Net earnings or income or net operating loss shall be
22 determined in accordance with generally accepted principles of
23 accounting, either on a cash or accrual or combined cash and
24 accrual basis, depending on the method of bookkeeping employed
25 by each mutual thrift institution, and in computing such net
26 earnings or income or net operating loss, amounts credited or
27 paid as dividends or interest to shareholders, holders of
28 accounts or depositors shall be included among the allowable
29 deductions.
30 (d) For the calendar year 1983 and fiscal years beginning in
19870H1585B1930 - 7 -
1 1983 and thereafter, a net operating loss, as defined under
2 subsection (c), shall be allowed as a deduction and can be
3 carried forward three succeeding years. The net operating loss
4 shall be carried to the earliest taxable year to which such loss
5 may first be carried.
6 (e) Mutual thrift institutions subject to the provisions of
7 this article shall be exempt from all other corporate taxes
8 imposed by the Commonwealth for State purposes. Such
9 institutions, any shares of stock in such institutions and the
10 property of such institutions shall be exempt from all local
11 taxation imposed by political subdivisions of this Commonwealth
12 under the authority of the laws of this Commonwealth, except
13 taxes on real estate or transfers thereof.]
14 (b) Every institution shall be required to make payment of
15 estimated tax pursuant to the provisions of sections 3003.2 and
16 3003.3 of Article XXX. The remaining portion of the tax due
17 shall be paid at the time the report prescribed herein is
18 required to be made.
19 (c) The report shall be made, and the remaining tax due
20 thereon shall be paid, within one hundred five days after the
21 close of the institution's taxable year. For this purpose a
22 fifty-two or fifty-three week fiscal year shall be deemed to
23 have ended on the end of the month nearest the end of the fiscal
24 year.
25 (d) For taxable years beginning after December 31, 1985, in
26 determining taxable net income, there shall be allowed a
27 deduction to the extent of net income in the amount of any net
28 losses from the prior three taxable years, beginning with the
29 earliest year, except to the extent that any such loss has been
30 allowed as a deduction in a prior taxable year.
19870H1585B1930 - 8 -
1 (e) Institutions subject to the provisions of this article
2 shall be exempt from all other corporate taxes imposed by the
3 Commonwealth for State purposes, including the corporate loans
4 tax. Such institutions, any shares of stock in such institutions
5 and the property of such institutions shall be exempt from all
6 local taxation imposed by political subdivisions of this
7 Commonwealth, under the authority of the laws of this
8 Commonwealth, except taxes on real estate or transfers thereof.
9 (e.1) In the case of a change in ownership by purchase,
10 liquidation, acquisition of stock or reorganization of a mutual
11 thrift institution in the manner described in section 381 or 382
12 of the Internal Revenue Code of 1954, as amended, [the] certain
13 limitations provided in the Internal Revenue Code with respect
14 to net operating losses shall apply for the purpose of computing
15 the portion of a net loss carryover recognized pursuant to this
16 article. The applicable limitations shall include all those
17 limitations imposed solely on account of a change in ownership,
18 including, but not limited to, sections 269, 318 (insofar as it
19 defines the scope of section 382), 381 and 382 of the Internal
20 Revenue Code of 1954. The carryover of tax losses shall not be
21 limited by the Federal consolidated return regulations or
22 section 338 of the Internal Revenue Code of 1954, providing for
23 the deemed termination of corporate existence upon the making of
24 certain elections for Federal income tax purposes. When any
25 acquiring institution or a transferor institution participated
26 in the filing of consolidated returns to the Federal Government,
27 the entitlement of the acquiring institution to the Pennsylvania
28 net loss carryover of the acquiring institution or the
29 transferor institution will be determined as if separate returns
30 to the Federal Government had been filed prior to the change in
19870H1585B1930 - 9 -
1 ownership by purchase, liquidation, acquisition of stock or
2 reorganization.
3 Section 3. The act is amended by adding a section to read:
4 Section 1502.1. Allocation and Apportionment.--(a) Net
5 income or net loss shall be allocated and apportioned in
6 accordance with this section.
7 (b) An institution may allocate and apportion its net income
8 or net loss if the institution is subject to tax in another
9 state based on or measured by net worth, gross receipts, net
10 income or some similar base of taxation, or if it could be
11 subject to such a tax, whether or not such a tax has in fact
12 been enacted.
13 (c) Net income or loss which would constitute nonbusiness
14 income or loss within the meaning of Article IV shall be
15 allocated according to the relevant provisions of Article IV.
16 (d) Income or loss not allocated shall be apportioned in
17 accordance with a fraction, the numerator of which is the sum of
18 the payroll factor and the receipts factor, and the denominator
19 of which is two.
20 (e) The payroll factor is a fraction, the numerator of which
21 is the total wages paid in this Commonwealth and the denominator
22 of which is the total wages paid in all states. Wages are paid
23 in a state if paid to an employe having a regular presence
24 therein.
25 (f) The receipts factor is a fraction, the numerator of
26 which is total receipts located in this Commonwealth and the
27 denominator of which is the total receipts located in all
28 states. The location of receipts shall be determined as follows:
29 (1) Receipts from loans secured primarily by real property
30 are located in the state in which the predominant part of the
19870H1585B1930 - 10 -
1 security real property is or will be located. All receipts from
2 other loans are located at the place of origination except as
3 otherwise provided. Receipts from loans do not include principal
4 repayments.
5 (2) All receipts from performance of services are located in
6 a state to the extent the services are performed in the state.
7 If services are performed partly within two or more states, the
8 receipts located in each state shall be measured by the ratio
9 which the time spent in performing such services in the state
10 bears to the total time spent in performing such services in all
11 states. Time spent in performing services in a state is the time
12 spent by employes having a regular presence in the state in
13 performing such services.
14 (3) Receipts from lease transactions are located in the
15 state in which the leased property is deemed located.
16 (4) Interest or service charges (excluding merchant
17 discounts) from bank, travel and entertainment card receivables
18 and credit card holders' fees are located in the state in which
19 the credit card holder resides in the case of an individual or,
20 if a corporation, in the state of the card holder's commercial
21 domicile.
22 (5) Interest, dividends and net gains from sale or
23 disposition of securities are located in the state in which the
24 depository maintains an office which treats such securities as
25 assets on its books or records.
26 (6) Fees or charges from the issuance of travelers checks
27 and money orders are located in the state in which such
28 travelers checks or money orders are issued.
29 Section 4. Section 1505 of the act, added December 1, 1983
30 (P.L.228, No.66), is amended to read:
19870H1585B1930 - 11 -
1 Section 1505. Tax Credits; Legislative Intent.--Any tax paid
2 by any [mutual thrift] institution under the provisions of the
3 act of June 22, 1964 (P.L.16, No.2), known as "The Mutual Thrift
4 Institutions Tax Act," as amended, the act of June 25, 1982
5 (P.L.652, No.184), entitled "An act amending the act of June 22,
6 1964 (P.L.16, No.2), entitled 'An act imposing a State excise
7 tax on net earnings or income of mutual thrift institutions;
8 requiring the filing of reports and payment of the tax;
9 providing certain exemptions from the tax and repealing part of
10 an act imposing other taxes,' providing for the deduction and
11 carryover of net operating losses in determining net earnings
12 for the tax on mutual thrift institutions," for taxable years
13 beginning during 1983 shall be credited to and applied against
14 the tax imposed by this article without the necessity for the
15 filing of any petition or request by the taxpayer with the
16 Department of Revenue, it being the intention of the General
17 Assembly that this article be a reenactment of such act,
18 although amending such act to include "savings institutions with
19 capital stock" within the definition of "mutual thrift
20 institution." Any institution which would have been entitled to
21 a net operating loss carryforward under the provisions of the
22 act of June 22, 1964 (P.L.16, No.2), known as "The Mutual Thrift
23 Institutions Tax Act," as amended, to calendar year 1983 and
24 fiscal years beginning after January 1, 1983 shall remain
25 entitled to such loss carryforward.
26 Section 5. Except as otherwise provided, sections 1 through
27 4 of this act shall apply to taxable years beginning after 1986.
28 The definition of "net income or net loss" (relating to pooling
29 of interest accounting) in section 1 (section 1501) shall apply
30 with respect to income generated after business combinations
19870H1585B1930 - 12 -
1 entered into after 1986.
2 Section 6. Institutions entitled to a loss carryforward
3 under the provisions of section 2 (section 1502(d)) in effect
4 prior to the amendments made by this act shall remain so
5 entitled, the amendments made by this act with respect to loss
6 carryforward deductions being intended as a clarification and
7 restatement of such entitlements. In the case of a conflict
8 between the prior loss carryforward provisions and the deduction
9 provided by this act, the provisions of this act shall govern.
10 Section 7. This act shall take effect immediately.
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