PRIOR PRINTER'S NO. 2053 PRINTER'S NO. 2375
No. 1626 Session of 2003
INTRODUCED BY NICKOL AND TURZAI, JUNE 16, 2003
AS AMENDED ON THIRD CONSIDERATION, HOUSE OF REPRESENTATIVES,
JULY 8, 2003
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 "taxable income" for purposes of
11 corporate net income tax.
12 The General Assembly of the Commonwealth of Pennsylvania
13 hereby enacts as follows:
14 Section 1. Section 401(3)4(c) of the act of March 4, 1971
15 (P.L.6, No.2), known as the Tax Reform Code of 1971, amended
16 June 29, 2002 (P.L.559, No.89), is amended to read:
17 Section 401. Definitions.--The following words, terms, and
18 phrases, when used in this article, shall have the meaning
19 ascribed to them in this section, except where the context
20 clearly indicates a different meaning:
21 * * *
1 (3) "Taxable income." * * *
2 4. * * *
3 (c) (1) [The] Except as provided in subparagraph 3 (3), the <--
4 net loss deduction shall be the lesser of two million dollars
5 ($2,000,000) or the amount of the net loss or losses which may
6 be carried over to the taxable year or taxable income as
7 determined under subclause 1 or, if applicable, subclause 2. In
8 no event shall the net loss deduction include more than five
9 hundred thousand dollars ($500,000), in the aggregate, of net
10 losses from taxable years 1988 through 1994.
11 (2) A net loss for a taxable year may only be carried over
12 pursuant to the following schedule:
13 Taxable Year Carryover
14 1981 1 taxable year
15 1982 2 taxable years
16 1983-1987 3 taxable years
17 1988 2 taxable years plus
18 1 taxable year
19 starting with the
20 1995 taxable year
21 1989 1 taxable year plus
22 2 taxable years
23 starting with the
24 1995 taxable year
25 1990-1993 3 taxable years
26 starting with the
27 1995 taxable year
28 1994 1 taxable year
29 1995-1997 10 taxable years
30 1998 and thereafter 20 taxable years
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1 The earliest net loss shall be carried over to the earliest
2 taxable year to which it may be carried under this schedule. The
3 total net loss deduction allowed in any taxable year shall not
4 exceed two million dollars ($2,000,000).
5 (3) The two million dollar ($2,000,000) limit on the net
6 operating loss deduction in a taxable year under paragraphs (1) <--
7 and (2) shall not apply to the deduction of start-up period
8 losses. For the purposes of this paragraph, start-up period
9 losses are the sum of the net loss or losses incurred in the
10 corporation's first taxable year plus its nine succeeding
11 taxable years. A reorganization, as the term is defined under
12 section 303(a)(3)(iv)(B) of this act, shall be disregarded for
13 the purposes of applying this paragraph. LOSS DEDUCTION IN A <--
14 TAXABLE YEAR UNDER SUBPARAGRAPHS (1) AND (2) SHALL NOT APPLY TO
15 THE DEDUCTION OF START-UP PERIOD LOSSES INCURRED BY A START-UP
16 CORPORATION. FOR THE PURPOSES OF THIS SUBPARAGRAPH:
17 (A) THE TERM "START-UP PERIOD LOSSES" SHALL MEAN THE SUM OF
18 THE NET LOSS OR LOSSES INCURRED IN THE CORPORATION'S FIRST
19 TAXABLE YEAR BEGINNING WITH THE CORPORATION'S DATE OF
20 INCORPORATION PLUS ITS NINE SUCCEEDING TAXABLE YEARS.
21 (B) THE TERM "START-UP CORPORATION" SHALL MEAN A CORPORATION
22 THAT IS:
23 (I) NEWLY ORGANIZED;
24 (II) NOT A SUBSIDIARY OR AFFILIATE OF A PREEXISTING
25 CORPORATION; AND
26 (III) NOT A CORPORATION RESULTING FROM A REORGANIZATION, AS
27 THE TERM IS DEFINED UNDER SECTION 303(A)(3)(IV)(B) OF THIS ACT,
28 OF RELATED OR AFFILIATED CORPORATIONS.
29 (C) IN THE EVENT OF A STATUTORY MERGER OR CONSOLIDATION
30 INVOLVING TWO OR MORE UNRELATED OR UNAFFILIATED START-UP
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1 CORPORATIONS, THE REMAINING START-UP PERIOD OF THE SURVIVING
2 START-UP CORPORATION SHALL BE LIMITED TO THE LEAST REMAINING
3 NUMBER OF TAXABLE YEARS AVAILABLE FOR ANY START-UP CORPORATION A
4 PARTY TO THE MERGER OR CONSOLIDATION.
5 (D) THIS SUBPARAGRAPH SHALL APPLY TO A FOREIGN START-UP
6 CORPORATION FROM THE DATE OF ITS INCORPORATION AND NOT FROM THE
7 DATE OF FIRST BECOMING SUBJECT TO TAXATION IN THIS COMMONWEALTH.
8 (4) IN ENACTING SUBPARAGRAPH (3), THE GENERAL ASSEMBLY FINDS
9 THAT:
10 (A) THE CONTINUING HEALTH, STABILITY AND GROWTH OF BUSINESS
11 AND INDUSTRY IN THIS COMMONWEALTH IS OF GREAT IMPORTANCE TO THIS
12 COMMONWEALTH'S ECONOMY AND TO THE RESIDENTS OF THIS
13 COMMONWEALTH.
14 (B) THE ATTRACTION, ESTABLISHMENT AND GROWTH OF NEW START-UP
15 CORPORATIONS IN THIS COMMONWEALTH WILL HELP TO FOSTER THESE
16 OBJECTIVES.
17 (C) START-UP CORPORATIONS GENERALLY INCUR SUBSTANTIAL START-
18 UP PERIOD LOSSES.
19 (D) THE ABILITY OF START-UP CORPORATIONS TO DEDUCT AVAILABLE
20 START-UP PERIOD LOSSES AT THEIR EARLIEST OPPORTUNITY IS
21 ESSENTIAL IN ORDER TO ENSURE THEIR VIABILITY AND CONTINUED
22 EXISTENCE IN THIS COMMONWEALTH.
23 (E) IT IS IN THE PUBLIC INTEREST TO PERMIT START-UP
24 CORPORATIONS TO USE AVAILABLE START-UP PERIOD LOSSES AT THEIR
25 EARLIEST OPPORTUNITY TO HELP TO ENSURE THE HEALTH, STABILITY AND
26 GROWTH OF NEW BUSINESS AND INDUSTRY IN THIS COMMONWEALTH AND ITS
27 ATTENDANT BENEFITS TO ALL RESIDENTS OF THIS COMMONWEALTH.
28 * * *
29 SECTION 2. THE PROVISIONS OF THIS ACT ARE SEVERABLE. IF ANY <--
30 PROVISION OF THIS ACT OR ITS APPLICATION TO ANY PERSON OR
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1 CIRCUMSTANCE IS HELD INVALID, THE INVALIDITY SHALL NOT AFFECT
2 OTHER PROVISIONS OR APPLICATIONS OF THIS ACT WHICH CAN BE GIVEN
3 EFFECT WITHOUT THE INVALID PROVISION OR APPLICATION.
4 Section 2 3. This act shall apply to net operating loss <--
5 deductions for taxable years beginning after December 31, 2002 <--
6 2003.
7 Section 3 4. This act shall take effect immediately. <--
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