THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

INTRODUCED BY D. EVANS, APRIL 20, 2010

REFERRED TO COMMITTEE ON APPROPRIATIONS, APRIL 20, 2010  

AN ACT

Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An

act relating to tax reform and State taxation by codifying

and enumerating certain subjects of taxation and imposing

taxes thereon; providing procedures for the payment,

collection, administration and enforcement thereof; providing

for tax credits in certain cases; conferring powers and

imposing duties upon the Department of Revenue, certain

employers, fiduciaries, individuals, persons, corporations

and other entities; prescribing crimes, offenses and

penalties," repealing provisions relating to discounts;

further providing for the definition of "taxable" and taxable

year"; providing for the definitions of "commonly controlled

group" and "separate company"; further providing for

imposition of tax, for reports and payment of tax and for

consolidated reports; providing for provisions relating to

the taxation of tobacco products; imposing a tax on the

extraction of natural gas; providing for natural gas 

severance registration certificate, for duties of the

Department of Revenue, for tax assessments and tax liens;

imposing penalties; providing for service of process, for

rulemaking, for cooperation with other governments and for

bonds; further providing for underpayment of estimated tax;

imposing penalties; and making an appropriation.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Section 227 of the act of March 4, 1971 (P.L.6,

No.2), known as the Tax Reform Code of 1971, is repealed:

[Section 227.  Discount.--If a return is filed by a licensee

and the tax shown to be due thereon less any discount is paid

all within the time prescribed, the licensee shall be entitled

to credit and apply against the tax payable by him a discount of

one per cent of the amount of the tax collected by him on and

after the effective date of this article, as compensation for

the expense of collecting and remitting the same and as a

consideration of the prompt payment thereof.]

Section 1.1  Section 401(3)1(a) and (b), 2(a) and 4(c) and

(5) of the act of March 4, 1971 (P.L.6, No.2), known as the Tax

Reform Code of 1971, amended or added December 23, 1983

(P.L.370, No.90), July 1, 1985 (P.L.78, No.29), August 4, 1991

(P.L.97, No.22), May 12, 1999 (P.L.26, No.4), June 22, 2001

(P.L.353, No.23), June 29, 2002 (P.L.559, No.89) and October 9,

2009 (P.L.451, No.48), are amended, clause (3)2 is amended by

adding a phrase and the section is amended by adding clauses to

read:

Section 401.  Definitions.--The following words, terms, and

phrases, when used in this article, shall have the meaning

ascribed to them in this section, except where the context

clearly indicates a different meaning:

* * *

(3)  "Taxable income."  1.  (a)  In case the entire business

of the corporation is transacted within this Commonwealth, for

any taxable year which begins on or after January 1, 1971,

taxable income for the calendar year or fiscal year as returned

to and ascertained by the Federal Government, or in the case of

a corporation participating in the filing of consolidated

returns to the Federal Government or that is not required to

file a return with the Federal Government, the taxable income

which would have been returned to and ascertained by the Federal

Government if separate returns had been made to the Federal

Government for the current and prior taxable years, subject,

however, to any correction thereof, for fraud, evasion, or error

as finally ascertained by the Federal Government.

(b)  Additional deductions shall be allowed from taxable

income on account of any dividends received from any other

corporation but only to the extent that such dividends are

included in taxable income as returned to and ascertained by the

Federal Government. For tax years beginning on or after January

1, 1991, additional deductions shall only be allowed for amounts

included, under section 78 of the Internal Revenue Code of 1986

(Public Law 99-514, 26 U.S.C. § 78), in taxable income returned

to and ascertained by the Federal Government and for the amount

of any dividends received from a foreign corporation included in

taxable income to the extent such dividends would be deductible

in arriving at Federal taxable income if received from a

domestic corporation. For taxable years beginning on or after

January 1, 2011, if not otherwise allowed as a deduction, an

additional deduction is allowed for all dividends paid by one to

another of the included corporations of a unitary business to

the extent those dividends are included in business income of a

corporation that is required to determine its business income

pursuant to paragraph (1) of phrase (e) of subclause 2.

* * *

2.  In case the entire business of any corporation, other

than a corporation engaged in doing business as a regulated

investment company as defined by the Internal Revenue Code of

1986, is not transacted within this Commonwealth, the tax

imposed by this article shall be based upon such portion of the

taxable income of such corporation for the fiscal or calendar

year, as defined in subclause 1 hereof, and may be determined as

follows:

(a)  Division of Income.

(1)  As used in this definition, unless the context otherwise

requires:

(A)  "Business income" means income arising from transactions

and activity in the regular course of the taxpayer's trade or

business and includes income from tangible and intangible

property if either the acquisition, the management or the

disposition of the property constitutes an integral part of the

taxpayer's regular trade or business operations. The term

includes all income which is apportionable under the

Constitution of the United States.

(B)  "Commercial domicile" means the principal place from

which the trade or business of the taxpayer is directed or

managed.

(C)  "Compensation" means wages, salaries, commissions and

any other form of remuneration paid to employes for personal

services.

(D)  "Nonbusiness income" means all income other than

business income. The term does not include income which is

apportionable under the Constitution of the United States.

(E)  "Sales" means all gross receipts of the taxpayer not

allocated under this definition other than dividends received,

interest on United States, state or political subdivision

obligations and gross receipts heretofore or hereafter received

from the sale, redemption, maturity or exchange of securities,

except those held by the taxpayer primarily for sale to

customers in the ordinary course of its trade or business.

(F)  "State" means any state of the United States, the

District of Columbia, the Commonwealth of Puerto Rico, any

territory or possession of the United States, and any foreign

country or political subdivision thereof.

(G)  "This state" means the Commonwealth of Pennsylvania or,

in the case of application of this definition to the

apportionment and allocation of income for local tax purposes,

the subdivision or local taxing district in which the relevant

tax return is filed.

(2)  Any taxpayer having income from business activity which

is taxable both within and without this State other than

activity as a corporation whose allocation and apportionment of

income is specifically provided for in section 401(3)2(b)(c) and

(d) shall allocate and apportion taxable income as provided in

this definition.

(3)  For purposes of allocation and apportionment of income

under this definition, a taxpayer is taxable in another state if

in that state the taxpayer is subject to a net income tax, a

franchise tax measured by net income, a franchise tax for the

privilege of doing business, or a corporate stock tax or if that

state has jurisdiction to subject the taxpayer to a net income

tax regardless of whether, in fact, the state does or does not.

(4)  Rents and royalties from real or tangible personal

property, gains, interest, patent or copyright royalties, to the

extent that they constitute nonbusiness income, shall be

allocated as provided in paragraphs (5) through (8).

(5)  (A)  Net rents and royalties from real property located

in this State are allocable to this State.

(B)  Net rents and royalties from tangible personal property

are allocable to this State if and to the extent that the

property is utilized in this State, or in their entirety if the

taxpayer's commercial domicile is in this State and the taxpayer

is not organized under the laws of or taxable in the state in

which the property is utilized.

(C)  The extent of utilization of tangible personal property

in a state is determined by multiplying the rents and royalties

by a fraction, the numerator of which is the number of days of

physical location of the property in the state during the rental

or royalty period in the taxable year and the denominator of

which is the number of days of physical location of the property

everywhere during all rental or royalty periods in the taxable

year. If the physical location of the property during the rental

or royalty period is unknown or unascertainable by the taxpayer,

tangible personal property is utilized in the state in which the

property was located at the time the rental or royalty payer

obtained possession.

(6)  (A)  Gains and losses from sales or other disposition of

real property located in this State are allocable to this State.

(B)  Gains and losses from sales or other disposition of

tangible personal property are allocable to this State if the

property had a situs in this State at the time of the sale, or

the taxpayer's commercial domicile is in this State and the

taxpayer is not taxable in the state in which the property had a

situs.

(C)  Gains and losses from sales or other disposition of

intangible personal property are allocable to this State if the

taxpayer's commercial domicile is in this State.

(7)  Interest is allocable to this State if the taxpayer's

commercial domicile is in this State.

(8)  (A)  Patent and copyright royalties are allocable to

this State if and to the extent that the patent or copyright is

utilized by the payer in this State, or if and to the extent

that the patent copyright is utilized by the payer in a state in

which the taxpayer is not taxable and the taxpayer's commercial

domicile is in this State.

(B)  A patent is utilized in a state to the extent that it is

employed in production, fabrication, manufacturing, or other

processing in the state or to the extent that a patented product

is produced in the state. If the basis of receipts from patent

royalties does not permit allocation to states or if the

accounting procedures do not reflect states of utilization, the

patent is utilized in the state in which the taxpayer's

commercial domicile is located.

(C)  A copyright is utilized in a state to the extent that

printing or other publication originates in the state. If the

basis of receipts from copyright royalties does not permit

allocation to states or if the accounting procedures do not

reflect states of utilization, the copyright is utilized in the

state in which the taxpayer's commercial domicile is located.

(9)  (A)  Except as provided in subparagraph (B):

(i)  For taxable years beginning before January 1, 2007, all

business income shall be apportioned to this State by

multiplying the income by a fraction, the numerator of which is

the property factor plus the payroll factor plus three times the

sales factor and the denominator of which is five.

(ii)  For taxable years beginning after December 31, 2006,

all business income shall be apportioned to this State by

multiplying the income by a fraction, the numerator of which is

the sum of fifteen times the property factor, fifteen times the

payroll factor and seventy times the sales factor and the

denominator of which is one hundred.(iii) For taxable years

beginning after December 31, 2008, all business income shall be

apportioned to this State by multiplying the income by a

fraction, the numerator of which is the sum of eight and a half

times the property factor, eight and a half times the payroll

factor and eighty-three times the sales factor and the

denominator of which is one hundred.

(iii)  For taxable years beginning after December 31, 2008,

all business income shall be apportioned to this State by

multiplying the income by a fraction, the numerator of which is

the sum of eight and a half times the property factor, eight and

a half times the payroll factor and eighty-three times the sales

factor and the denominator of which is one hundred.

(iv)  For taxable years beginning after December 31, 2009,

and before January 1, 2011, all business income shall be

apportioned to this State by multiplying the income by a

fraction, the numerator of which is the sum of five times the

property factor, five times the payroll factor and ninety times

the sales factor and the denominator of which is one hundred.

(v)  For taxable years beginning after December 31, 2010, all

business income shall be apportioned to this State by the sales

factor. This includes any railroad, truck, bus, airline,

pipeline, natural gas or water transportation company that is

required to determine its business income pursuant to paragraph

(1) of phrase (e) of this subclause.

(B)  For purposes of apportionment of the capital stock -

franchise tax as provided in section 602 of Article VI of this

act, the apportionment fraction shall be the property factor

plus the payroll factor plus the sales factor as the numerator,

and the denominator shall be three.

(10)  The property factor is a fraction, the numerator of

which is the average value of the taxpayer's real and tangible

personal property owned or rented and used in this State during

the tax period and the denominator of which is the average value

of all the taxpayer's real and tangible personal property owned

or rented and used during the tax period but shall not include

the security interest of any corporation as seller or lessor in

personal property sold or leased under a conditional sale,

bailment lease, chattel mortgage or other contract providing for

the retention of a lien or title as security for the sales price

of the property.

(11)  Property owned by the taxpayer is valued at its

original cost. Property rented by the taxpayer is valued at

eight times the net annual rental rate. Net annual rental rate

is the annual rental rate paid by the taxpayer less any annual

rental rate received by the taxpayer from subrentals.

(12)  The average value of property shall be determined by

averaging the values at the beginning and ending of the tax

period but the tax administrator may require the averaging of

monthly values during the tax period if reasonably required to

reflect properly the average value of the taxpayer's property.

(13)  The payroll factor is a fraction, the numerator of

which is the total amount paid in this State during the tax

period by the taxpayer for compensation and the denominator of

which is the total compensation paid everywhere during the tax

period.

(14)  Compensation is paid in this State if:

(A)  The individual's service is performed entirely within

the State;

(B)  The individual's service is performed both within and

without this State, but the service performed without the State

is incidental to the individual's service within this State; or

(C)  Some of the service is performed in this State and the

base of operations or if there is no base of operations, the

place from which the service is directed or controlled is in

this State, or the base of operations or the place from which

the service is directed or controlled is not in any state in

which some part of the service is performed, but the

individual's residence is in this State.

(15)  The sales factor is a fraction, the numerator of which

is the total sales of the taxpayer in this State during the tax

period, and the denominator of which is the total sales of the

taxpayer everywhere during the tax period.

(16)  Sales of tangible personal property are in this State

if the property is delivered or shipped to a purchaser, within

this State regardless of the f.o.b. point or other conditions of

the sale.

(17)  Sales, other than sales of tangible personal property

and sales set forth in paragraphs (17.1) and (17.2), are in this

State if:

(A)  The income-producing activity is performed in this

State; or

(B)  The income-producing activity is performed both in and

outside this State and a greater proportion of the income-

producing activity is performed in this State than in any other

state, based on costs of performance.

(17.1)  Other sales are in this State as follows:

(A)  Gross receipts from the sale, lease, rental or other use

of real property are in this State if the real property is

located in this State.

(B)  Gross receipts from the rental, lease or licensing of

tangible personal property are in this State if the tangible

personal property is located in this State. If such property is

within and without this State, gross receipts are in this State

in proportion to the time located in this State to total time

located within and without this State.

(C)  Gross receipts from the investment of intangible

property or the sale of investment intangible property are in

this State if this State is the taxpayer's commercial domicile.

Gross receipts from the sale of other intangible property that

is not sold in the regular course of business are in this State

if this State is the taxpayer's commercial domicile.

(D)  Gross receipts from the licensing of intangible property

are in this State if the licensee uses the licensed property in

this State. If the licensee uses the licensed property within

and without this State, gross receipts are in this State in

proportion to the uses in this State to the total uses within

and without this State. If the licensor's sales are determined

by sales of licensed products by the licensee, the licensee's

sales are uses by the licensee.

(E)  Gross receipts from services are in this State if the

purchaser of the services receives the benefit of the services

in this State. If the purchaser of services receives the benefit

of the services within and without this State, gross receipts

are in this State in proportion to the benefit of the services

received in this State to the total benefit received within and

without this State.

(F)  Gross receipts from retail sales of electricity and

natural gas are in this State if the end-use purchaser is in

this State. Gross receipts from wholesale sales of electricity

and natural gas are in this State if the end-use purchaser is in

this State and the wholesaler knows that the ultimate delivery

is to an end-use purchaser in this State. If the point of

ultimate delivery to an end-use customer is unknown for

wholesale sales, such sales are in this State when the purchaser

of the wholesale sale is located in this State.

(G)  Gross receipts from the sale of software are in this

State when the software is delivered to a purchaser in this

State. If the software is delivered to locations of the

purchaser, which are within and without this State, gross

receipts are in this State in proportion to the delivery

locations in this State to total delivery locations within and

without this State.

(17.2)  In order to determine sales in this State of any

railroad, truck, bus, airline, pipeline, natural gas or water

transportation company that is required to determine its

business income pursuant to paragraph (1) of phrase (e) of this

subclause, such company must convert the relevant fraction set

forth in phrase (b), (c) or (d) of this subclause to gross

receipts. Sales in this State are the result of multiplying

total gross receipts from relevant transportation activities by

the decimal equivalent of the relevant fraction set forth in

phrase (b), (c) or (d) of this subclause.

(18)  If the allocation and apportionment provisions of this

definition do not fairly represent the extent of the taxpayer's

business activity in this State, the taxpayer may petition the

Secretary of Revenue or the Secretary of Revenue may require, in

respect to all or any part of the taxpayer's business activity:

(A)  Separate accounting;

(B)  The exclusion of any one or more of the factors;

(C)  The inclusion of one or more additional factors which

will fairly represent the taxpayer's business activity in this

State; or

(D)  The employment of any other method to effectuate an

equitable allocation and apportionment of the taxpayer's income.

In determining the fairness of any allocation or apportionment,

the Secretary of Revenue may give consideration to the

taxpayer's previous reporting and its consistency with the

requested relief.

* * *

(e)  Corporations That are Members of a Unitary Business.

(1)  Notwithstanding any contrary provisions of this article,

for taxable years that begin on or after January 1, 2011,

business income of a corporation that is a member of a unitary

business that consists of two or more corporations, at least one

of which does not transact its entire business in this State, is

determined by combining the business income of either all

corporations, other than as set forth below, that are water's-

edge basis members or all corporations, other than as set forth

below, that are worldwide members of the unitary business.

Business income from an intercompany transaction between

included corporations of a unitary business that is deferred

under 26 CFR 1.1502-13 (relating to intercompany transactions)

for Federal taxable income purposes shall be deferred in the

same manner in determining the business income of a corporation

that is a member of that unitary business. Business income of

the following corporations is not included in the determination

of combined business income:

(i)  any corporation subject to taxation under Article VII,

VIII, IX or XV;

(ii)  any corporation specified in the definition of

"institution" in section 701.5 that would be subject to taxation

under Article VII were it located, as defined in section 701.5,

in this State;

(iii)  any corporation commonly known as a title insurance

company that would be subject to taxation under Article VIII

were it incorporated in this State;

(iv)  any corporation specified as an insurance company,

association or exchange in Article IX that would be subject to

taxation under Article IX were its insurance business transacted

in this State;

(v)  any corporation specified in the definition of

"institution" in section 1501 that would be subject to taxation

under Article XV were it located, as defined in section 1501, in

this State; or

(vi)  any corporation that is a small corporation, as defined

in section 301(s.2), or a qualified Subchapter S subsidiary, as

defined in section 301(o.3).

(2)  Notwithstanding any contrary provisions of this article,

all corporations that are required to compute business income

under paragraph (1) are entitled to apportion such business

income when one corporation of the same unitary business is

entitled to apportion such business income. Notwithstanding any

contrary provisions of this article, for taxable years that

begin on or after January 1, 2011, the denominator of the

apportionment fraction of a corporation that is required to

compute its business income under paragraph (1) shall be

computed on a combined basis for all included corporations of

the unitary business. Gross receipts from an intercompany

transaction between included corporations of a unitary business

are eliminated unless the gross receipts are derived from

transactions that are deferred in the manner set forth under 26

CFR 1.1502-13 in computing the numerator and denominator of the

apportionment fraction of a corporation that is required to

compute its business income under paragraph (1). Gross receipts

from transactions that had been deferred in the manner set forth

in CFR 1.1502-13 are included in a corporation's apportionment

fraction during the same taxable year that it realizes business

income that had been deferred due to the transaction. The

apportionment fraction of the following corporations is not

included in the determination of the combined apportionment

fraction:

(i)  any corporation subject to taxation under Article VII,

VIII, IX or XV;

(ii)  any corporation specified in the definition of

"institution" in section 701.5 that would be subject to taxation

under Article VII were it located, as defined in section 701.5,

in this State;

(iii)  any corporation commonly known as a title insurance

company that would be subject to taxation under Article VIII

were it incorporated in this State;

(iv)  any corporation specified as an insurance company,

association or exchange in Article IX that would be subject to

taxation under Article IX were its insurance business transacted

in this State;

(v)  any corporation specified in the definition of

"institution" in section 1501 that would be subject to taxation

under Article XV were it located, as defined in section 1501, in

this State;

(vi)  any corporation that is a small corporation, as defined

in section 301(s.2), or a qualified Subchapter S subsidiary, as

defined in section 301(o.3).

(3)  A corporation that is required to compute its business

income under paragraph (1) shall apportion such combined

business income by multiplying such combined business income by

a fraction, the numerator of which is its total sales in this

State and the dominator of which is combined sales as set forth

in paragraph (2).

(4)  Nonbusiness income of a corporation that is required to

compute business income under paragraph (1) shall be allocated

as provided in paragraphs (5) through (8) of phrase (a) of

subclause 2 of the definition of "taxable income."

(5)  Each corporation that is a member of a unitary business

that consists of two or more corporations determines its tax

liability based on its apportioned share of the combined

business income of the unitary business plus its nonbusiness

income or loss allocated to this State, minus its net loss

deduction.

(6)  If any provision of this phrase operates so that an

amount is added to or deducted from taxable income for a taxable

year for any corporation of a unitary business that previously

had been added to or deducted from taxable income of any

corporation of the same unitary business, an appropriate

adjustment shall be made for the taxable year in order to

prevent double taxation or double deduction. If this adjustment

is not made by the appropriate corporation of the unitary

business, the Secretary of Revenue is authorized to make this

adjustment.

(7)  The Secretary of Revenue has the authority and

responsibility to make adjustments to insure that a corporation

does not incur an unfair penalty nor realize an unfair benefit

because it is required to compute its business income under

paragraph (1). Fairness shall be measured by whether the

corporation's income allocated and apportioned to this State

fairly reflects the corporation's share of the unitary business

conducted in this State in the taxable year.

* * *

4.  * * *

(c)  (1)  The net loss deduction shall be the lesser of:

(A)  (I)  For taxable years beginning before January 1, 2007,

two million dollars ($2,000,000);

(II)  For taxable years beginning after December 31, 2006,

the greater of twelve and one-half per cent of taxable income as

determined under subclause 1 or, if applicable, subclause 2 or

three million dollars ($3,000,000);

(III)  For taxable years beginning after December 31, 2008,

the greater of fifteen per cent of taxable income as determined

under subclause 1 or, if applicable, subclause 2 or three

million dollars ($3,000,000);

(IV)  For taxable years beginning after December 31, 2009,

through tax years that begin on or prior to December 31, 2010, 

the greater of twenty per cent of taxable income as determined

under subclause 1 or, if applicable, subclause 2 or three

million dollars ($3,000,000); or

(B)  The amount of the net loss or losses which may be

carried over to the taxable year or taxable income as determined

under subclause 1 or, if applicable, subclause 2.

(1.1)  In no event shall the net loss deduction include more

than five hundred thousand dollars ($500,000), in the aggregate,

of net losses from taxable years 1988 through 1994.

(1.2)  Except as set forth in paragraph (4), there is no

maximum on the amount of the net loss deduction allowed for

taxable years beginning on or after January 1, 2011.

(2)  (A)  A net loss for a taxable year may only be carried

over pursuant to the following schedule:

(B)  The earliest net loss shall be carried over to the

earliest taxable year to which it may be carried under this

schedule. The total net loss deduction allowed in any taxable

year shall not exceed:

(I)  Two million dollars ($2,000,000) for taxable years

beginning before January 1, 2007.

(II)  The greater of twelve and one-half per cent of the

taxable income as determined under subclause 1 or, if

applicable, subclause 2 or three million dollars ($3,000,000)

for taxable years beginning after December 31, 2006.

(III)  The greater of fifteen per cent of the taxable income

as determined under subclause 1 or, if applicable, subclause 2

or three million dollars ($3,000,000) for taxable years

beginning after December 31, 2008.

(IV)  The greater of twenty per cent of the taxable income as

determined under subclause 1 or, if applicable, subclause 2 or

three million dollars ($3,000,000) for taxable years beginning

after December 31, 2009, through tax years that begin on or

prior to December 31, 2010.

(3)  The entire net loss for a taxable year that begins on or

after January 1, 2011, is available to be carried over to a

taxable year that begins on or after January 1, 2012, pursuant

to the schedule set forth in paragraph (2) and shall be carried

over to the earliest taxable year to which it may be carried

pursuant to the schedule set forth in paragraph (2).

(4)  The amount of unused net loss from all taxable years

that begin prior to January 1, 2011, that may be carried over to

any taxable year that begins on or after January 1, 2011, is

limited to the greater of twenty per cent of the taxable income

as determined under subclause 1 or, if applicable, subclause 2

or three million dollars ($3,000,000) per taxable year and may

only be used by the corporation that realized the net loss. If a

corporation is required to determine its business income

pursuant to paragraph (1) of phrase (e) of subclause 2, it may

only use such loss in a year to the extent that it has taxable

income before use of such loss determined as if it were a

separate company.

(5)  Any net loss realized for a taxable year that begins on

or after January 1, 2011, by one corporation of a unitary

business may be used by other corporations of the same unitary

business, provided that the corporation that realized the net

loss must first use the portion of such net loss to reduce its

taxable income to zero. Other corporations of the same unitary

business that have insufficient net losses of their own to

reduce their tax liabilities to zero may then use the remainder

of such net loss in proportion to their remaining taxable

incomes before the application of such loss.

(6)  Any net loss realized for a taxable year that begins on

or after January 1, 2011, unused by a corporation which

subsequently becomes a member of another unitary business may

only be used by that corporation.

* * *

(5)  "Taxable year."  [The] 1.  Except as set forth in

subclause 2, the taxable year which the corporation, or any

consolidated group with which the corporation participates in

the filing of consolidated returns, actually uses in reporting

taxable income to the Federal Government, or which the

corporation would have used in reporting taxable income to the

Federal Government had it been required to report its taxable

income to the Federal Government. With regard to the tax imposed

by Article IV of this act (relating to the Corporate Net Income

Tax), the terms "annual year," "fiscal year," "annual or fiscal

year," "tax year" and "tax period" shall be the same as the

corporation's taxable year, as defined in this [paragraph]

subclause or subclause 2.

2.  All corporations of a unitary business shall have a

common taxable year for purposes of computing tax due under this

article. The taxable year for such purposes is the common

taxable year adopted, in a manner prescribed by the department,

by all corporations of a unitary business. The common taxable

year must be used by all corporations of that unitary business

in the year of adoption and all future years unless otherwise

permitted by the department.

* * *

(8)  "Tax haven."  A jurisdiction that at the beginning of a

taxable year is a tax haven as identified by the Organization

for Economic Co-operation and Development, plus the

sovereignties of Bermuda, the Cayman Islands, the Bailiwick of

Jersey and the Grand Duchy of Luxembourg.

(9)  "Unitary business."  A single economic enterprise that

is made up of separate parts of a single corporation, of a

commonly controlled group of corporations, or both, that are

sufficiently interdependent, integrated and interrelated through

their activities so as to provide a synergy and mutual benefit

that produces a sharing or exchange of value among them and a

significant flow of value to the separate parts. A unitary

business includes only those parts and corporations which may be

included as a unitary business under the Constitution of the

United States.

(10)  "Water's-edge basis."  A system of reporting that

includes the business income and apportionment factor of certain

corporations of a unitary business, described as follows:

1.  The business income and apportionment factor of any

member incorporated in the United States or formed under the

laws of any state of the United States, the District of

Columbia, any territory or possession of the United States or

the Commonwealth of Puerto Rico.

2.  The business income and apportionment factor of any

member, regardless of the place incorporated or formed, if the

average of its property, payroll and sales factors within the

United States is twenty per cent or more.

3.  The business income and apportionment factor of any

member which is a domestic international sales corporation as

described in sections 991, 992, 993 and 994 of the Internal

Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §§ 991, 992,

993 and 994); a foreign sales corporation as described in

sections 921, 922, 923, 924, 925, 926 and 927 of the Internal

Revenue Code of 1986 (26 U.S.C. §§ 921, 922, 923, 924, 925, 926

and 927); or any member which is an export trade corporation, as

described in sections 970 and 971 of the Internal Revenue Code

of 1986 (26 U.S.C. §§ 970 and 971).

4.  Any member not described in subclauses 1, 2 and 3 shall

include the portion of its business income derived from or

attributable to sources within the United States, as determined

under the Internal Revenue Code of 1986 without regard to

Federal treaties, and its apportionment factor related thereto.

5.  Any member that is a "controlled foreign corporation" as

defined in section 957 of the Internal Revenue Code of 1986 (26

U.S.C. § 957), to the extent the business income of that member

is income defined in section 952 of the Internal Revenue Code of

1986 (26 U.S.C. § 952), Subpart F income, not excluding lower-

tier subsidiaries' distributions of such income which were

previously taxed, determined without regard to Federal treaties,

and the apportionment factor related to that income; any item of

income received by a controlled foreign corporation and the

apportionment factor related to such income shall be excluded if

the corporation establishes to the satisfaction of the Secretary

of Revenue that such income was subject to an effective rate of

income tax imposed by a foreign country greater than ninety per

cent of the maximum rate of tax specified in section 11 of the

Internal Revenue Code of 1986 (26 U.S.C. § 11). The effective

rate of income tax determination shall be based upon the

methodology set forth under 26 CFR 1.954-1 (relating to foreign

base company income).

6.  The business income and apportionment factor of any

member that is not described in subclause 1, 2, 3, 4 and 5 and

that is doing business in a tax haven. The business income and

apportionment factor of a corporation doing business in a tax

haven shall be excluded if the corporation establishes to the

satisfaction of the Secretary of Revenue that its income was

subject to an effective rate of income tax imposed by a country

greater than ninety per cent of the maximum rate of tax

specified in section 11 of the Internal Revenue Code of 1986 (26

U.S.C. § 11).

(11)  "Commonly controlled group."  For a corporation, the

corporation is a member of a group of two or more corporations

and more than fifty per cent of the voting stock of each member

of the group is directly or indirectly owned by a common owner

or by common owners, either corporate or noncorporate, or by one

or more of the member corporations of the group.

(12)  "Separate company."  A corporation that is not a member

of a unitary business that consists of two or more corporations.

Section 2.  Section 402(b) of the act, amended June 29, 2002

(P.L.559, No.89), is amended to read:

Section 402.  Imposition of Tax.--* * *

(b)  The annual rate of tax on corporate net income imposed

by subsection (a) for taxable years beginning for the calendar

year or fiscal year on or after the dates set forth shall be as

follows:

* * *

Section 3.  Section 403 of the act is amended by adding

subsections to read:

Section 403.  Reports and Payment of Tax.--* * *

(a.1)  (1)  Each corporation subject to tax under this

article is required to file an annual report in accordance with

this section. Each corporation that is a member of a unitary

business that consists of two or more corporations, unless

excluded by the provisions of this article, shall file as part

of a combined annual report. The corporations of the unitary

business shall designate one member that is subject to tax under

this article to file the combined annual report and to act as

agent on behalf of all other corporations that are members of

the unitary business. Each corporation that is a member of a

unitary business is responsible for its tax liability under this

article.

(2)  The oath or affirmation of the designated member's

president, vice president or other principal officer, and of its

treasurer or assistant treasurer shall constitute the oath or

affirmation of each corporation that is a member of that unitary

business.

(3)  The designated member shall transmit to the department

upon a form prescribed by the department, an annual combined

report under oath or affirmation of its president, vice

president or other principal officer, and of its treasurer or

assistant treasurer. Such report shall set forth:

(i)  All corporations included in the unitary business.

(ii)  All necessary data, both in the aggregate and for each

corporation of the unitary business, that sets forth the

determination of tax liability for each corporation of the

unitary business.

(iii)  Any other information that the department may require.

(a.2)  (1)  Activities that evidence a significant flow of

value among commonly controlled corporations include, but are

not limited to, the following:

(i)  Assisting in the acquisition of equipment.

(ii)  Assisting with filling personnel needs.

(iii)  Lending funds or guaranteeing loans.

(iv)  Interplay in the area of corporate expansion.

(v)  Providing technical assistance.

(vi)  Supervising.

(vii)  Providing general operational guidance.

(viii)  Providing overall operational strategic advice.

(ix)  Common use of trade names and patents.

(2)  Significant flow of value must be more than the flow of

funds arising out of passive investment and consists of more

than periodic financial oversight.

(a.3)  (1)  With respect to a commonly controlled group of

corporations, the presence of any of these factors creates a

presumption of a unitary business:

(i)  Corporations engaged in the same type of business.

(ii)  Corporations engaged in different steps in a vertically

structured enterprise.

(iii)  Strong centralized management of corporations.

(2)  A corporation newly formed by a corporation that is a

member of a unitary business is presumed to be a member of the

unitary business.

(3)  A corporation that owns a controlling interest in two or

more corporations of a unitary business is presumed to be a

member of the unitary business.

(4)  A corporation that permits one or more other

corporations of a unitary business to substantially use its

patents, trademarks, service marks, logo-types, trade secrets,

copyrights or other proprietary assets or that is principally

engaged in loaning money to one or more other corporations of a

unitary business is presumed to be a member of the unitary

business. This presumption only applies to a commonly controlled

group of corporations.

(a.4)  As far as applicable to a specific unitary business,

unless there is a revision of applicable State law or unless a

corporation is not included under the provisions of this

article, there is a presumption for all tax years that begin in

years 2011 and 2012 that a unitary business of two or more

corporations includes at least all corporations that are part of

a unitary business under the law of any state of the United

States in which the corporation files a tax report or tax return

of combined net income for the same tax year.

(a.5)  Unless an election is made to use a worldwide basis of

accounting, a corporation that is a member of a unitary business

of two or more corporations must determine its business income

and apportionment factor upon a water's-edge basis. This basis

applies to all corporations of the unitary business. If an

election is made to use a worldwide basis of accounting, all

corporations of the unitary business must make the election,

upon a form, prescribed, prepared and furnished by the

department. This election binds all corporations of the unitary

business for the period of time that the election remains in

effect. An initial election is binding for a period of seven

taxable years. Subsequent elections are binding for a period of

five taxable years.

* * *

Section 4.  Section 404 of the act is amended to read:

Section 404.  Consolidated Reports.--The department shall not

permit any corporation owning or controlling, directly or

indirectly, any of the voting capital stock of another

corporation or of other corporations, subject to the provisions

of this article, to make a consolidated report[, showing the

combined net income].

Section 4.1.  The act is amended by adding articles to read:

ARTICLE XII-A

TOBACCO PRODUCTS TAX

Section 1201-A.  Definitions.

The following words and phrases when used in this article

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Cigar."  Any roll of tobacco wrapped in tobacco, not

including little cigars.

"Cigarette."  Includes any roll for smoking made wholly or in

part of tobacco, irrespective of size or shape, and whether or

not such tobacco is flavored, adulterated or mixed with any

other ingredient, the wrapper or cover of which is made of paper

or any other substance or material, excepting tobacco, and shall

not include cigars or roll your own tobacco. The term shall

include little cigars.

"Consumer."  An individual who purchases tobacco products for

personal use and not for resale.

"Contraband."  Any tobacco product for which the tax imposed

by this article has not been paid.

"Dealer."  A wholesaler or retailer. Nothing in this article

shall preclude any person from being a wholesaler or retailer,

provided the person meets the requirements for a license in each

category of dealer.

"Department."  The Department of Revenue of the Commonwealth.

"Little cigar."  Any roll for smoking that weighs not more

than four pounds per thousand, where the wrapper or cover is

made of natural leaf tobacco or any substance containing

tobacco.

"Manufacturer."  A person that produces tobacco products.

"Person."  An individual, unincorporated association,

company, corporation, joint stock company, group, agency,

syndicate, trust or trustee, receiver, fiduciary, partnership,

conservator, any political subdivision of the Commonwealth or

any other state. Whenever used in any of the provisions of this

article prescribing or imposing penalties, the word "person" as

applied to a partnership, unincorporated association or other

joint venture, means the partners or members thereof, and as

applied to a corporation, means all the officers and directors

thereof.

"Purchase price."  The total value of anything paid or

delivered, or promised to be paid or delivered, whether it be

money or otherwise, in complete performance of a sale or

purchase, without any deduction on account of the cost or value

of the property sold, cost or value of transportation, cost or

value of labor or service, interest or discount paid or allowed

after the sale is consummated, any other taxes imposed by the

Commonwealth or any other expense.

"Retailer."  A person that purchases or receives tobacco

products from any source for the purpose of sale to a consumer,

or who owns, leases or otherwise operates one or more vending

machines for the purpose of sale of tobacco products to the

ultimate consumer. The term includes a vending machine operator

or a person that buys, sells, transfers or deals in tobacco

products and is not licensed as a tobacco products wholesaler

under this article.

"Roll-your-own tobacco."  Any tobacco which, because of its

appearance, type, packaging or labeling, is suitable for use and

is likely to be offered to, or purchased by, consumers as

tobacco for making cigarettes. For purposes of reporting sales

of this product under the act of June 22, 2000 (P.L.394, No.54),

known as the Tobacco Settlement Agreement Act, 0.09 ounces of

tobacco shall constitute one individual unit sold.

"Sale."  Any transfer of ownership, custody or possession of

tobacco products for consideration; any exchange, barter or

gift; or any offer to sell or transfer the ownership, custody or

possession of tobacco products for consideration.

"Taxpayer."  Any person subject to tax under this article.

"Tobacco products."  Cigars, cheroots, stogies, periques,

granulated, plug cut, crimp cut, ready rubbed and other smoking

tobacco, roll-your-own tobacco, snuff, dry snuff, snuff flour,

cavendish, plug and twist tobacco, fine-cut and other chewing

tobaccos, shorts, refuse scraps, clippings, cuttings and

sweepings of tobacco and other kinds and forms of tobacco,

prepared in such manner as to be suitable for chewing or

ingesting or for smoking in a pipe or otherwise, or both for

chewing and smoking. The term does not include cigarettes.

"Unclassified importer."  A person in this Commonwealth that

acquires a tobacco product from any source on which the tax

imposed by this article was not paid and that is not a person

otherwise required to be licensed under the provisions of this

article. The term includes, but is not limited to, consumers who

purchase tobacco products using the Internet or mail order

catalogs for personal possession or use in this Commonwealth.

"Vending machine operator."  A person who places or services

one or more tobacco product vending machines whether owned,

leased or otherwise operated by the person at locations from

which tobacco products are sold to the consumer. The owner or

tenant of the premises upon which a vending machine is placed

shall not be considered a vending machine operator if the

owner's or tenant's sole remuneration therefrom is a flat rental

fee or commission based upon the number or value of tobacco

products sold from the machine, unless the owner or tenant

actually owns the vending machine or leases the vending machine

under an agreement whereby any profits from the sale of the

tobacco products directly inure to the owner's or tenant's

benefit.

"Wholesaler."  A person engaged in the business of selling

tobacco products that receives, stores, sells, exchanges or

distributes tobacco products to retailers or other wholesalers

in this Commonwealth or retailers who purchase from a

manufacturer or from another wholesaler who has not paid the tax

imposed by this article.

Section 1202-A.  Incidence and rate of tax.

(a)  Imposition.--A tobacco products tax is hereby imposed on

the dealer, manufacturer or any person at the time the tobacco

product is first sold to a retailer in this Commonwealth at the

rate of 30% on the purchase price charged to the retailer for

the purchase of any tobacco product. The tax shall be collected

from the retailer by whomever sells the tobacco product to the

retailer and remitted to the department. Any person required to

collect this tax shall separately state the amount of tax on an

invoice or other sales document.

(b)  Retailer.--If the tax is not collected by the seller

from the retailer, the tax is imposed on the retailer at the

time of purchase at the same rate as in subsection (a) based on

the retailer's purchase price of the tobacco products. The

retailer shall remit the tax to the department.

(c)  Unclassified importer.--The tax is imposed on an

unclassified importer at the time of purchase at the same rate

as in subsection (a) based on the unclassified importer's

purchase price of the tobacco products. The unclassified

importer shall remit the tax to the department.

(d)  Exceptions.--The tax shall not be imposed on any tobacco

products that:

(1)  are exported for sale outside this Commonwealth; or

(2)  are not subject to taxation by the Commonwealth

pursuant to any laws of the United States.

Section 1203-A.  Floor tax.

(a)  Payment.--Any retailer that, as of the effective date of

this article, possesses tobacco products subject to the tax

imposed by section 1202-A, shall pay the tax on the tobacco

products in accordance with the rates specified in section 1202-

A. The tax shall be paid and reported on a form prescribed by

the department within 90 days of the effective date of this

section.

(b)  Administrative penalty; license.--If a retailer fails to

file the report required by subsection (a) or fails to pay the

tax imposed by subsection (a), the department may, in addition

to the interest and penalties provided in section 1215-A, do any

of the following:

(1)  Impose an administrative penalty equal to the amount

of tax evaded or not paid. The penalty shall be added to the

tax evaded or not paid and assessed and collected at the same

time and in the same manner as the tax.

(2)  Suspend, revoke or refuse to issue the retailer's

license.

(c)  Criminal penalty.--In addition to any penalty imposed

under subsection (b), a person that willfully omits, neglects or

refuses to comply with a duty imposed under subsection (a)

commits a misdemeanor and shall, if convicted, be sentenced to

pay a fine of not less than $2,500 nor more than $5,000, to

serve a term of imprisonment not to exceed 30 days, or both.

Section 1204-A.  Remittance of tax to department.

Wholesalers, retailers, unclassified importers and

manufacturers shall file monthly reports on a form prescribed by

the department by the 20th day of the month following the sale

or purchase of tobacco products from any other source on which

the tax levied by this article has not been paid. The tax is due

at the time the report is due. The department may required the

filing of reports and payment of tax on a less frequent basis at

its discretion.

Section 1205-A.  (Reserved).

Section 1206-A.  Procedures for claiming refund.

A claim for a refund of tax imposed by this article under

section 3003.1 and Article XXVII shall be in the form and

contain the information prescribed by the department by

regulation.

Section 1207-A.  Sales or possession of tobacco product when tax

not paid.

(a)  Sales or possession.--Any person who sells or possesses 

any tobacco product for which the proper tax has not been paid

commits a summary offense and shall, upon conviction, be

sentenced to pay costs of prosecution and a fine of not less

than $100 not more than $1,000 or to imprisonment for not more

than 60 days, or both, at the discretion of the court. Any

tobacco products purchased from a wholesaler properly licensed

under this article shall be presumed to have the proper taxes

paid.

(b)  Tax evasion.--Any person that shall falsely or

fraudulently, maliciously, intentionally or willfully with

intent to evade the payment of the tax imposed by this article

sells or possesses any tobacco product for which the proper tax

has not been paid commits a felony and shall, upon conviction,

be sentenced to pay costs of prosecution and a fine of not more

than $15,000 or to imprisonment for not more than five years, or

both, at the discretion of the court.

Section 1208-A.  Assessment.

The department is authorized to make the inquiries,

determinations and assessments of the tax, including interest,

additions and penalties, imposed by this article.

Section 1209-A.  (Reserved).

Section 1210-A.  (Reserved).

Section 1211-A.  Failure to file return.

Where no return is filed, the amount of the tax due may be

assessed and collected at any time as to taxable transactions

not reported.

Section 1212-A.  False or fraudulent return.

Where the taxpayer willfully files a false or fraudulent

return with intent to evade the tax imposed by this article, the

amount of tax due may be assessed and collected at any time.

Section 1213-A.  Extension of limitation period.

Notwithstanding any other provision of this article, where,

before the expiration of the period prescribed for the

assessment of a tax, a taxpayer has consented, in writing, that

the period be extended, the amount of tax due may be assessed at

any time within the extended period. The period so extended may

be extended further by subsequent consents, in writing, made

before the expiration of the extended period.

Section 1214-A.  Failure to furnish information, returning false

information or failure to permit inspection.

(a)  Penalty.--Any taxpayer who fails to keep or make any

record, return, report, inventory or statement, or keeps or

makes any false or fraudulent record, return, report, inventory

or statement required by this article commits a misdemeanor and

shall, upon conviction, be sentenced to pay costs of prosecution

and a fine of $500 and to imprisonment for not more than one

year, or both, at the discretion of the court.

(b)  Examination.--The department is authorized to examine

the books and records, the stock of tobacco products and the

premises and equipment of any taxpayer in order to verify the

accuracy of the payment of the tax imposed by this article. The

person subject to an examination shall give to the department or

its duly authorized representative, the means, facilities and

opportunity for the examination. Willful refusal to cooperate

with or permit an examination to the satisfaction of the

department shall be sufficient grounds for the suspension or

revocation of a taxpayer's license. In addition, a person who

willfully refuses to cooperate with or permit an examination to

the satisfaction of the department commits a misdemeanor and

shall, upon conviction, be sentenced to pay costs of prosecution

and a fine of $500 or to imprisonment for not more than one

year, or both, at the discretion of the court.

(c)  Records; dealer or manufacturer.--A dealer or

manufacturer shall keep and maintain for a period of four years

records in the form prescribed by the department. The records

shall be maintained at the location for which the license is

issued.

(d)  Reports.--A dealer or manufacturer shall file reports at

times and in the form prescribed by the department.

(e)  Records; manufacturer or wholesaler.--A manufacturer or

wholesaler located or doing business in this Commonwealth who

sells tobacco products to a wholesale license holder in this

Commonwealth shall keep records showing:

(1)  The number and kind of tobacco products sold.

(2)  The date the tobacco products were sold.

(3)  The name and license number of the dealer the

tobacco products were sold to.

(4)  The total weight of each of the tobacco products

sold to the license holder.

(5)  The place where the tobacco products were shipped.

(6)  The name of the common carrier.

(f)  Manufacturer or wholesaler.--A manufacturer or

wholesaler shall file with the department, on or before the 20th

of each month, a report showing the information listed in

subsection (e) for the previous month.

Section 1215-A.  Other violations; peace officers; fines.

Sections 1278, 1279, 1280 and 1291 are incorporated by

reference into and shall apply to the tax imposed by this

article.

Section 1216-A.  (Reserved).

Section 1217-A.  (Reserved).

Section 1218-A.  (Reserved).

Section 1219-A.  Records of shipments and receipts of tobacco

products required.

The department may, in its discretion, require reports from

any common or contract carrier who transports tobacco products

to any point or points within this Commonwealth, and from any

bonded warehouseman or bailee who has in the possession of the

warehouseman or bailee any tobacco products. The reports shall

contain the information concerning shipments of tobacco products

that the department determines to be necessary for the

administration of this article. All common and contract

carriers, bailees and warehousemen shall permit the examination

by the department or its authorized agents of any records

relating to the shipment or receipt of tobacco products.

Section 1220-A.  Licensing of dealers and manufacturers.

(a)  Prohibition.--No person, unless all sales of tobacco

products are exempt from Pennsylvania tobacco products tax,