PRINTER'S NO. 808
No. 716 Session of 1997
INTRODUCED BY ADOLPH, RAYMOND, MICOZZIE, ARMSTRONG, FLICK,
HENNESSEY, HERSHEY, NAILOR, SAYLOR, COY, BROWN, RUBLEY,
GODSHALL, HALUSKA, OLASZ, LEH, PETTIT, ROONEY, DEMPSEY,
STABACK, LYNCH, SEMMEL, BAKER, GEIST, HUTCHINSON, SCHULER,
KENNEY, DeLUCA, WALKO, C. WILLIAMS, BROWNE, L. I. COHEN,
SANTONI, FAIRCHILD, WILT, PLATTS, MICHLOVIC, COWELL, CORNELL,
WAUGH, CURRY, SURRA, GORDNER, STEIL, SHANER, ITKIN, SCHRODER,
BARD, TRELLO, McNAUGHTON, SATHER, LUCYK, CORPORA, LEVDANSKY,
BUNT, E. Z. TAYLOR, COLAFELLA, ROHRER, SEYFERT, BOSCOLA,
McCALL, LAUGHLIN AND FARGO, MARCH 11, 1997
REFERRED TO COMMITTEE ON FINANCE, MARCH 11, 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," providing for limitations on determining gains
11 from disposition of real property.
12 The General Assembly of the Commonwealth of Pennsylvania
13 hereby enacts as follows:
14 Section 1. Section 303(a)(3) of the act of March 4, 1971
15 (P.L.6, No.2), known as the Tax Reform Code of 1971, amended
16 July 13, 1987 (P.L.325, No.59) and December 3, 1993 (P.L.473,
17 No.68), is amended to read:
18 Section 303. Classes of Income.--(a) The classes of income
1 referred to above are as follows:
2 * * *
3 (3) Net gains or income from disposition of property. [Net]
4 Subject to the limitations set forth in section 303.1, net gains
5 or net income, less net losses, derived from the sale, exchange
6 or other disposition of property, including real property,
7 tangible personal property, intangible personal property or
8 obligations issued on or after the effective date of this
9 amendatory act by the Commonwealth; any public authority,
10 commission, board or other agency created by the Commonwealth;
11 any political subdivision of the Commonwealth or any public
12 authority created by any such political subdivision; or by the
13 Federal Government as determined in accordance with accepted
14 accounting principles and practices. For the purpose of this
15 act, for the determination of the basis of any property, real
16 and personal, if acquired prior to June 1, 1971, the date of
17 acquisition shall be adjusted to June 1, 1971, as if the
18 property had been acquired on that date. If the property was
19 acquired after June 1, 1971, the actual date of acquisition
20 shall be used in determination of the basis.
21 [At the election of the taxpayer, the term "net gains or
22 income" shall not include net gain in an amount not to exceed
23 one hundred thousand dollars ($100,000), or a pro rata part of
24 one hundred thousand dollars ($100,000) if the property is owned
25 by more than one taxpayer, from the sale or exchange of the
26 taxpayer's principal residence if the taxpayer has attained
27 fifty-five years of age before the date of the sale or exchange.
28 If the property is held by a husband and wife and they make a
29 joint return for the taxable year of the sale or exchange and
30 one spouse satisfies the age, ownership and use requirements of
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1 this clause with respect to the property, then both husband and
2 wife shall be treated as satisfying the age, ownership and use
3 requirements of this clause. For purposes of this clause, in the
4 case of an unremarried individual whose spouse is deceased on
5 the date of sale or exchange of the property, if the deceased
6 spouse, during the five-year period ending on the date of sale
7 or exchange satisfied the holding and use requirements with
8 respect to such property, then such individual shall be treated
9 as satisfying holding and use requirements with respect to such
10 property. For the purposes of this clause, the term "sale or
11 exchange" shall include involuntary conversions such as the
12 destruction, theft, seizure, requisition or condemnation of the
13 property. For the purposes of this clause, the term "principal
14 residence" shall mean the property that has been owned and used
15 by the taxpayer as his principal residence for periods
16 aggregating three years or more during the five-year period
17 ending on the date of the sale or exchange. In the case of
18 property only a portion of which, during the five-year period
19 ending on the date of the sale or exchange, has been owned or
20 used by the taxpayer as the taxpayer's principal residence for
21 periods aggregating three years or more, this section shall
22 apply with respect to so much of the gain from the sale or
23 exchange of such property as is determined under regulations
24 prescribed by the department to be attributable to the portion
25 of the property so owned and used by the taxpayer. The term
26 "used" shall include time the property was not used for rental
27 purposes and was unoccupied by the taxpayer due to the taxpayer
28 being in a hospital, nursing home or personal care facility, or
29 for a period of less than ninety consecutive days. The
30 provisions of this clause shall not apply to any sale or
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1 exchange made prior to July 1, 1987. An election under this
2 clause may be made or revoked at any time before the expiration
3 of the period for making a claim for a refund of the tax imposed
4 by this article for the taxable year in which the sale or
5 exchange occurred. The provisions of this clause shall be used
6 only once during the lifetime of the taxpayer.
7 The term "net gains or income" and "net losses" shall not
8 include gains or income or loss derived from obligations which
9 are statutorily free from State or local taxation under the act
10 of August 31, 1971 (P.L.395, No.94), entitled "An act exempting
11 from taxation for State and local purposes within the
12 Commonwealth certain obligations, their transfer and the income
13 therefrom (including any profits made on the sale thereof),
14 issued by the Commonwealth, any public authority, commission,
15 board or other agency created by the Commonwealth, any political
16 subdivision of the Commonwealth or any public authority created
17 by any such political subdivision," or under the laws of the
18 United States. The term "sale, exchange or other disposition"
19 shall not include the exchange of stock or securities in a
20 corporation a party to a reorganization in pursuance of a plan
21 of reorganization, solely for stock or securities in such
22 corporation or in another corporation a party to the
23 reorganization and the transfer of property to a corporation by
24 one or more persons solely in exchange for stock or securities
25 in such corporation if immediately after the exchange such
26 person or persons are in control of the corporation. For
27 purposes of this clause, stock or securities issued for services
28 shall not be considered as issued in return for property.
29 For purposes of this clause, the term "reorganization"
30 means--
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1 (i) a statutory merger or consolidation;
2 (ii) the acquisition by one corporation, in exchange solely
3 for all or a part of its voting stock (or in exchange solely for
4 all or a part of the voting stock of a corporation which is in
5 control of the acquiring corporation) of stock of another
6 corporation if, immediately after the acquisition, the acquiring
7 corporation has control of such other corporation (whether or
8 not such acquiring corporation had control immediately before
9 the acquisition);
10 (iii) the acquisition by one corporation, in exchange solely
11 for all or a part of its voting stock (or in exchange solely for
12 all or a part of the voting stock of a corporation which is in
13 control of the acquiring corporation), of substantially all of
14 the properties of another corporation, but in determining
15 whether the exchange is solely for stock the assumption by the
16 acquiring corporation of a liability of the other, or the fact
17 that property acquired is subject to a liability, shall be
18 disregarded;
19 (iv) a transfer by a corporation of all or a part of its
20 assets to another corporation if immediately after the transfer
21 the transferor, or one or more of its shareholders (including
22 persons who were shareholders immediately before the transfer),
23 or any combination thereof, is in control of the corporation to
24 which the assets are transferred;
25 (v) a recapitalization;
26 (vi) a mere change in identity, form, or place of
27 organization however effected; or
28 (vii) the acquisition by one corporation, in exchange for
29 stock of a corporation (referred to in this subclause as
30 "controlling corporation") which is in control of the acquiring
19970H0716B0808 - 5 -
1 corporation, of substantially all of the properties of another
2 corporation which in the transaction is merged into the
3 acquiring corporation shall not disqualify a transaction under
4 subclause (i) if such transaction would have qualified under
5 subclause (i) if the merger had been into the controlling
6 corporation, and no stock of the acquiring corporation is used
7 in the transaction;
8 (viii) a transaction otherwise qualifying under subclause
9 (i) shall not be disqualified by reason of the fact that stock
10 of a corporation (referred to in this subclause as the
11 "controlling corporation") which before the merger was in
12 control of the merged corporation is used in the transaction, if
13 after the transaction, the corporation surviving the merger
14 holds substantially all of its properties and of the properties
15 of the merged corporation (other than stock of the controlling
16 corporation distributed in the transaction); and in the
17 transaction, former shareholders of the surviving corporation
18 exchanged, for an amount of voting stock of the controlling
19 corporation, an amount of stock in the surviving corporation
20 which constitutes control of such corporation.
21 For purposes of this clause, the term "control" means the
22 ownership of stock possessing at least eighty per cent of the
23 total combined voting power of all classes of stock entitled to
24 vote and at least eighty per cent of the total number of shares
25 of all other classes of stock of the corporation.
26 For purposes of this clause, the term "a party to a
27 reorganization" includes a corporation resulting from a
28 reorganization, and both corporations, in the case of a
29 reorganization resulting from the acquisition by one corporation
30 of stock or properties of another. In the case of a
19970H0716B0808 - 6 -
1 reorganization qualifying under subclause (i) by reason of
2 subclause (vii) the term "a party to a reorganization" includes
3 the controlling corporation referred to in such subclause (vii).
4 Notwithstanding any provisions hereof, upon every such
5 exchange or conversion, the taxpayer's base for the stock or
6 securities received shall be the same as the taxpayer's actual
7 or attributed base for the stock, securities or property
8 surrendered in exchange therefor.]
9 * * *
10 Section 2. The act is amended by adding a section to read:
11 Section 303.1. Limitations on Determination of Net Gains or
12 Net Income.--In determining taxable income on net gains or net
13 income from a disposition of property under section 303(a)(3),
14 the following limitations shall apply:
15 (1) At the election of the taxpayer, the term "net gains or
16 income" as used in section 303(a)(3) shall not include net gain
17 in an amount not to exceed one hundred thousand dollars
18 ($100,000), or a pro rata part of one hundred thousand dollars
19 ($100,000) if the property is owned by more than one taxpayer,
20 from the sale or exchange of the taxpayer's principal residence
21 if the taxpayer has attained fifty-five years of age before the
22 date of the sale or exchange. If the property is held by a
23 husband and wife and they make a joint return for the taxable
24 year of the sale or exchange and one spouse satisfies the age,
25 ownership and use requirements of this clause with respect to
26 the property, then both husband and wife shall be treated as
27 satisfying the age, ownership and use requirements of this
28 clause. For purposes of this clause, in the case of an
29 unremarried individual whose spouse is deceased on the date of
30 sale or exchange of the property, if the deceased spouse, during
19970H0716B0808 - 7 -
1 the five-year period ending on the date of sale or exchange
2 satisfied the holding and use requirements with respect to the
3 property, then the individual shall be treated as satisfying
4 holding and use requirements with respect to the property. The
5 provisions of this clause shall not apply to any sale or
6 exchange made prior to July 1, 1987. An election under this
7 clause may be made or revoked at any time before the expiration
8 of the period for making a claim for a refund of the tax imposed
9 by this article for the taxable year in which the sale or
10 exchange occurred. The provisions of this clause shall be used
11 only once during the lifetime of the taxpayer.
12 (2) For the purposes of clause (1):
13 (i) The term "sale or exchange" shall include involuntary
14 conversions such as the destruction, theft, seizure, requisition
15 or condemnation of the property.
16 (ii) The term "principal residence" shall mean property that
17 has been owned and used as a principal residence by the taxpayer
18 for periods aggregating three years or more during the five-year
19 period ending on the date of the sale or exchange. In the case
20 of property only a portion of which, during the five-year period
21 ending on the date of the sale or exchange, has been owned or
22 used by the taxpayer as the taxpayer's principal residence for
23 periods aggregating three years or more, this section shall
24 apply with respect to so much of the gain from the sale or
25 exchange of the property as is determined under regulations
26 prescribed by the department to be attributable to the portion
27 of the property so owned and used by the taxpayer.
28 (iii) The term "used" shall include time the property was
29 not used for rental purposes and was unoccupied by the taxpayer
30 due to the taxpayer being in a hospital, nursing home or
19970H0716B0808 - 8 -
1 personal care facility for a period of less than ninety
2 consecutive days.
3 (3) The term "net gains or income" as used in section
4 303(a)(3) shall not include gains or income derived from
5 obligations which are statutorily free from State or local
6 taxation under any other act of the General Assembly of the
7 Commonwealth of Pennsylvania or under the laws of the United
8 States. The term "sale, exchange or other disposition" shall not
9 include the exchange of stock or securities, in a corporation
10 which was a party to a reorganization pursuant to a plan of
11 reorganization, solely for stock or securities in the
12 corporation or in another corporation which was a party to the
13 reorganization and the transfer of property to a corporation by
14 one or more persons solely in exchange for stock or securities
15 in the corporation if immediately after the exchange the person
16 or persons are in control of the corporation. For purposes of
17 this clause, stock or securities issued for services shall not
18 be considered as issued in return for property.
19 Notwithstanding any other provisions of this section, upon
20 every exchange or conversion, the taxpayer's base for the stock
21 or securities received shall be the same as the taxpayer's
22 actual or attributed base for the stock, securities or property
23 surrendered.
24 (4) For purposes of clause (3):
25 (i) The term "reorganization" means--
26 (A) a statutory merger or consolidation;
27 (B) the acquisition by one corporation, in exchange solely
28 for all or a part of its voting stock (or in exchange solely for
29 all or a part of the voting stock of a corporation which is in
30 control of the acquiring corporation) of stock of another
19970H0716B0808 - 9 -
1 corporation if, immediately after the acquisition, the acquiring
2 corporation has control of the other corporation (whether or not
3 the acquiring corporation had control immediately before the
4 acquisition);
5 (C) the acquisition by one corporation, in exchange solely
6 for all or a part of its voting stock (or in exchange solely for
7 all or a part of the voting stock of a corporation which is in
8 control of the acquiring corporation), of substantially all of
9 the properties of another corporation, but in determining
10 whether the exchange is solely for stock the assumption by the
11 acquiring corporation of a liability of the other, or the fact
12 that property acquired is subject to a liability, shall be
13 disregarded;
14 (D) a transfer by a corporation of all or a part of its
15 assets to another corporation if immediately after the transfer
16 the transferor, or one or more of its shareholders (including
17 persons who were shareholders immediately before the transfer),
18 or any combination thereof, is in control of the corporation to
19 which the assets are transferred;
20 (E) a recapitalization;
21 (F) a mere change in identity, form, or place of
22 organization however effected;
23 (G) the acquisition by one corporation, in exchange for
24 stock of a corporation (referred to in this subclause as
25 "controlling corporation") which is in control of the acquiring
26 corporation, of substantially all of the properties of another
27 corporation which in the transaction is merged into the
28 acquiring corporation shall not disqualify a transaction under
29 paragraph (A) if the transaction would have qualified under
30 paragraph (A) if the merger had been into the controlling
19970H0716B0808 - 10 -
1 corporation, and no stock of the acquiring corporation is used
2 in the transaction; or
3 (H) a transaction otherwise qualifying under paragraph (A)
4 shall not be disqualified by reason of the fact that stock of a
5 corporation (referred to in this subclause as the "controlling
6 corporation") which before the merger was in control of the
7 merged corporation is used in the transaction, if after the
8 transaction, the corporation surviving the merger holds
9 substantially all of its properties and of the properties of the
10 merged corporation (other than stock of the controlling
11 corporation distributed in the transaction); and in the
12 transaction, former shareholders of the surviving corporation
13 exchanged, for an amount of voting stock of the controlling
14 corporation, an amount of stock in the surviving corporation
15 which constitutes control of the corporation.
16 (ii) The term "control" means the ownership of stock
17 possessing at least eighty per cent of the total combined voting
18 power of all classes of stock entitled to vote and at least
19 eighty per cent of the total number of shares of all other
20 classes of stock of the corporation.
21 (iii) The term "a party to a reorganization" includes a
22 corporation resulting from a reorganization, and both
23 corporations, in the case of a reorganization resulting from the
24 acquisition by one corporation of stock or properties of
25 another. In the case of a reorganization qualifying under
26 subclause (i)(A) by reason of subclause (i)(G) the term "a party
27 to a reorganization" includes the controlling corporation
28 referred to in subclause (i)(G).
29 (5) If property (in this clause and clause (6) called "old
30 residence") used by the taxpayer as a principal residence is
19970H0716B0808 - 11 -
1 sold by the taxpayer and, within a period beginning two years
2 before the date of the sale and ending two years after the sale
3 date, property (in this clause and clause (6) called "new
4 residence") is purchased and used by the taxpayer as a principal
5 residence, gain, if any, from the sale shall be recognized only
6 to the extent that the taxpayer's adjusted sales price of the
7 old residence exceeds the taxpayer's cost of purchasing the new
8 residence.
9 (6) For purposes of clause (5), the adjusted basis of the
10 new residence shall be reduced by the gain not recognized on the
11 sale of the old residence.
12 Section 3. This act shall take effect in 60 days.
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