See other bills
under the
same topic
                                 SENATE AMENDED
        PRIOR PRINTER'S NOS. 441, 2809, 2849,         PRINTER'S NO. 4086
        3094

THE GENERAL ASSEMBLY OF PENNSYLVANIA


HOUSE BILL

No. 377 Session of 2007


        INTRODUCED BY D. EVANS, BENNINGTON, BUXTON, CALTAGIRONE, CURRY,
           FREEMAN, GALLOWAY, LEVDANSKY, MARKOSEK, MYERS, PARKER,
           PRESTON, WALKO, WHEATLEY, PETRONE, WAGNER, KORTZ, FRANKEL AND
           M. O'BRIEN, FEBRUARY 13, 2007

        SENATOR BROWNE, FINANCE, IN SENATE, AS AMENDED, JUNE 26, 2008

                                     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," in sales and use tax, further providing for        <--
    11     definitions and for exclusions; in personal income tax,
    12     further providing for imposition, providing an alternative
    13     special tax provision for poverty; further providing for
    14     requirement of withholding tax; in corporate net income tax,
    15     further providing for definitions and for imposition; in
    16     capital stock-franchise tax, further providing for
    17     definitions and reports; in gross receipts tax, further
    18     providing for imposition; in research and development tax
    19     credits, further providing for carryover, carryback, refund
    20     and assignment of credit, for time limitations, for
    21     limitation on credits and for termination; providing for a
    22     small business health savings account tax credit and for a
    23     new diesel technology tax credit; in inheritance tax, further
    24     providing for imposition, for inheritance tax rates and for
    25     estate tax; and making a related repeal. IN PERSONAL INCOME    <--
    26     TAX, FURTHER PROVIDING FOR CLASSES OF INCOME AND FOR SPECIAL
    27     TAX PROVISIONS FOR POVERTY; AND, IN CORPORATE NET INCOME TAX,
    28     FURTHER PROVIDING FOR THE DEFINITION OF "TAXABLE INCOME."

    29     The General Assembly of the Commonwealth of Pennsylvania

     1  hereby enacts as follows:
     2     Section 1.  Section 201(m) of the act of March 4, 1971         <--
     3  (P.L.6, No.2), known as the Tax Reform Code of 1971, amended May
     4  24, 2000 (P.L.106, No.23), is amended to read:
     5     Section 201.  Definitions.--The following words, terms and
     6  phrases when used in this Article II shall have the meaning
     7  ascribed to them in this section, except where the context
     8  clearly indicates a different meaning:
     9     * * *
    10     (m)  "Tangible personal property."
    11     (1)  Corporeal personal property including, but not limited
    12  to, goods, wares, merchandise, steam and natural and
    13  manufactured and bottled gas for non-residential use,
    14  electricity for non-residential use, prepaid telecommunications,
    15  premium cable or premium video programming service, spirituous
    16  or vinous liquor and malt or brewed beverages and soft drinks,
    17  interstate telecommunications service originating or terminating
    18  in the Commonwealth and charged to a service address in this
    19  Commonwealth, intrastate telecommunications service with the
    20  exception of (i) subscriber line charges and basic local
    21  telephone service for residential use and (ii) charges for
    22  telephone calls paid for by inserting money into a telephone
    23  accepting direct deposits of money to operate, provided further,
    24  the service address of any intrastate telecommunications service
    25  is deemed to be within this Commonwealth or within a political
    26  subdivision, regardless of how or where billed or paid. In the
    27  case of any such interstate or intrastate telecommunications
    28  service, any charge paid through a credit or payment mechanism
    29  which does not relate to a service address, such as a bank,
    30  travel, credit or debit card, but not including prepaid
    20070H0377B4086                  - 2 -     

     1  telecommunications, is deemed attributable to the address of
     2  origination of the telecommunications service. The term shall
     3  not include computer software, other than prewritten computer
     4  software delivered to the purchaser by tangible storage media.
     5     (2)  For the purposes of this clause, the following words and
     6  phrases shall have the meanings given to them in this subclause:
     7     "Computer software."  A set of coded instructions designed to
     8  cause a computer or automatic data processing equipment to
     9  perform a task.
    10     "Prewritten computer software."  The term shall have the same
    11  meaning as "computer software," including prewritten upgrades,
    12  which is not designed and developed by the author or other
    13  creator to the specifications of a specific purchaser. The
    14  combining of two or more prewritten computer software programs
    15  or prewritten portions of the program does not cause the
    16  combination to be other than prewritten computer software. The
    17  term includes software designed and developed by the author or
    18  other creator to the specifications of a specific purchaser when
    19  it is sold to a person other than the specific purchaser. Where
    20  a person modifies or enhances computer software of which the
    21  person is not the author or creator, the person shall be deemed
    22  to be the author or creator only of the person's modifications
    23  or enhancements. Prewritten computer software or a prewritten
    24  portion of prewritten computer software that is modified or
    25  enhanced to any degree, where the modification or enhancement is
    26  designed and developed to the specifications of a specific
    27  purchaser, remains prewritten computer software except that
    28  where there is a reasonable, separately stated charge, invoice
    29  or other statement of the price given to the purchaser for the
    30  modification or enhancement, the modification or enhancement
    20070H0377B4086                  - 3 -     

     1  shall not constitute prewritten computer software.
     2     * * *
     3     Section 2.  Section 204(10) of the act, amended April 23,
     4  1998 (P.L.239, No.45), is amended and the section is amended by
     5  adding clauses to read:
     6     Section 204.  Exclusions from Tax.--The tax imposed by
     7  section 202 shall not be imposed upon any of the following:
     8     * * *
     9     (10)  The sale at retail to or use by (i) any charitable
    10  organization, volunteer firemen's organization or nonprofit
    11  educational institution, or (ii) a religious organization for
    12  religious purposes of tangible personal property or services
    13  other than pursuant to a construction contract: Provided,
    14  however, That the exclusion of this clause shall not apply with
    15  respect to any tangible personal property or services used in
    16  any unrelated trade or business carried on by such organization
    17  or institution or with respect to any materials, supplies and
    18  equipment used and transferred to such organization or
    19  institution in the construction, reconstruction, remodeling,
    20  renovation, repairs and maintenance of any real estate
    21  structure, other than building machinery and equipment, except
    22  materials and supplies when purchased by such organizations or
    23  institutions for routine maintenance and repairs[.], unless the
    24  organization or institution is a charitable organization in the
    25  trade or business of construction, reconstruction, remodeling or
    26  renovation of any real estate structure.
    27     * * *
    28     (67)  Fees charged by nonprofit humane organizations to
    29  transfer custody and possession of animals that are used as
    30  household pets.
    20070H0377B4086                  - 4 -     

     1     (68)  The sale at retail or use of building materials and
     2  supplies used for the construction or repair of animal
     3  production buildings regardless if the sale is made to the
     4  purchaser directly or pursuant to a construction contract.
     5     Section 3.  Section 302 of the act, amended December 23, 2003
     6  (P.L.250, No.46), is amended to read:
     7     Section 302.  Imposition of Tax.--(a)  Every resident
     8  individual, estate or trust shall be subject to, and shall pay
     9  for the privilege of receiving each of the classes of income
    10  hereinafter enumerated in section 303, a tax upon each dollar of
    11  income received by that resident during that resident's taxable
    12  year at the [rate of three and seven hundredths per cent.]
    13  following rates:
    14     (1)  Three and seven hundredths per cent for the first half
    15  of the taxable year commencing with or within calendar year
    16  2008.
    17     (2)  Two and ninety-three hundredths per cent for the second
    18  half of the taxable year commencing with or within calendar year
    19  2008.
    20     (3)  Two and eight-tenths per cent for the taxable year
    21  commencing with or within calendar year 2009 and each taxable
    22  year thereafter.
    23     (b)  Every nonresident individual, estate or trust shall be
    24  subject to, and shall pay for the privilege of receiving each of
    25  the classes of income hereinafter enumerated in section 303 from
    26  sources within this Commonwealth, a tax upon each dollar of
    27  income received by that nonresident during that nonresident's
    28  taxable year at the [rate of three and seven hundredths per
    29  cent.] following rates:
    30     (1)  Three and seven hundredths per cent for the first half
    20070H0377B4086                  - 5 -     

     1  of the taxable year commencing with or within calendar year
     2  2008.
     3     (2)  Two and ninety-three hundredths per cent for the second
     4  half of the taxable year commencing with or within calendar year
     5  2008.
     6     (3)  Two and eight-tenths per cent for the taxable year
     7  commencing with or within calendar year 2009 and each taxable
     8  year thereafter.
     9     Section 4.  The act is amended by adding a section to read:
    10     Section 304.1.  Alternative Special Tax Provision for
    11  Poverty.--(a)  Pursuant to section 2(b)(ii) of Article VIII of
    12  the Constitution of the Commonwealth of Pennsylvania, which
    13  provides for establishing as a class or classes of subjects of
    14  taxation the property or privileges of persons who, because of
    15  poverty, are determined to be in need of special tax provisions,
    16  the General Assembly hereby declares its intent and purpose to
    17  exercise its power pursuant to that section by enacting the
    18  alternative tax provisions of this section.
    19     (b)  Having determined that there are certain persons in this
    20  Commonwealth whose incomes are such that imposition of an income
    21  tax would deprive them and their dependents of bare necessities
    22  of life, and having determined that poverty is a relative
    23  concept inextricably joined with actual income and the number of
    24  people dependent upon such income, the General Assembly deems it
    25  to be a matter of public policy to provide special tax
    26  provisions for that class of persons to relieve their economic
    27  burden.
    28     (c)  For the taxable year beginning after December 31, 2007,
    29  an individual having one or more dependents may, in lieu of
    30  utilizing the special tax provisions for poverty in section 304,
    20070H0377B4086                  - 6 -     

     1  claim a refund equal to fifteen per cent of the earned income
     2  credit allowable under section 32 of the Internal Revenue Code
     3  of 1986 (Public Law 99-514, 26 U.S.C. § 32), as amended.
     4     (d)  For taxable years beginning after December 31, 2008, an
     5  individual having one or more dependents may, in lieu of
     6  utilizing the special tax provisions for poverty in section 304,
     7  claim a refund equal to thirty per cent of the earned income
     8  credit allowable under section 32 of the Internal Revenue Code
     9  of 1986, as amended.
    10     Section 5.  Section 316 of the act, added August 31, 1971
    11  (P.L.362, No.93), is amended to read:
    12     Section 316.  Requirement of Withholding Tax.--[Every] (a)
    13  Except as provided under subsection (b), every employer
    14  maintaining an office or transacting business within this
    15  Commonwealth and making payment of compensation [(i)] (1) to a
    16  resident individual, or [(ii)] (2) to a nonresident individual
    17  taxpayer performing services on behalf of such employer within
    18  this Commonwealth, shall deduct and withhold from such
    19  compensation for each payroll period a tax computed in such
    20  manner as to result, so far as practicable, in withholding from
    21  the employe's compensation during each calendar year an amount
    22  substantially equivalent to the tax reasonably estimated to be
    23  due for such year with respect to such compensation. The method
    24  of determining the amount to be withheld shall be prescribed by
    25  regulations of the department.
    26     (b)  Subsection (a) shall not apply to the withholding of tax
    27  from compensation of any resident or nonresident individual
    28  serving in the armed forces of the United States in an area
    29  designated by the President of the United States by Executive
    30  Order as a combat zone as described under section 7508 of the
    20070H0377B4086                  - 7 -     

     1  Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §
     2  7508), as amended, at any time during the period designated by
     3  the President by Executive Order as the period of combatant
     4  activities in the combat zone or hospitalized as a result of
     5  injury received while serving in the combat zone during such
     6  time.
     7     Section 6.  Section 401(3)2(a)(9) and 4(c) of the act,
     8  amended July 12, 2006 (P.L.1137, No.116), are amended to read:
     9     Section 401.  Definitions.--The following words, terms, and
    10  phrases, when used in this article, shall have the meaning
    11  ascribed to them in this section, except where the context
    12  clearly indicates a different meaning:
    13     * * *
    14     (3)  "Taxable income."  * * *
    15     2.  In case the entire business of any corporation, other
    16  than a corporation engaged in doing business as a regulated
    17  investment company as defined by the Internal Revenue Code of
    18  1986, is not transacted within this Commonwealth, the tax
    19  imposed by this article shall be based upon such portion of the
    20  taxable income of such corporation for the fiscal or calendar
    21  year, as defined in subclause 1 hereof, and may be determined as
    22  follows:
    23     (a)  Division of Income.
    24     * * *
    25     (9)  (A)  Except as provided in subparagraph (B):
    26     (i)  For taxable years beginning before January 1, 2007, all
    27  business income shall be apportioned to this State by
    28  multiplying the income by a fraction, the numerator of which is
    29  the property factor plus the payroll factor plus three times the
    30  sales factor and the denominator of which is five.
    20070H0377B4086                  - 8 -     

     1     (ii)  For taxable years beginning after December 31, 2006,
     2  and ending before January 1, 2008, all business income shall be
     3  apportioned to this State by multiplying the income by a
     4  fraction, the numerator of which is the sum of fifteen times the
     5  property factor, fifteen times the payroll factor and seventy
     6  times the sales factor and the denominator of which is one
     7  hundred.
     8     (iii)  For taxable years beginning after December 31, 2007,
     9  all business income shall be apportioned to this State by
    10  multiplying the income by the sales factor.
    11     (B)  For purposes of apportionment of the capital stock -
    12  franchise tax as provided in section 602 of Article VI of this
    13  act, the apportionment fraction shall be the property factor
    14  plus the payroll factor plus the sales factor as the numerator,
    15  and the denominator shall be three.
    16     * * *
    17     4.  * * *
    18     (c)  (1)  The net loss deduction shall be the lesser of:
    19     (A)  (I)  For taxable years beginning before January 1, 2007,
    20  two million dollars ($2,000,000);
    21     (II)  For taxable years beginning after December 31, 2006,
    22  and before January 1, 2008, the greater of twelve and one-half
    23  per cent of taxable income as determined under subclause 1 or,
    24  if applicable, subclause 2 or three million dollars
    25  ($3,000,000); [or]
    26     (III)  For taxable years beginning after December 31, 2007,
    27  one hundred per cent of taxable income as determined under
    28  subclause 1 or, if applicable, subclause 2; or
    29     (B)  The amount of the net loss or losses which may be
    30  carried over to the taxable year or taxable income as determined
    20070H0377B4086                  - 9 -     

     1  under subclause 1 or, if applicable, subclause 2.
     2     [(1.1)  In no event shall the net loss deduction include more
     3  than five hundred thousand dollars ($500,000), in the aggregate,
     4  of net losses from taxable years 1988 through 1994.]
     5     (2)  (A)  A net loss for a taxable year may only be carried
     6  over pursuant to the following schedule:
     7             Taxable Year                        Carryover
     8                 1981                        1 taxable year
     9                 1982                        2 taxable years
    10                 1983-1987                   3 taxable years
    11                 1988                        2 taxable years plus
    12                                             1 taxable year
    13                                             starting with the
    14                                             1995 taxable year
    15                 1989                        1 taxable year plus
    16                                             2 taxable years
    17                                             starting with the
    18                                             1995 taxable year
    19                 1990-1993                   3 taxable years
    20                                             starting with the
    21                                             1995 taxable year
    22                 1994                        1 taxable year
    23                 1995-1997                   10 taxable years
    24                 1998 and thereafter         20 taxable years
    25     (B)  The earliest net loss shall be carried over to the
    26  earliest taxable year to which it may be carried under this
    27  schedule. The total net loss deduction allowed in any taxable
    28  year shall not exceed:
    29     (I)  Two million dollars ($2,000,000) for taxable years
    30  beginning before January 1, 2007.
    20070H0377B4086                 - 10 -     

     1     (II)  The greater of twelve and one-half per cent of the
     2  taxable income as determined under subclause 1 or, if
     3  applicable, subclause 2 or three million dollars ($3,000,000)
     4  for taxable years beginning after December 31, 2006[.], and
     5  before January 1, 2008.
     6     (III)  One hundred per cent of taxable income as determined
     7  under subclause 1 or, if applicable, subclause 2 for taxable
     8  years beginning after December 31, 2007.
     9     * * *
    10     Section 7.  Section 402(b) of the act, amended June 29, 2002
    11  (P.L.559, No.89), is amended to read:
    12     Section 402.  Imposition of Tax.--* * *
    13     (b)  The annual rate of tax on corporate net income imposed
    14  by subsection (a) for taxable years beginning for the calendar
    15  year or fiscal year on or after the dates set forth shall be as
    16  follows:
    17          Taxable Year         Tax Rate
    18  January 1, 1995, [and
    19     each taxable
    20     year thereafter]
    21     through taxable
    22     years beginning
    23     on or before
    24     December 31, 2008            9.99%
    25  January 1, 2009, and
    26     each taxable
    27     year through
    28     December 31, 2009            7.90%
    29  January 1, 2010, and
    30     each taxable
    20070H0377B4086                 - 11 -     

     1     year through
     2     December 31, 2010            7.70%
     3  January 1, 2011, and
     4     each taxable
     5     year through
     6  December 31, 2011               7.50%
     7  January 1, 2012, and
     8     each taxable
     9     year through
    10  December 31, 2012               7.30%
    11  January 1, 2013, and
    12     each taxable
    13     year through
    14  December 31, 2013               7.10%
    15  January 1, 2014, and
    16     each taxable
    17     year thereafter              6.90%
    18     * * *
    19     Section 8.  The definition of "capital stock value" in
    20  section 601(a) of the act, amended July 6, 2006 (P.L.319,
    21  No.67), is amended to read:
    22     Section 601.  Definitions and Reports.--(a)  The following
    23  words, terms and phrases when used in this Article VI shall have
    24  the meaning ascribed to them in this section, except where the
    25  context clearly indicates a different meaning:
    26     * * *
    27     "Capital stock value."  The amount computed pursuant to the
    28  following formula: the product of one-half times the sum of the
    29  average net income capitalized at the rate of nine and one-half
    30  per cent plus seventy-five per cent of net worth, from which
    20070H0377B4086                 - 12 -     

     1  product shall be subtracted [one hundred fifty thousand dollars
     2  ($150,000)] three hundred thousand dollars ($300,000), the
     3  algebraic equivalent of which is
     4               (.5 X (average net income/.095 + (.75)
     5                (net worth))) - [$150,000] $300,000
     6     * * *
     7     Section 9.  Section 1101(a), (a.1) and (j) of the act,
     8  amended or added December 23, 2003 (P.L.250, No.46), are amended
     9  to read:
    10     Section 1101.  Imposition of Tax.--(a)  General Rule.--Every
    11  pipeline company, conduit company, steamboat company, canal
    12  company, slack water navigation company, transportation company,
    13  and every other company, association, joint-stock association,
    14  or limited partnership, now or hereafter incorporated or
    15  organized by or under any law of this Commonwealth, or now or
    16  hereafter organized or incorporated by any other state or by the
    17  United States or any foreign government, and doing business in
    18  this Commonwealth, and every copartnership, person or persons
    19  owning, operating or leasing to or from another corporation,
    20  company, association, joint-stock association, limited
    21  partnership, copartnership, person or persons, any pipeline,
    22  conduit, steamboat, canal, slack water navigation, or other
    23  device for the transportation of freight, passengers, baggage,
    24  or oil, except motor vehicles and railroads, and every limited
    25  partnership, association, joint-stock association, corporation
    26  or company engaged in, or hereafter engaged in, the
    27  transportation of freight or oil within this State, and every
    28  telephone company , telegraph company or provider of mobile
    29  telecommunications services now or hereafter incorporated or
    30  organized by or under any law of this Commonwealth, or now or
    20070H0377B4086                 - 13 -     

     1  hereafter organized or incorporated by any other state or by the
     2  United States or any foreign government and doing business in
     3  this Commonwealth, and every limited partnership, association,
     4  joint-stock association, copartnership, person or persons,
     5  engaged in telephone or telegraph business or providing mobile
     6  telecommunications services in this Commonwealth, shall pay to
     7  the State Treasurer, through the Department of Revenue, a tax of
     8  forty-five mills with a surtax equal to five mills upon each
     9  dollar of the gross receipts of the corporation, company or
    10  association, limited partnership, joint-stock association,
    11  copartnership, person or persons, received from:
    12     (1)  passengers, baggage, oil and freight transported wholly
    13  within this State;
    14     (2)  telegraph or telephone messages transmitted wholly
    15  within this State and telegraph or telephone messages
    16  transmitted in interstate commerce after December 31, 2003, and
    17  before January 1, 2008, where such messages originate or
    18  terminate in this State and the charges for such messages are
    19  billed to a service address in this State, except gross receipts
    20  derived from:
    21     (i)  the sales of access to the Internet, as set forth in
    22  Article II, made to the ultimate consumer; and
    23     (ii)  the sales for resale to persons, partnerships,
    24  associations, corporations or political subdivisions subject to
    25  the tax imposed by this article upon gross receipts derived from
    26  such resale of telecommunications services, including:
    27     (A)  telecommunications exchange access to interconnect with
    28  a local exchange carrier's network;
    29     (B)  network elements on an unbundled basis; and
    30     (C)  sales of telecommunications services to interconnect
    20070H0377B4086                 - 14 -     

     1  with providers of mobile telecommunications services; and
     2     (3)  mobile telecommunications services messages sourced to
     3  this Commonwealth after December 31, 2003, and before January 1,
     4  2008, based on the place of primary use standard set forth in
     5  the Mobile Telecommunications Sourcing Act (4 U.S.C. § 117),
     6  except gross receipts derived from:
     7     (i)  the sales of access to the Internet, as set forth in
     8  Article II, made to the ultimate consumer; and
     9     (ii)  the sales for resale to persons, partnerships,
    10  associations, corporations or political subdivisions subject to
    11  the tax imposed by this article upon gross receipts derived from
    12  such resale of mobile telecommunications services, including
    13  sales of mobile telecommunications services to interconnect with
    14  providers of telecommunications services.
    15     (a.1)  Credit.--Telegraph or telephone companies or providers
    16  of mobile telecommunications services that pay a gross receipts
    17  tax to another state on messages or services after December 31,
    18  2003, and before January 1, 2008, which are taxable under this
    19  article are entitled to a credit against the tax due under this
    20  article. The credit allowed with respect to the messages or
    21  services shall not exceed the tax under this article with
    22  respect to the messages or services.
    23     * * *
    24     (j)  Schedule for Estimated Payments.--
    25     (1)  For calendar year 2004, the following schedule applies
    26  to the payment of the tax under subsection(a)(3):
    27     (i)  Forty per cent of the estimated tax shall be due on
    28  March 15, 2004.
    29     (ii)  Forty per cent of the estimated tax shall be due on
    30  June 15, 2004.
    20070H0377B4086                 - 15 -     

     1     (iii)  Twenty per cent of the estimated tax shall be due on
     2  September 15, 2004.
     3     (2)  For calendar [years after 2004] year 2007, the payment
     4  of the estimated tax under subsection (a)(3) shall be due in
     5  accordance with section 3003.2.
     6     (3)  This subsection shall expire January 1, 2008.
     7     * * *
     8     Section 10.  Section 1704-B of the act, amended December 23,
     9  2003 (P.L.250, No.46), is amended to read:
    10     Section 1704-B.  Carryover, Carryback, Refund and Assignment
    11  of Credit.--(a)  If the taxpayer, purchaser or assignee cannot
    12  use the entire amount of the research and development tax credit
    13  for the taxable year in which the research and development tax
    14  credit is first approved, purchased or assigned, then the excess
    15  may be carried over to succeeding taxable years and used as a
    16  credit against the qualified tax liability of the taxpayer for
    17  those taxable years. Each time that the research and development
    18  tax credit is carried over to a succeeding taxable year, it is
    19  to be reduced by the amount that was used as a credit during the
    20  immediately preceding taxable year. The research and development
    21  tax credit provided by this article may be carried over and
    22  applied to succeeding taxable years for no more than fifteen
    23  taxable years following the first taxable year for which the
    24  taxpayer was entitled to claim the credit.
    25     (b)  A research and development tax credit approved by the
    26  department for Pennsylvania qualified research and development
    27  expense in a taxable year first shall be applied against the
    28  taxpayer's qualified tax liability for the current taxable year
    29  as of the date on which the credit was approved before the
    30  research and development tax credit is applied against any tax
    20070H0377B4086                 - 16 -     

     1  liability under subsection (a).
     2     (c)  A taxpayer, purchaser or assignee is not entitled to
     3  carry back or obtain a refund of an unused research and
     4  development tax credit.
     5     (d)  A taxpayer, upon application to and approval by the
     6  Department of Community and Economic Development, may sell or
     7  assign, in whole or in part, a research and development tax
     8  credit granted to the taxpayer under this article if no claim
     9  for allowance of the credit is filed [within one year] from the
    10  date the credit is approved by the department under section
    11  1703-B. The Department of Community and Economic Development
    12  shall establish guidelines for the approval of applications
    13  under this subsection.
    14     (e)  The purchaser or assignee of a portion of a research and
    15  development tax credit under subsection (d) shall immediately
    16  claim the credit in the taxable year in which the purchase or
    17  assignment is made. The amount of the research and development
    18  credit that a purchaser or assignee may use against any one
    19  qualified tax liability may not exceed seventy-five per cent of
    20  such qualified tax liability for the taxable year. The purchaser
    21  or assignee may not [carry over,] carry back, obtain a refund of
    22  or assign the research and development tax credit. The purchaser
    23  or assignee shall notify the department of the seller or
    24  assignor of the research and development tax credit in
    25  compliance with procedures specified by the department.
    26     Section 11.  Section 1707-B of the act, amended July 12, 2006
    27  (P.L.1137, No.116), is repealed:
    28     [Section 1707-B.  Time Limitations.--A taxpayer is not
    29  entitled to a research and development tax credit for
    30  Pennsylvania qualified research and development expenses
    20070H0377B4086                 - 17 -     

     1  incurred in taxable years ending after December 31, 2015. The
     2  termination date in section 41(h) of the Internal Revenue Code
     3  of 1986 (Public Law 99-514, 26 U.S.C. § 41(h)) does not apply to
     4  a taxpayer who is eligible for the research and development tax
     5  credit under this article for the taxable year in which the
     6  Pennsylvania qualified research and development expense is
     7  incurred.]
     8     Section 12.  Section 1709-B of the act, amended or added May
     9  7, 1997 (P.L.85, No.7) and July 12, 2006 (P.L.1137, No.116), is
    10  repealed:
    11     [Section 1709-B.  Limitation on Credits.--(a)  The total
    12  amount of credits approved by the department shall not exceed
    13  forty million dollars ($40,000,000) in any fiscal year. Of that
    14  amount, eight million dollars ($8,000,000) shall be allocated
    15  exclusively for small businesses. However, if the total amounts
    16  allocated to either the group of applicants exclusive of small
    17  businesses or the group of small business applicants is not
    18  approved in any fiscal year, the unused portion will become
    19  available for use by the other group of qualifying taxpayers.
    20     (b)  If the total amount of research and development tax
    21  credits applied for by all taxpayers, exclusive of small
    22  businesses, exceeds the amount allocated for those credits, then
    23  the research and development tax credit to be received by each
    24  applicant shall be the product of the allocated amount
    25  multiplied by the quotient of the research and development tax
    26  credit applied for by the applicant divided by the total of all
    27  research and development credits applied for by all applicants,
    28  the algebraic equivalent of which is:
    29         taxpayer's research and development tax credit=amount
    30         allocated for those credits X (research and development
    20070H0377B4086                 - 18 -     

     1         tax credit applied for by the applicant/total of all
     2         research and development tax credits applied for by all
     3         applicants).
     4     (c)  If the total amount of research and development tax
     5  credits applied for by all small business taxpayers exceeds the
     6  amount allocated for those credits, then the research and
     7  development tax credit to be received by each small business
     8  applicant shall be the product of the allocated amount
     9  multiplied by the quotient of the research and development tax
    10  credit applied for by the small business applicant divided by
    11  the total of all research and development credits applied for by
    12  all small business applicants, the algebraic equivalent of which
    13  is:
    14         taxpayer's research and development tax credit=amount
    15         allocated for those credits X (research and development
    16         tax credit applied for by the small business/total of all
    17         research and development tax credits applied for by all
    18         small business applicants).]
    19     Section 13.  Section 1712-B of the act, amended July 12, 2006
    20  (P.L.1137, No.116), is repealed:
    21     [Section 1712-B.  Termination.--The department shall not
    22  approve a research and development tax credit under this article
    23  for taxable years ending after December 31, 2015.]
    24     Section 14.  The act is amended by adding articles to read:
    25                           ARTICLE XVII-F
    26          SMALL BUSINESS HEALTH SAVINGS ACCOUNT TAX CREDIT
    27  Section 1701-F.  Scope.
    28     This article relates to small business health savings account
    29  tax credit.
    30  Section 1702-F.  Definitions.
    20070H0377B4086                 - 19 -     

     1     The following words and phrases when used in this article
     2  shall have the meanings given to them in this section unless the
     3  context clearly indicates otherwise:
     4     "Department."  The Department of Revenue of the Commonwealth.
     5     "Employee" or "employees."  An individual or group of
     6  individuals employed by a small business. The term shall also
     7  include a sole proprietor.
     8     "Health insurance policy."  An individual or group health,
     9  sickness or accident policy or subscriber contract or
    10  certificate issued by an entity subject to any one of the
    11  following:
    12         (1)  The act of May 17, 1921 (P.L.682, No.284), known as
    13     The Insurance Company Law of 1921.
    14         (2)  The act of December 29, 1972 (P.L.1701, No.364),
    15     known as the Health Maintenance Organization Act.
    16         (3)  The act of May 18, 1976 (P.L.123, No.54), known as
    17     the Individual Accident and Sickness Insurance Minimum
    18     Standards Act.
    19         (4)  40 Pa.C.S. Ch. 61 (relating to hospital plan
    20     corporations) or 63 (relating to professional health services
    21     plan corporations).
    22     "Health Savings Account."  As defined in section 223(d) of
    23  the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C.
    24  § 223(d)).
    25     "Pass-through entity."  Any of the following:
    26         (1)  A partnership, limited partnership, limited
    27     liability company, business trust or other unincorporated
    28     entity that for Federal income tax purposes is taxable as a
    29     partnership.
    30         (2)  A Pennsylvania S corporation.
    20070H0377B4086                 - 20 -     

     1     "Qualified high deductible health plan."  A health insurance
     2  policy that would qualify as a high deductible health plan under
     3  section 223(c)(2) of the Internal Revenue Code of 1986 (Public
     4  Law 99-514, 26 U.S.C. § 223(c)(2)).
     5     "Qualified tax liability."  The liability for taxes imposed
     6  under Article III, IV or VI. The term shall include the
     7  liability for taxes imposed under Article III on an owner of a
     8  pass-through entity.
     9     "Secretary."  The Secretary of Revenue of the Commonwealth.
    10     "Small business."  An employer who, on at least 50% of its
    11  working days during the taxable year, employed fewer than 100
    12  employees.
    13     "Tax credit."  The small business health savings account tax
    14  credit authorized under this article.
    15     "Taxpayer."  A small business subject to tax under Article
    16  III, IV or VI. The term includes:
    17         (1)  the partner, shareholder, owner or member of a pass-
    18     through entity; or
    19         (2)  a sole proprietor.
    20  Section 1703-F.  Credit for Health Savings Account
    21                     contributions.
    22     (a)  Application.--A taxpayer who purchases and provides a
    23  qualified high deductible health insurance policy to employees
    24  and makes a contribution to a health savings account on behalf
    25  of employees in a taxable year may apply for a tax credit as
    26  provided in this article. By September 15, a taxpayer must
    27  submit an application to the department for the aggregate
    28  contribution made by the taxpayer to employee health savings
    29  accounts in the taxable year that ended in the prior calendar
    30  year.
    20070H0377B4086                 - 21 -     

     1     (b)  Computation.--A taxpayer who qualifies under subsection
     2  (a) shall receive a tax credit for the taxable year in
     3  accordance with the following:
     4         (1)  Fifty percent of the aggregate contribution made by
     5     the taxpayer to employee health savings accounts when the
     6     contribution is provided for the benefit of employees,
     7     spouses and dependents for the taxable year.
     8         (2)  Twenty-five percent of the aggregate contribution
     9     made by the taxpayer to employee health savings accounts when
    10     the contribution is provided solely for the benefit of an
    11     employee.
    12     (c)  Notification.--By December 15 of the calendar year
    13  following the close of the taxable year during which the
    14  contribution to employee health savings accounts was made, the
    15  department shall notify the taxpayer of the amount of the
    16  taxpayer's tax credit approved by the department.
    17  Section 1704-F.  Limitation on credits.
    18     (a)  Limit.--The total amount of credits approved by the
    19  department shall not exceed $30,000,000 in any fiscal year.
    20     (b)  Calculation.--If the total amount of small business
    21  health savings account tax credits applied for by all taxpayers
    22  exceeds the amount allocated for those credits, then the small
    23  business health savings account tax credit to be received by
    24  each applicant shall be the product of the allocated amount
    25  multiplied by the quotient of the small business health savings
    26  account tax credit applied for by the applicant divided by the
    27  total of all small business health savings account credits
    28  applied for by all applicants, the algebraic equivalent of which
    29  is:
    30         taxpayer's small business health savings account tax
    20070H0377B4086                 - 22 -     

     1         credit=amount allocated for those credits X (small
     2         business health savings account tax credit applied for by
     3         the applicant/total of all small business health savings
     4         account tax credits applied for by all applicants).
     5  Section 1705-F.  Carryover, carryback, refund and assignment of
     6                     credit.
     7     (a)  Carryover.--If the taxpayer cannot use the entire amount
     8  of the tax credit for the taxable year in which the tax credit
     9  is first approved, then the excess may be carried over to
    10  succeeding taxable years and used as a credit against the
    11  qualified tax liability of the taxpayer for those taxable years.
    12  Each time that the tax credit is carried over to a succeeding
    13  taxable year, it is to be reduced by the amount that was used as
    14  a credit during the immediately preceding taxable year. The tax
    15  credit may be carried over and applied to succeeding taxable
    16  years for no more than 15 taxable years following the first
    17  taxable year for which the taxpayer was entitled to claim the
    18  credit.
    19     (b)  Application of credit.--A tax credit approved by the
    20  department for monetary contributions made to employee health
    21  savings accounts in a taxable year first shall be applied
    22  against the taxpayer's qualified tax liability for the current
    23  taxable year as of the date on which the credit was approved
    24  before the tax credit is applied against any tax liability under
    25  subsection (a).
    26     (c)  Prohibition.--A taxpayer is not entitled to assign,
    27  carry back or obtain a refund of an unused tax credit.
    28  Section 1706-F.  Shareholder, owner or member pass-through.
    29     (a)  Shareholder's calculation.--If a Pennsylvania S
    30  corporation does not have an eligible tax liability against
    20070H0377B4086                 - 23 -     

     1  which the tax credit may be applied, a shareholder of the
     2  Pennsylvania S corporation is entitled to a tax credit equal to
     3  the tax credit determined for the Pennsylvania S corporation for
     4  the taxable year multiplied by the percentage of the
     5  Pennsylvania S corporation's distributive income to which the
     6  shareholder is entitled.
     7     (b)  Owner or member calculation.--If a pass-through entity
     8  other than a Pennsylvania S corporation does not have an
     9  eligible tax liability against which the tax credit may be
    10  applied, an owner or member of the pass-through entity is
    11  entitled to a tax credit equal to the tax credit determined for
    12  the pass-through entity for the taxable year multiplied by the
    13  percentage of the pass-through entity's distributive income to
    14  which the owner or member is entitled.
    15     (c)  Application; restrictions.--The credit provided under
    16  subsection (a) or (b) is in addition to any tax credit to which
    17  a shareholder, owner or member of a pass-through entity is
    18  otherwise entitled under this article. However, a pass-through
    19  entity and a shareholder, owner or member of a pass-through
    20  entity may not claim a credit under this article for the same
    21  contributions made to employee health savings accounts.
    22  Section 1707-F.  Report to General Assembly.
    23     The secretary shall submit an annual report to the General
    24  Assembly indicating the effectiveness of the credit provided by
    25  this article no later than March 15 following the year in which
    26  the credits were approved. The report shall include the names of
    27  all taxpayers utilizing the credit as of the date of the report
    28  and the amount of credits approved and utilized by each
    29  taxpayer. Notwithstanding any law providing for the
    30  confidentiality of tax records, the information contained in the
    20070H0377B4086                 - 24 -     

     1  report shall be public information. The report may also include
     2  any recommendations for changes in the calculation or
     3  administration of the credit.
     4  Section 1708-F.  Regulations.
     5     The secretary shall promulgate regulations necessary for the
     6  implementation and administration of this article.
     7                           ARTICLE XVII-G
     8                  NEW DIESEL TECHNOLOGY TAX CREDIT
     9  Section 1701-G.  Scope of article.
    10     This article relates to new diesel technology tax credits.
    11  Section 1702-G.  Definitions.
    12     The following words and phrases when used in this article
    13  shall have the meanings given to them in this section unless the
    14  context clearly indicates otherwise:
    15     "Department."  The Department of Revenue of the Commonwealth.
    16     "Pass-through entity."  Any of the following:
    17         (1)  A partnership, limited partnership, limited
    18     liability company, business trust or other unincorporated
    19     entity that for Federal income tax purposes is taxable as a
    20     partnership.
    21         (2)  A Pennsylvania S corporation.
    22     "Qualified new diesel technology expenses."  The cost
    23  incurred for the purchase of a Class 8 highway vehicle with a
    24  registered gross or combination weight as provided under 75
    25  Pa.C.S. § 1916 (relating to trucks and truck tractors) and with
    26  a diesel engine if the vehicle purchased has been certified as
    27  compliant with the emissions limits contained in 40 CFR 86.007-
    28  11 (relating to emission standards and supplemental requirements
    29  for 2007 and later model year diesel heavy-duty engines and
    30  vehicles), except that 40 CFR 86.007-15 (relating to NOX and
    20070H0377B4086                 - 25 -     

     1  particulate averaging, trading, and banking for heavy-duty
     2  engines), shall not apply to exhaust emissions attainment levels
     3  for particulates.
     4     "Qualified tax liability."  The liability for taxes imposed
     5  under Article III, IV or VI. The term shall include the
     6  liability for taxes imposed under Article III on an owner of a
     7  pass-through entity.
     8     "Secretary."  The Secretary of Revenue of the Commonwealth.
     9     "Tax credit."  The new diesel technology tax credit
    10  authorized under this article.
    11     "Taxpayer."  An entity subject to tax under Article III, IV
    12  or VI. The term shall include the shareholder, owner or member
    13  of a pass-through entity that receives a tax credit.
    14  Section 1703-G.  Credit for new diesel technology.
    15     (a)  Application.--A taxpayer who incurs a qualified new
    16  diesel technology expense in a taxable year may apply for a tax
    17  credit as provided in this article. By September 15, a taxpayer
    18  must submit an application to the department for qualified new
    19  diesel technology expenses incurred in the taxable year that
    20  ended in the prior calendar year.
    21     (b)  Amount.--A taxpayer that is qualified under subsection
    22  (a) shall receive a tax credit for the taxable year in the
    23  amount of $5,000 per qualified new diesel technology expense.
    24     (c)  Notification.--By December 15 of the calendar year
    25  following the close of the taxable year during which qualified
    26  new diesel technology expense was incurred, the department shall
    27  notify the taxpayer of the amount of the taxpayer's tax credit
    28  approved by the department.
    29  Section 1704-G.  Carryover, carryback, refund and assignment of
    30                     credit.
    20070H0377B4086                 - 26 -     

     1     (a)  Carryover.--If the taxpayer cannot use the entire amount
     2  of the tax credit for the taxable year in which the tax credit
     3  is first approved, the excess may be carried over to succeeding
     4  taxable years and used as a credit against the qualified tax
     5  liability of the taxpayer for those taxable years. Each time
     6  that the tax credit is carried over to a succeeding taxable
     7  year, it shall be reduced by the amount that was used as a
     8  credit during the immediately preceding taxable year. The tax
     9  credit may be carried over and applied to succeeding taxable
    10  years for no more than 15 taxable years following the first
    11  taxable year for which the taxpayer was entitled to claim the
    12  credit.
    13     (b)  Application.--A tax credit approved by the department
    14  for qualified new diesel technology expenses in a taxable year
    15  first shall be applied against the taxpayer's qualified tax
    16  liability for the current taxable year as of the date on which
    17  the credit was approved before the tax credit is applied against
    18  any tax liability under subsection (a).
    19     (c)  Unused credit.--A taxpayer is not entitled to assign,
    20  carry back or obtain a refund of an unused tax credit.
    21  Section 1705-G.  Time limitations.
    22     A taxpayer is not entitled to a tax credit for qualified new
    23  diesel technology expenses incurred in taxable years ending
    24  after December 31, 2009.
    25  Section 1706-G.  Shareholder, owner or member pass-through.
    26     (a)  Pennsylvania S corporations.--If a Pennsylvania S
    27  corporation does not have an eligible tax liability against
    28  which the tax credit may be applied, a shareholder of the
    29  Pennsylvania S corporation is entitled to a tax credit equal to
    30  the tax credit determined for the Pennsylvania S corporation for
    20070H0377B4086                 - 27 -     

     1  the taxable year multiplied by the percentage of the
     2  Pennsylvania S corporation's distributive income to which the
     3  shareholder is entitled under this article.
     4     (b)  Pass-through entities.--If a pass-through entity other
     5  than a Pennsylvania S corporation does not have an eligible tax
     6  liability against which the tax credit may be applied, an owner
     7  or member of the pass-through entity is entitled to a tax credit
     8  equal to the tax credit determined for the pass-through entity
     9  for the taxable year multiplied by the percentage of the pass-
    10  through entity's distributive income to which the owner or
    11  member is entitled under this article.
    12     (c)  Additional credits.--The credit provided under
    13  subsection (a) or (b) shall be in addition to any tax credit to
    14  which a shareholder, owner or member of a pass-through entity is
    15  otherwise entitled under this article. However, a pass-through
    16  entity and a shareholder, owner or member of a pass-through
    17  entity may not claim a credit under this article for the same
    18  qualified new diesel technology expense.
    19  Section 1707-G.  Report to General Assembly.
    20     The secretary shall submit an annual report to the General
    21  Assembly indicating the effectiveness of the credit provided by
    22  this article no later than March 15 following the year in which
    23  the credits were approved. The report shall include the names of
    24  all taxpayers utilizing the credit as of the date of the report
    25  and the amount of credits approved and utilized by each
    26  taxpayer. Notwithstanding any law providing for the
    27  confidentiality of tax records, the information contained in the
    28  report shall be public information. The report may also include
    29  any recommendations for changes in the calculation or
    30  administration of the credit.
    20070H0377B4086                 - 28 -     

     1  Section 1708-G.  Termination.
     2     The department shall not approve a tax credit under this
     3  article for taxable years ending after December 31, 2009.
     4  Section 1709-G.  Regulations.
     5     The secretary shall promulgate regulations necessary for the
     6  implementation and administration of this article.
     7     Section 15.  Section 2106 of the act, added August 4, 1991
     8  (P.L.97, No.22), is amended to read:
     9     Section 2106.  Imposition of Tax.--(a)  An inheritance tax
    10  for the use of the Commonwealth is imposed upon every transfer
    11  subject to tax under this article at the rates specified in
    12  section 2116.
    13     (b)  This section shall not apply to the estates of decedents
    14  dying on or after January 1, 2012.
    15     Section 16.  Section 2116(a) of the act, amended May 24, 2000
    16  (P.L.106, No.23), is amended to read:
    17     Section 2116.  Inheritance Tax.--(a)  (1)  Inheritance tax
    18  upon the transfer of property passing to or for the use of [any
    19  of the following shall be at the rate of four and one-half per
    20  cent:
    21     (i)  grandfather, grandmother, father, mother, except
    22  transfers under subclause (1.2), and lineal descendants; or
    23     (ii)  wife or widow and husband or widower of a child.] a
    24  grandfather, grandmother, father, mother, except transfers under
    25  subclause (1.2), lineal descendants, wife or widow and husband
    26  or widower of a child shall be at the rate provided in the
    27  following schedule:
    28     (i)  Four and one-half per cent for the estate of a decedent
    29  dying before or during calendar year 2009.
    30     (ii)  Two per cent for the estate of a decedent dying during
    20070H0377B4086                 - 29 -     

     1  calendar year 2010.
     2     (iii)  Zero per cent for the estate of a decedent dying
     3  during or after calendar year 2011.
     4     (1.1)  Inheritance tax upon the transfer of property passing
     5  to or for the use of a husband or wife shall be:
     6     (i)  At the rate of three per cent for estates of decedents
     7  dying on or after July 1, 1994, and before January 1, 1995.
     8     (ii)  At a rate of zero per cent for estates of decedents
     9  dying on or after January 1, 1995.
    10     (1.2)  Inheritance tax upon the transfer of property from a
    11  child twenty-one years of age or younger to or for the use of a
    12  natural parent, an adoptive parent or a stepparent of the child
    13  shall be at the rate of zero per cent.
    14     (1.3)  Inheritance tax upon the transfer of property passing
    15  to or for the use of a sibling shall be at the rate [of twelve
    16  per cent.] provided in the following schedule:
    17     (i)  Twelve per cent for the estate of a decedent dying
    18  before or during calendar year 2007.
    19     (ii)  Nine per cent for the estate of a decedent dying during
    20  calendar year 2008.
    21     (iii)  Six per cent for the estate of a decedent dying during
    22  calendar year 2009.
    23     (iv)  Four and one-half per cent for the estate of a decedent
    24  dying during calendar year 2010.
    25     (v)  Two per cent for the estate of a decedent dying during
    26  calendar year 2011.
    27     (vi)  Zero per cent for the estate of a decedent dying during
    28  or after calendar year 2012.
    29     (1.4)  Inheritance tax upon the transfer of property that is
    30  jointly held between a child and a natural parent, an adoptive
    20070H0377B4086                 - 30 -     

     1  parent or a stepparent of the child to the natural parent,
     2  adoptive parent or the stepparent shall be at the rate of zero
     3  per cent.
     4     (2)  Inheritance tax upon the transfer of property passing to
     5  or for the use of all persons other than those designated in
     6  subclause (1), (1.1), (1.2) or (1.3) or exempt under section
     7  2111(m) shall be at the rate [of fifteen per cent.] provided in
     8  the following schedule:
     9     (i)  Fifteen per cent for the estate of a decedent dying
    10  before or during calendar year 2007.
    11     (ii)  Ten per cent for the estate of a decedent dying during
    12  calendar year 2008.
    13     (iii)  Seven per cent for the estate of a decedent dying
    14  during calendar year 2009.
    15     (iv)  Four and one-half per cent for the estate of a decedent
    16  dying during calendar year 2010.
    17     (v)  Two per cent for the estate of a decedent dying during
    18  calendar year 2011.
    19     (vi)  Zero per cent for the estate of a decedent dying during
    20  or after calendar year 2012.
    21     (3)  When property passes to or for the use of a husband and
    22  wife with right of survivorship, one of whom is taxable at a
    23  rate lower than the other, the lower rate of tax shall be
    24  applied to the entire interest.
    25     * * *
    26     Section 17.  Section 2117 of the act is amended by adding a
    27  subsection to read:
    28     Section 2117.  Estate Tax.--* * *
    29     (d)  This section shall not apply to the estates of decedents
    30  dying on or after January 1, 2012.
    20070H0377B4086                 - 31 -     

     1     Section 18.  Repeals are as follows:
     2         (1)  The General Assembly declares that the repeal under
     3     paragraph (2) is necessary to effectuate the purposes of this
     4     act.
     5         (2)  Section 33(12) of the act of December 23, 2003
     6     (P.L.250, No.46), entitled "An act amending the act of March
     7     4, 1971 (P.L.6, No.2), entitled 'An act relating to tax
     8     reform and State taxation by codifying and enumerating
     9     certain subjects of taxation and imposing taxes thereon;
    10     providing procedures for the payment, collection,
    11     administration and enforcement thereof; providing for tax
    12     credits in certain cases; conferring powers and imposing
    13     duties upon the Department of Revenue, certain employers,
    14     fiduciaries, individuals, persons, corporations and other
    15     entities; prescribing crimes, offenses and penalties,'
    16     further providing, in sales and use tax, for definitions, for
    17     exclusions, for credits, for licenses and for transfers to
    18     Public Transportation Assistance Fund; further providing, in
    19     personal income tax, for definitions, for imposition, for
    20     special tax provisions for poverty, for returns and liability
    21     and for returns and records; further providing, in corporate
    22     net income tax, for definitions and for interests in
    23     unincorporated entities; providing, in corporate net income
    24     tax, for additional withholding requirements; further
    25     providing, in capital stock franchise tax, for definitions
    26     and reports, for imposition and for expiration; further
    27     providing, in utilities gross receipts tax, for imposition;
    28     further providing, in public utility realty tax, for
    29     surcharges; providing, in public utility realty tax, for
    30     additional tax; further providing, in cigarette tax, for
    20070H0377B4086                 - 32 -     

     1     incidence and rate of tax, for floor tax, for stamp to
     2     evidence the tax and for commissions on sales; establishing,
     3     in relation to cigarette tax, the Health Care Provider
     4     Retention Account; further providing, in research and
     5     development tax credit, for carryover, for limitations and
     6     for reports; further providing, in malt beverage tax, for
     7     limited tax credits; further providing, in inheritance tax,
     8     for definitions, for exempt transfers, for estate tax and for
     9     estate tax returns; further providing for the Public
    10     Transportation Assistance Fund and providing for its
    11     administration; further providing for estimated tax and for
    12     underpayment of estimated tax; providing for authority to
    13     attach wages; and repealing provisions relating to the Public
    14     Transportation Assistance Fund," is repealed.
    15     Section 19.  The following provisions shall apply to taxable
    16  years beginning after December 31, 2007:
    17         (1)  The amendment of 316 of the act.
    18         (2)  The amendment of section 401(3)4(c) of the act.
    19         (3)  The amendment of section 601(a) of the act.
    20         (4)  The amendment of section 1704-B of the act.
    21         (5)  The addition of Article XVII-F of the act.
    22     Section 20.  This act shall take effect as follows:
    23         (1)  The following provisions shall take effect July 1,
    24     2008:
    25             (i)  The amendment of section 201(m) of the act.
    26             (ii)  The amendment or addition of section 204(10),
    27         (67) and (68) of the act.
    28             (iii)  The addition of section 304.1 of the act.
    29             (iv)  The amendment of section 1101(a), (a.1) and (j)
    30         of the act.
    20070H0377B4086                 - 33 -     

     1             (v)  The repeal of section 1707-B of the act.
     2             (vi)  The repeal of section 1709-B of the act.
     3             (vii)  The repeal of section 1712-B of the act.
     4             (v)  The addition of Article XVII-F of the act.
     5             (vi)  The addition of Article XVII-G of the act.
     6             (vii)  Section 18 of this act.
     7         (2)  The following provisions shall take effect July 1,
     8     2008, or immediately, whichever is later:
     9             (i)  The amendment of section 302 of the act.
    10             (ii)  The amendment of section 316 of the act.
    11             (iii)  The amendment of section 401(3)2(a)(9) of the
    12         act.
    13             (iv)  The amendment of section 402(b) of the act.
    14         (3)  The remainder of this act shall take effect
    15     immediately.
    16     SECTION 1.  SECTION 303(A.3) OF THE ACT OF MARCH 4, 1971       <--
    17  (P.L.6, NO.2), KNOWN AS THE TAX REFORM CODE OF 1971, ADDED JUNE
    18  29, 2002 (P.L.559, NO.89), IS AMENDED TO READ:
    19     SECTION 303.  CLASSES OF INCOME.--* * *
    20     (A.3)  THE COST OF PROPERTY COMMONLY REFERRED TO AS SECTION
    21  179 PROPERTY MAY BE TREATED AS A DEDUCTIBLE EXPENSE ONLY TO THE
    22  EXTENT ALLOWABLE UNDER THE VERSION OF SECTION 179 OF THE
    23  INTERNAL REVENUE CODE IN EFFECT AT THE TIME THE PROPERTY IS
    24  PLACED IN SERVICE [OR UNDER SECTION 179 OF THE INTERNAL REVENUE
    25  CODE OF 1986 (26 U.S.C. § 179), WHICHEVER IS EARLIER]. THE LIMIT
    26  ON SECTION 179 PROPERTY WHICH MAY BE TREATED AS DEDUCTIBLE SHALL
    27  BE FIFTY THOUSAND DOLLARS ($50,000). THE BASIS OF SECTION 179
    28  PROPERTY SHALL BE REDUCED, BUT NOT BELOW ZERO, FOR COSTS TREATED
    29  AS A DEDUCTIBLE EXPENSE. THE AMOUNT OF THE REDUCTION SHALL BE
    30  THE AMOUNT DEDUCTED ON A RETURN AND NOT DISALLOWED, REGARDLESS
    20070H0377B4086                 - 34 -     

     1  OF WHETHER THE DEDUCTION RESULTS IN A REDUCTION OF INCOME.
     2     * * *
     3     SECTION 2.  SECTION 304 OF THE ACT, AMENDED DECEMBER 13, 1991
     4  (P.L.373, NO.40) AND DECEMBER 23, 2003 (P.L.250, NO.46), IS
     5  AMENDED TO READ:
     6     SECTION 304.  SPECIAL TAX PROVISIONS FOR POVERTY.--(A)  THE
     7  GENERAL ASSEMBLY, IN RECOGNITION OF THE POWERS CONTAINED IN
     8  SECTION 2(B)(II) OF ARTICLE VIII OF THE CONSTITUTION OF THE
     9  COMMONWEALTH OF PENNSYLVANIA WHICH PROVIDES THEREIN FOR THE
    10  ESTABLISHING AS A CLASS OR CLASSES OF SUBJECTS OF TAXATION THE
    11  PROPERTY OR PRIVILEGES OF PERSONS WHO, BECAUSE OF POVERTY ARE
    12  DETERMINED TO BE IN NEED OF SPECIAL TAX PROVISIONS HEREBY
    13  DECLARES AS ITS LEGISLATIVE INTENT AND PURPOSE TO IMPLEMENT SUCH
    14  POWER UNDER SUCH CONSTITUTIONAL PROVISION BY ESTABLISHING
    15  SPECIAL TAX PROVISIONS AS HEREINAFTER PROVIDED IN THIS ACT.
    16     (B)  THE GENERAL ASSEMBLY HAVING DETERMINED THAT THERE ARE
    17  PERSONS WITHIN THIS COMMONWEALTH WHOSE INCOMES ARE SUCH THAT
    18  IMPOSITION OF A TAX THEREON WOULD DEPRIVE THEM AND THEIR
    19  DEPENDENTS OF THE BARE NECESSITIES OF LIFE AND HAVING FURTHER
    20  DETERMINED THAT POVERTY IS A RELATIVE CONCEPT INEXTRICABLY
    21  JOINED WITH ACTUAL INCOME AND THE NUMBER OF PEOPLE DEPENDENT
    22  UPON SUCH INCOME DEEMS IT TO BE A MATTER OF PUBLIC POLICY TO
    23  PROVIDE SPECIAL TAX PROVISIONS FOR THAT CLASS OF PERSONS
    24  HEREINAFTER DESIGNATED TO RELIEVE THEIR ECONOMIC BURDEN.
    25     (C)  FOR THE TAXABLE YEAR 1974 AND EACH YEAR THEREAFTER ANY
    26  CLAIMANT WHO MEETS THE FOLLOWING STANDARDS OF ELIGIBILITY
    27  ESTABLISHED BY THIS ACT AS THE TEST FOR POVERTY SHALL BE DEEMED
    28  A SEPARATE CLASS OF SUBJECT OF TAXATION, AND, AS SUCH, SHALL BE
    29  ENTITLED TO THE BENEFIT OF THE SPECIAL PROVISIONS OF THIS ACT.
    30     (D)  ANY CLAIM FOR SPECIAL TAX PROVISIONS HEREUNDER SHALL BE
    20070H0377B4086                 - 35 -     

     1  DETERMINED IN ACCORDANCE WITH THE FOLLOWING:
     2     (1)  IF THE POVERTY INCOME OF THE CLAIMANT DURING AN ENTIRE
     3  TAXABLE YEAR IS [SIX THOUSAND FIVE HUNDRED DOLLARS ($6,500) OR
     4  LESS, OR, IN THE CASE OF A MARRIED CLAIMANT, IF THE JOINT
     5  POVERTY INCOME OF THE CLAIMANT AND THE CLAIMANT'S SPOUSE DURING
     6  AN ENTIRE TAXABLE YEAR IS THIRTEEN THOUSAND DOLLARS ($13,000) OR
     7  LESS] THE AMOUNT UNDER CLAUSE (1.1)(I), THE CLAIMANT SHALL BE
     8  ENTITLED TO A REFUND OR FORGIVENESS OF ANY MONEYS WHICH HAVE
     9  BEEN PAID OVER TO (OR WOULD EXCEPT FOR THE PROVISIONS OF THIS
    10  ACT BE PAYABLE TO) THE COMMONWEALTH UNDER THE PROVISIONS OF THIS
    11  ARTICLE, WITH AN ADDITIONAL INCOME ALLOWANCE OF [NINE THOUSAND
    12  FIVE HUNDRED DOLLARS ($9,500)] THE AMOUNT UNDER CLAUSE (1.1)(II)
    13  FOR EACH DEPENDENT OF THE CLAIMANT. FOR PURPOSES OF THIS
    14  SUBSECTION, A CLAIMANT SHALL NOT BE CONSIDERED TO BE MARRIED IF:
    15     (I)  THE CLAIMANT AND THE CLAIMANT'S SPOUSE FILE SEPARATE
    16  RETURNS; AND
    17     (II)  THE CLAIMANT AND THE CLAIMANT'S SPOUSE LIVE APART AT
    18  ALL TIMES DURING THE LAST SIX MONTHS OF THE TAXABLE YEAR OR ARE
    19  SEPARATED PURSUANT TO A WRITTEN SEPARATION AGREEMENT.
    20     (1.1)  (I)  THE AMOUNT OF POVERTY INCOME OF A CLAIMANT DURING
    21  AN ENTIRE TAXABLE YEAR UNDER CLAUSE (1) SHALL BE AS FOLLOWS:
    22     (A)  FOR TAXABLE YEARS ENDING BEFORE JANUARY 1, 2008, THE
    23  AMOUNT SHALL BE SIX THOUSAND FIVE HUNDRED DOLLARS ($6,500) OR
    24  LESS, OR, IN THE CASE OF A MARRIED CLAIMANT, THE AMOUNT SHALL BE
    25  THIRTEEN THOUSAND DOLLARS ($13,000) OR LESS.
    26     (B)  FOR TAXABLE YEARS ENDING AFTER DECEMBER 31, 2007, AND
    27  BEFORE JANUARY 1, 2009, THE AMOUNT SHALL BE SEVEN THOUSAND FIVE
    28  HUNDRED DOLLARS ($7,500) OR LESS, OR, IN THE CASE OF A MARRIED
    29  CLAIMANT, THE AMOUNT SHALL BE FIFTEEN THOUSAND DOLLARS ($15,000)
    30  OR LESS.
    20070H0377B4086                 - 36 -     

     1     (C)  FOR TAXABLE YEARS ENDING AFTER DECEMBER 31, 2008, AND
     2  BEFORE JANUARY 1, 2010, THE AMOUNT SHALL BE EIGHT THOUSAND
     3  DOLLARS ($8,000) OR LESS, OR, IN THE CASE OF A MARRIED CLAIMANT,
     4  THE AMOUNT SHALL BE SIXTEEN THOUSAND DOLLARS ($16,000) OR LESS.
     5     (D)  FOR TAXABLE YEARS ENDING AFTER DECEMBER 31, 2009, THE
     6  AMOUNT SHALL BE EIGHT THOUSAND FIVE HUNDRED DOLLARS ($8,500) OR
     7  LESS, OR, IN THE CASE OF A MARRIED CLAIMANT, THE AMOUNT SHALL BE
     8  SEVENTEEN THOUSAND DOLLARS ($17,000) OR LESS.
     9     (II)  THE ADDITIONAL INCOME ALLOWANCE FOR EACH DEPENDENT OF A
    10  CLAIMANT UNDER CLAUSE (1) SHALL BE AS FOLLOWS:
    11     (A)  FOR TAXABLE YEARS ENDING BEFORE JANUARY 1, 2009, THE
    12  AMOUNT SHALL BE NINE THOUSAND FIVE HUNDRED DOLLARS ($9,500).
    13     (B)  FOR TAXABLE YEARS ENDING AFTER DECEMBER 31, 2008, AND
    14  BEFORE JANUARY 1, 2010, THE AMOUNT SHALL BE NINE THOUSAND SEVEN
    15  HUNDRED AND FIFTY DOLLARS ($9,750).
    16     (C)  FOR TAXABLE YEARS ENDING AFTER DECEMBER 31, 2009, THE
    17  AMOUNT SHALL BE TEN THOUSAND DOLLARS ($10,000).
    18     (2)  IF THE POVERTY INCOME OF THE CLAIMANT DURING AN ENTIRE
    19  TAXABLE YEAR DOES NOT EXCEED THE POVERTY INCOME LIMITATIONS
    20  PRESCRIBED BY CLAUSE (1) BY MORE THAN THE DOLLAR CATEGORY
    21  CONTAINED IN SUBCLAUSES (I), (II), (III), (IV), (V), (VI),
    22  (VII), (VIII) OR (IX) OF THIS CLAUSE, THE CLAIMANT SHALL BE
    23  ENTITLED TO A REFUND OR FORGIVENESS BASED ON THE PER CENTAGE
    24  PRESCRIBED IN SUCH SUBCLAUSES OF ANY MONEYS WHICH HAVE BEEN PAID
    25  OVER TO (OR WOULD HAVE BEEN EXCEPT FOR THE PROVISIONS HEREIN BE
    26  PAYABLE TO) THE COMMONWEALTH UNDER THIS ARTICLE:
    27     (I)  NINETY PER CENT IF NOT IN EXCESS OF TWO HUNDRED FIFTY
    28  DOLLARS ($250).
    29     (II)  EIGHTY PER CENT IF NOT IN EXCESS OF FIVE HUNDRED
    30  DOLLARS ($500).
    20070H0377B4086                 - 37 -     

     1     (III)  SEVENTY PER CENT IF NOT IN EXCESS OF SEVEN HUNDRED
     2  FIFTY DOLLARS ($750).
     3     (IV)  SIXTY PER CENT IF NOT IN EXCESS OF ONE THOUSAND DOLLARS
     4  ($1,000).
     5     (V)  FIFTY PER CENT IF NOT IN EXCESS OF ONE THOUSAND TWO
     6  HUNDRED FIFTY DOLLARS ($1,250).
     7     (VI)  FORTY PER CENT IF NOT IN EXCESS OF ONE THOUSAND FIVE
     8  HUNDRED DOLLARS ($1,500).
     9     (VII)  THIRTY PER CENT IF NOT IN EXCESS OF ONE THOUSAND SEVEN
    10  HUNDRED FIFTY DOLLARS ($1,750).
    11     (VIII)  TWENTY PER CENT IF NOT IN EXCESS OF TWO THOUSAND
    12  DOLLARS ($2,000).
    13     (IX)  TEN PER CENT IF NOT IN EXCESS OF TWO THOUSAND TWO
    14  HUNDRED FIFTY DOLLARS ($2,250).
    15     (3)  IF AN INDIVIDUAL HAS A TAXABLE YEAR OF LESS THAN TWELVE
    16  MONTHS, THE POVERTY INCOME THEREOF SHALL BE ANNUALIZED IN SUCH
    17  MANNER AS THE DEPARTMENT MAY PRESCRIBE.
    18     SECTION 3.  SECTION 401(3)2(A)(9) AND 4(C) OF THE ACT,
    19  AMENDED JULY 12, 2006 (P.L.1137, NO.116), ARE AMENDED TO READ:
    20     SECTION 401.  DEFINITIONS.--THE FOLLOWING WORDS, TERMS, AND
    21  PHRASES, WHEN USED IN THIS ARTICLE, SHALL HAVE THE MEANING
    22  ASCRIBED TO THEM IN THIS SECTION, EXCEPT WHERE THE CONTEXT
    23  CLEARLY INDICATES A DIFFERENT MEANING:
    24     * * *
    25     (3)  "TAXABLE INCOME."  * * *
    26     2.  IN CASE THE ENTIRE BUSINESS OF ANY CORPORATION, OTHER
    27  THAN A CORPORATION ENGAGED IN DOING BUSINESS AS A REGULATED
    28  INVESTMENT COMPANY AS DEFINED BY THE INTERNAL REVENUE CODE OF
    29  1986, IS NOT TRANSACTED WITHIN THIS COMMONWEALTH, THE TAX
    30  IMPOSED BY THIS ARTICLE SHALL BE BASED UPON SUCH PORTION OF THE
    20070H0377B4086                 - 38 -     

     1  TAXABLE INCOME OF SUCH CORPORATION FOR THE FISCAL OR CALENDAR
     2  YEAR, AS DEFINED IN SUBCLAUSE 1 HEREOF, AND MAY BE DETERMINED AS
     3  FOLLOWS:
     4     (A)  DIVISION OF INCOME.
     5     * * *
     6     (9)  (A)  EXCEPT AS PROVIDED IN SUBPARAGRAPH (B):
     7     (I)  FOR TAXABLE YEARS BEGINNING BEFORE JANUARY 1, 2007, ALL
     8  BUSINESS INCOME SHALL BE APPORTIONED TO THIS STATE BY
     9  MULTIPLYING THE INCOME BY A FRACTION, THE NUMERATOR OF WHICH IS
    10  THE PROPERTY FACTOR PLUS THE PAYROLL FACTOR PLUS THREE TIMES THE
    11  SALES FACTOR AND THE DENOMINATOR OF WHICH IS FIVE.
    12     (II)  FOR TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 2006,
    13  ALL BUSINESS INCOME SHALL BE APPORTIONED TO THIS STATE BY
    14  MULTIPLYING THE INCOME BY A FRACTION, THE NUMERATOR OF WHICH IS
    15  THE SUM OF FIFTEEN TIMES THE PROPERTY FACTOR, FIFTEEN TIMES THE
    16  PAYROLL FACTOR AND SEVENTY TIMES THE SALES FACTOR AND THE
    17  DENOMINATOR OF WHICH IS ONE HUNDRED.
    18     (III)  FOR TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 2008,
    19  ALL BUSINESS INCOME SHALL BE APPORTIONED TO THIS STATE BY
    20  MULTIPLYING THE INCOME BY A FRACTION: THE NUMERATOR OF WHICH IS
    21  THE SUM OF SEVEN AND A HALF TIMES THE PROPERTY FACTOR, SEVEN AND
    22  A HALF TIMES THE PAYROLL FACTOR AND EIGHTY-FIVE TIMES THE SALES
    23  FACTOR; AND THE DENOMINATOR OF WHICH IS ONE HUNDRED.
    24     (B)  FOR PURPOSES OF APPORTIONMENT OF THE CAPITAL STOCK -
    25  FRANCHISE TAX AS PROVIDED IN SECTION 602 OF ARTICLE VI OF THIS
    26  ACT, THE APPORTIONMENT FRACTION SHALL BE THE PROPERTY FACTOR
    27  PLUS THE PAYROLL FACTOR PLUS THE SALES FACTOR AS THE NUMERATOR,
    28  AND THE DENOMINATOR SHALL BE THREE.
    29     * * *
    30     4.  * * *
    20070H0377B4086                 - 39 -     

     1     (C)  (1)  THE NET LOSS DEDUCTION SHALL BE THE LESSER OF:
     2     (A)  (I)  FOR TAXABLE YEARS BEGINNING BEFORE JANUARY 1, 2007,
     3  TWO MILLION DOLLARS ($2,000,000);
     4     (II)  FOR TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 2006,
     5  THE GREATER OF TWELVE AND ONE-HALF PER CENT OF TAXABLE INCOME AS
     6  DETERMINED UNDER SUBCLAUSE 1 OR, IF APPLICABLE, SUBCLAUSE 2 OR
     7  THREE MILLION DOLLARS ($3,000,000); [OR]
     8     (III)  FOR TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 2008,
     9  THE GREATER OF TWENTY PER CENT OF THE TAXABLE INCOME AS
    10  DETERMINED UNDER SUBCLAUSE 1 OR, IF APPLICABLE, SUBCLAUSE 2 OR
    11  FIVE MILLION DOLLARS ($5,000,000); OR
    12     (B)  THE AMOUNT OF THE NET LOSS OR LOSSES WHICH MAY BE
    13  CARRIED OVER TO THE TAXABLE YEAR OR TAXABLE INCOME AS DETERMINED
    14  UNDER SUBCLAUSE 1 OR, IF APPLICABLE, SUBCLAUSE 2.
    15     (1.1)  IN NO EVENT SHALL THE NET LOSS DEDUCTION INCLUDE MORE
    16  THAN FIVE HUNDRED THOUSAND DOLLARS ($500,000), IN THE AGGREGATE,
    17  OF NET LOSSES FROM TAXABLE YEARS 1988 THROUGH 1994.
    18     (2)  (A)  A NET LOSS FOR A TAXABLE YEAR MAY ONLY BE CARRIED
    19  OVER PURSUANT TO THE FOLLOWING SCHEDULE:
    20             TAXABLE YEAR                        CARRYOVER
    21                 1981                        1 TAXABLE YEAR
    22                 1982                        2 TAXABLE YEARS
    23                 1983-1987                   3 TAXABLE YEARS
    24                 1988                        2 TAXABLE YEARS PLUS
    25                                             1 TAXABLE YEAR
    26                                             STARTING WITH THE
    27                                             1995 TAXABLE YEAR
    28                 1989                        1 TAXABLE YEAR PLUS
    29                                             2 TAXABLE YEARS
    30                                             STARTING WITH THE
    20070H0377B4086                 - 40 -     

     1                                             1995 TAXABLE YEAR
     2                 1990-1993                   3 TAXABLE YEARS
     3                                             STARTING WITH THE
     4                                             1995 TAXABLE YEAR
     5                 1994                        1 TAXABLE YEAR
     6                 1995-1997                   10 TAXABLE YEARS
     7                 1998 AND THEREAFTER         20 TAXABLE YEARS
     8     (B)  THE EARLIEST NET LOSS SHALL BE CARRIED OVER TO THE
     9  EARLIEST TAXABLE YEAR TO WHICH IT MAY BE CARRIED UNDER THIS
    10  SCHEDULE. THE TOTAL NET LOSS DEDUCTION ALLOWED IN ANY TAXABLE
    11  YEAR SHALL NOT EXCEED:
    12     (I)  TWO MILLION DOLLARS ($2,000,000) FOR TAXABLE YEARS
    13  BEGINNING BEFORE JANUARY 1, 2007.
    14     (II)  THE GREATER OF TWELVE AND ONE-HALF PER CENT OF THE
    15  TAXABLE INCOME AS DETERMINED UNDER SUBCLAUSE 1 OR, IF
    16  APPLICABLE, SUBCLAUSE 2 OR THREE MILLION DOLLARS ($3,000,000)
    17  FOR TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 2006.
    18     (III)  THE GREATER OF TWENTY PER CENT OF THE TAXABLE INCOME
    19  AS DETERMINED UNDER SUBCLAUSE 1 OR, IF APPLICABLE, SUBCLAUSE 2
    20  OR FIVE MILLION DOLLARS ($5,000,000) FOR TAXABLE YEARS BEGINNING
    21  AFTER DECEMBER 31, 2008.
    22     * * *
    23     SECTION 4.  THE AMENDMENT OF SECTION 303(A.3) OF THE ACT
    24  SHALL APPLY TO PROPERTY PLACED IN SERVICE AFTER DECEMBER 31,
    25  2008.
    26     SECTION 5.  THIS ACT SHALL TAKE EFFECT IMMEDIATELY.



    A10L72VDL/20070H0377B4086       - 41 -