PRINTER'S NO. 288
No. 258 Session of 1997
INTRODUCED BY TRAVAGLIO, BELARDI, STURLA, DeLUCA, WALKO, TIGUE, MUNDY, TRELLO, SHANER, SAINATO, READSHAW, VAN HORNE, TANGRETTI, FAIRCHILD, MELIO, LEVDANSKY, GEIST, DALEY, BOSCOLA, McCALL, ROONEY, PESCI, COLAFELLA, L. I. COHEN AND STEELMAN, FEBRUARY 5, 1997
REFERRED TO COMMITTEE ON FINANCE, FEBRUARY 5, 1997
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," eliminating the minimum capital stock and 11 franchise tax. 12 The General Assembly of the Commonwealth of Pennsylvania 13 hereby enacts as follows: 14 Section 1. Section 602 of the act of March 4, 1971 (P.L.6, 15 No.2), known as the Tax Reform Code of 1971, amended August 4, 16 1991 (P.L.97, No.22), is amended to read: 17 Section 602. Imposition of Tax.--(a) That every domestic 18 entity from which a report is required under section 601 hereof, 19 shall be subject to, and pay to the department annually, a tax 20 which is [the greater of (i) three hundred dollars ($300) or 21 (ii)] the amount computed at the rate of ten mills upon each
1 dollar of the capital stock value as defined in section 601(a) 2 for the calendar year 1971 and the fiscal year beginning in 1971 3 through calendar year 1986 and fiscal years beginning in 1986, 4 at the rate of nine mills upon each dollar of the capital stock 5 value as defined in section 601(a) for the calendar year 1987 6 and fiscal years beginning in 1987, at the rate of nine and one- 7 half mills upon each dollar of the capital stock value as 8 defined in section 601(a) for the calendar year 1988 and fiscal 9 years beginning in 1988 through calendar year 1990 and fiscal 10 years beginning in 1990 and at the rate of eleven mills upon 11 each dollar of the capital stock value as defined in section 12 601(a) for the calendar year 1991 and fiscal years beginning in 13 1991 and each year thereafter, with an additional surtax equal 14 to two mills upon each dollar of the capital stock value as 15 defined in section 601(a) for the calendar year 1991 and fiscal 16 years beginning in 1991 and with an additional surtax equal to 17 one and three-quarters mills upon each dollar of the capital 18 stock value as defined in section 601(a) for the calendar year 19 1992 and fiscal years beginning in 1992 and each year 20 thereafter, except that any domestic entity or company subject 21 to the tax prescribed herein may elect to compute and pay its 22 tax under and in accordance with the provisions of subsection 23 (b) of this section 602: Provided, That[, except for the 24 imposition of the three hundred dollar ($300) minimum tax,] the 25 provisions of this section shall not apply to the taxation of 26 the capital stock of entities organized for manufacturing, 27 processing, research or development purposes, which is invested 28 in and actually and exclusively employed in carrying on 29 manufacturing, processing, research or development within the 30 State, except such entities as enjoy and exercise the right of 19970H0258B0288 - 2 -
1 eminent domain, but every entity organized for the purpose of 2 manufacturing, processing, research or development except such 3 entities as enjoy and exercise the right of eminent domain shall 4 pay the State tax of [the greater of (i) three hundred dollars 5 ($300) or (ii)] the amount computed at the rate of ten mills 6 upon each dollar of the capital stock value as defined in 7 section 601(a) for the calendar year 1971 and the fiscal year 8 beginning in 1971 through calendar year 1986 and fiscal years 9 beginning in 1986, at the rate of nine mills upon each dollar of 10 the capital stock value as defined in section 601(a) for the 11 calendar year 1987 and fiscal years beginning in 1987 and at the 12 rate of nine and one-half mills upon each dollar of the capital 13 stock value as defined in section 601(a) for the calendar year 14 1988 and fiscal years beginning in 1988 through calendar year 15 1990 and fiscal years beginning in 1990 and at the rate of 16 eleven mills upon each dollar of the capital stock value as 17 defined in section 601(a) for the calendar year 1991 and each 18 year thereafter, with an additional surtax equal to two mills 19 upon each dollar of the capital stock value as defined in 20 section 601(a) for the calendar year 1991 and fiscal years 21 beginning in 1991 and with an additional surtax equal to one and 22 three-quarters mills upon each dollar of the capital stock value 23 as defined in section 601(a) for the calendar year 1992 and 24 fiscal years beginning in 1992 and each year thereafter, upon 25 such proportion of its capital stock, if any, as may be invested 26 in any property or business not strictly incident or appurtenant 27 to the manufacturing, processing, research or development 28 business, in addition to the local taxes assessed upon its 29 property in the district where located, it being the object of 30 this provision to relieve from State taxation[, except for 19970H0258B0288 - 3 -
1 imposition of the three hundred dollar ($300) minimum tax under 2 this section,] only so much of the capital stock as is invested 3 purely in the manufacturing, processing, research or development 4 plant and business. 5 (b) (1) Every foreign entity from which a report is 6 required under section 601 hereof, shall be subject to and pay 7 to the department annually, a franchise tax which is [the 8 greater of (i) three hundred dollars ($300) or (ii)] the amount 9 computed at the rate of ten mills for the calendar year 1971 and 10 the fiscal years beginning in 1971 through calendar year 1986 11 and fiscal years beginning in 1986, at the rate of nine mills 12 for the calendar year 1987 and for fiscal years beginning in 13 1987, at the rate of nine and one-half mills for calendar year 14 1988 and fiscal years beginning in 1988 through calendar year 15 1990 and fiscal years beginning in 1990 and at the rate of 16 eleven mills upon each dollar of the capital stock value as 17 defined in section 601(a) for the calendar year 1991 and fiscal 18 years beginning in 1991 and each year thereafter, with an 19 additional surtax equal to two mills upon each dollar of the 20 capital stock value as defined in section 601(a) for the 21 calendar year 1991 and fiscal years beginning in 1991 and with 22 an additional surtax equal to one and three-quarters mills upon 23 each dollar of the capital stock value as defined in section 24 601(a) for the calendar year 1992 and fiscal years beginning in 25 1992 and each year thereafter, upon a taxable value to be 26 determined in the following manner. The capital stock value 27 shall be ascertained in the manner prescribed in section 601(a) 28 of this article. The taxable value shall then be determined by 29 employing the relevant apportionment factors set forth in 30 Article IV: Provided, That the manufacturing, processing, 19970H0258B0288 - 4 -
1 research and development exemptions contained under section 2 602(a) shall also apply to foreign corporations and in 3 determining the relevant apportionment factors the numerator of 4 the property, payroll, or sales factors shall not include any 5 property, payroll or sales attributable to manufacturing, 6 processing, research or development activities in the 7 Commonwealth. Any foreign corporation, joint-stock association, 8 limited partnership or company subject to the tax prescribed 9 herein may elect to compute and pay its tax under section 10 602(a): Provided, That any foreign corporation, joint-stock 11 association, limited partnership or company electing to compute 12 and pay its tax under section 602(a) shall be treated as if it 13 were a domestic corporation for the purpose of determining which 14 of its assets are exempt from taxation and for the purpose of 15 determining the proportion of the value of its capital stock 16 which is subject to taxation. 17 (2) The provisions of this article shall apply to the 18 taxation of entities organized for manufacturing, processing, 19 research or development purposes, but shall not apply to such 20 entities as enjoy and exercise the right of eminent domain. 21 (d) It shall be the duty of the treasurer or other officers 22 having charge of any domestic or foreign entity, upon which a 23 tax is imposed by this section, to transmit the amount of tax to 24 the department within the time prescribed by law: Provided, That 25 for the purposes of this act interest in limited partnerships or 26 joint-stock associations shall be deemed to be capital stock, 27 and taxable accordingly: Provided, further, That entities liable 28 to a tax under this section, shall not be required to pay any 29 further tax on the mortgages, bonds, and other securities owned 30 by them and in which the whole body of stockholders or members, 19970H0258B0288 - 5 -
1 as such, have the entire equitable interest in remainder; but 2 entities owning or holding such securities as trustees, 3 executors, administrators, guardians, or in any other manner 4 than for the whole body of stockholders or members thereof as 5 sole equitable owners in remainder, shall return and pay the tax 6 imposed by this act upon all securities so owned or held by 7 them, as in the case of individuals. 8 (e) Any holding company subject to the capital stock tax or 9 the franchise tax imposed by this section may elect to compute 10 the capital stock or franchise tax by applying the rate of tax 11 of ten mills for the calendar year 1971 and the fiscal year 12 beginning in 1971 through the calendar year 1986 and fiscal 13 years beginning in 1986, at the rate of nine mills for the 14 calendar year 1987 and fiscal years beginning in 1987, at the 15 rate of nine and one-half mills for calendar year 1988 and 16 fiscal years beginning in 1988 through calendar year 1990 and 17 fiscal years beginning in 1990 and at the rate of eleven mills 18 for calendar year 1991 and fiscal years beginning in 1991 and 19 each year thereafter, with an additional surtax equal to two 20 mills for calendar year 1991 and fiscal years beginning in 1991 21 and with an additional surtax equal to one and three-quarters 22 mills upon each dollar of the capital stock value as defined in 23 section 601(a) for the calendar year 1992 and fiscal years 24 beginning in 1992 and each year thereafter, upon each dollar to 25 ten per cent of the capital stock value[, but in no case shall 26 the tax so computed be less than three hundred dollars ($300)]. 27 If exercised, this election shall be in lieu of any other 28 apportionment or allocation to which such company would 29 otherwise be entitled. 30 (f) Every domestic corporation and every foreign corporation 19970H0258B0288 - 6 -
1 (i) registered to do business in Pennsylvania; (ii) which 2 maintains an office in Pennsylvania; (iii) which has filed a 3 timely election to be taxed as a regulated investment company 4 with the Federal Government; and (iv) which duly qualifies to be 5 taxed as a regulated investment company under the provisions of 6 the Internal Revenue Code of 1954 as amended, shall be taxed as 7 a regulated investment company and shall be subject to the 8 capital stock or franchise tax imposed by section 602, in either 9 case for the privilege of having an office in Pennsylvania, 10 which tax shall be computed pursuant to the provisions of this 11 subsection in lieu of all other provisions of this section 602. 12 The tax shall be in an amount which is [the greater of three 13 hundred dollars ($300) or] the sum of the amounts determined 14 pursuant to clauses (1) and (2): 15 (1) The amount determined pursuant to this clause shall be 16 seventy-five dollars ($75) times that number which is the result 17 of dividing the net asset value of the regulated investment 18 company by one million, rounded to the nearest multiple of 19 seventy-five dollars ($75). Net asset value shall be determined 20 by adding the monthly net asset values as of the last day of 21 each month during the taxable period and dividing the total sum 22 by the number of months involved. Each such monthly net asset 23 value shall be the actual market value of all assets owned 24 without any exemptions or exclusions, less all liabilities, 25 debts and other obligations. 26 (2) The amount determined pursuant to this clause shall be 27 the amount which is the result of multiplying the rate of 28 taxation applicable for purposes of the personal income tax 29 during the same taxable year times the apportioned undistributed 30 personal income tax income of the regulated investment company. 19970H0258B0288 - 7 -
1 For the purposes of this clause: 2 (A) Personal income tax income shall mean income to the 3 extent enumerated and classified in section 303. 4 (B) Undistributed personal income tax income shall mean all 5 personal income tax income other than personal income tax income 6 undistributed on account of the capital stock or foreign 7 franchise tax, less all personal income tax income distributed 8 to shareholders. At the election of the company, income 9 distributed after the close of a taxable year, but deemed 10 distributed during the taxable year for Federal income tax 11 purposes, shall be deemed distributed during that year for 12 purposes of this clause. If a company in a taxable year has both 13 current income and income accumulated from a prior year, 14 distributions during the year shall be deemed to have been made 15 first from current income. 16 (C) Undistributed personal income tax income shall be 17 apportioned to Pennsylvania by a fraction, the numerator of 18 which is all income distributed during the taxable period to 19 shareholders who are resident individuals, estates or trusts and 20 the denominator of which is all income distributed during the 21 taxable period. Resident trusts shall not include charitable, 22 pension or profit-sharing, or retirement trusts. 23 (D) Personal income tax income and other income of a company 24 shall each be deemed to be either distributed to shareholders or 25 undistributed in the proportion each category bears to all 26 income received by the company during the taxable year. 27 (g) In the event that a domestic or foreign entity is 28 required to file a report pursuant to section 601(b) on other 29 than an annual basis, the tax imposed by this section[, 30 including the three hundred dollar ($300) minimum tax,] shall be 19970H0258B0288 - 8 -
1 prorated to reflect the portion of a taxable year for which the 2 report is filed by multiplying the tax liability by a fraction 3 equal to the number of days in the taxable year divided by three 4 hundred sixty-five days. 5 Section 2. The amendment of section 602 of the act shall be 6 applicable to the tax year beginning January 1, 1997, and each 7 tax year thereafter. 8 Section 3. This act shall take effect immediately. L10L72WMB/19970H0258B0288 - 9 -