THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

INTRODUCED BY SAYLOR, PAYNE, EVANKOVICH, AUMENT, BOYD, DUNBAR, HARRIS, MILNE, RAPP, SCAVELLO, MAJOR, BAKER, CALTAGIRONE, CHRISTIANA, CLYMER, CREIGHTON, CUTLER, DALEY, ELLIS, EVERETT, FARRY, GILLESPIE, GINGRICH, GOODMAN, GROVE, HARHAI, HARKINS, HENNESSEY, HESS, HICKERNELL, HORNAMAN, KAUFFMAN, M. K. KELLER, KILLION, KORTZ, LAWRENCE, LONGIETTI, MARSHALL, MARSICO, MILLER, OBERLANDER, PICKETT, PRESTON, PYLE, READSHAW, ROAE, ROCK, SAINATO, M. SMITH, STEVENSON, SWANGER, TALLMAN, TOOHIL, VULAKOVICH, WAGNER, GIBBONS, QUINN, BROOKS, TRUITT, COX, GEIST, MURT, BEAR, DENLINGER AND FRANKEL, MAY 10, 2011

AS REPORTED FROM COMMITTEE ON FINANCE, HOUSE OF REPRESENTATIVES, AS AMENDED, OCTOBER 26, 2011   

AN ACT

Amending Title 12 (Commerce and Trade) of the Pennsylvania

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Consolidated Statutes, providing for an angel investment tax

credit.

Amending Title 12 (Commerce and Trade) of the Pennsylvania

<--

Consolidated Statutes, providing for an angel investment tax

credit.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Title 12 of the Pennsylvania Consolidated

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Statutes is amended by adding a chapter to read:

CHAPTER 38

ANGEL INVESTMENT TAX CREDIT

Sec.

3801.  Scope of chapter.

3802.  Definitions.

3803.  Credit for qualified angel investment.

3804.  Carryover, carryback, refund and assignment.

3805.  Time limitation.

3806.  Limitation on angel investment tax credits.

3807.  Shareholder, owner or member pass-through.

3808.  Reports.

3809.  Termination.

3810.  Regulations.

§ 3801.  Scope of chapter.

This chapter relates to angel investment tax credits.

§ 3802.  Definitions.

The following words and phrases, when used in this chapter,

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

the context clearly indicates otherwise:

"Business plan."  An outline of business structure and a

formal statement of business goals, the reasons why the goals

are believed to be attainable and the plan for reaching those

goals.

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

"Pass-through entity."  Any of the following:

(1)  A partnership, limited partnership, limited

liability company, business trust or other unincorporated

entity that for Federal income tax purposes is taxable as a

partnership.

(2)  A Pennsylvania S corporation.

"Qualified angel investment."  A purchase of equity interest

or any other expenditure made by an individual or a network of

individuals who review new businesses or a proposed business for

potential investment of an individual's money.

"Qualified business venture."  A business plan that satisfies

the following:

(1)  The business has its headquarters in this

Commonwealth.

(2)  At least 51% of the employees employed by the

business are employed in this Commonwealth.

(3)  The success of the business plan depends upon the

development or commercialization of intellectual property for

which either of the following apply:

(i)  Patent protection under 35 U.S.C (relating to

patents) has been secured, is pending or will be sought.

(ii)  A copyright under 17 U.S.C. (relating to

copyrights) has been secured, is pending or will be

sought.

(4)  The business has less than 100 employees.

(5)  The business has been in operation in this

Commonwealth for not more than seven consecutive years.

(6)  The business has not received more than $1,000,000

in investments that have qualified tax credits under this

chapter.

"Qualified tax liability."  The liability for taxes imposed

under Article III, IV or VI of the Tax Reform Code of 1971. The

term shall include the liability for taxes imposed under Article

III of the Tax Reform Code of 1971 on an owner of a pass-through

entity.

"Secretary."  The Secretary of Revenue of the Commonwealth.

"Tax credit."  The angel investment tax credit authorized

under this chapter.

"Tax Reform Code of 1971."  The act of March 4, 1971 (P.L.6,

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

"Taxpayer."  An entity subject to tax under Article III, IV

or VI of the Tax Reform Code of 1971. The term shall include the

shareholder, owner or member of a pass-through entity that

receives a tax credit.

§ 3803.  Credit for qualified angel investment.

(a)  Application.--A taxpayer with qualified angel investment

in a taxable year may apply for an angel investment tax credit

as provided under this chapter. The department shall establish

appropriate filing deadlines for angel investment tax credits in

a manner that allows for the expeditious utilization of the

angel investment tax credit by the taxpayer.

(b)  Amount.--A taxpayer that is qualified under subsection

(a) shall receive an angel investment tax credit for the taxable

year in the amount of 25% of the taxpayer's qualified angel

investment in a qualified business venture. The Department of

Community and Economic Development shall certify that entities

meet the requirements of a qualified business venture.

(c)  Notification.--By December 16 of the calendar year

following the close of the taxable year during which the

qualified angel investment was made, the department shall notify

the taxpayer of the amount of the taxpayer's angel investment

tax credit approved by the department.

§ 3804.  Carryover, carryback, refund and assignment.

(a)  Carryover.--If the taxpayer cannot use the entire amount

of the angel investment tax credit for the taxable year in which

the angel investment tax credit is first approved, the excess

may be carried over to succeeding taxable years and used as a

credit against the qualified tax liability of the taxpayer for

those taxable years. Each time that the angel investment tax

credit is carried over to a succeeding taxable year, it shall be

reduced by the amount that was used as a credit during the

immediately preceding taxable year. The angel investment tax

credit may be carried over and applied to succeeding taxable

years for no more than seven taxable years following the first

taxable year for which the taxpayer was entitled to claim the

angel investment tax credit.

(b)  Application.--An angel investment tax credit approved by

the department for a qualified angel investment in a taxable

year first shall be applied against the taxpayer's qualified tax

liability for the current taxable year as of the date on which

the angel investment tax credit was approved before the angel

investment tax credit is applied against any tax liability under

subsection (a).

(c)  Carryback or refund.--A taxpayer is not entitled to

carry back or obtain a refund of an unused angel investment tax

credit.

§ 3805.  Time limitation.

A taxpayer shall not be entitled to an angel investment tax

credit for qualified angel investments incurred in taxable years

ending after December 31, 2021.

§ 3806.  Limitation on angel investment tax credits.

(a)  Total amount.--The total amount of angel investment tax

credits approved by the department in a fiscal year shall be

equal to the greater of:

(1)  $3,000,000; or

(2)  The difference between $25,000,000 and the total

amount of keystone innovation zone tax credits issued under

section 3706 (relating to keystone innovation zone tax

credits) through December 15th of the fiscal year.

(b)  Sale or assignment.--A taxpayer, upon application to and

approval by the department, may sell or assign, in whole or in

part, an angel investment tax credit granted to the taxpayer

under this chapter. The department shall establish guidelines

for the approval of applications under this subsection.

§ 3807.  Shareholder, owner or member pass-through.

(a)  Shareholder entitlement.--If a Pennsylvania S

corporation does not have an eligible tax liability against

which the angel investment tax credit may be applied, a

shareholder of the Pennsylvania S corporation shall be entitled

to an angel investment tax credit equal to the angel investment

tax credit determined for the Pennsylvania S corporation for the

taxable year multiplied by the percentage of the Pennsylvania S

corporation's distributive income to which the shareholder is

entitled.

(b)  Pass-through entity entitlement.--If a pass-through

entity other than a Pennsylvania S corporation does not have an

eligible tax liability against which the angel investment tax

credit may be applied, an owner or member of the pass-through

entity is entitled to an angel investment tax credit equal to

the angel investment tax credit determined for the pass-through

entity for the taxable year multiplied by the percentage of the

pass-through entities' distributive income to which the owner or

member is entitled.

(c)  Additional credit.--

(1)  Except as provided under paragraph (2), the angel

investment tax credit provided under subsections (a) or (b)

shall be in addition to any tax credit to which a

shareholder, owner or member of a pass-through entity is

otherwise entitled under this chapter.

(2)  A pass-through entity and a shareholder, owner or

member of a pass-through entity may not claim an angel

investment tax credit under this chapter for the same

qualified angel investment.

§ 3808.  Reports.

(a)  Report to General Assembly.--The secretary shall submit

an annual report to the General Assembly indicating the

effectiveness of the angel investment tax credit provided under

this chapter no later than March 15 following the year in which

the angel investment tax credits were approved. The report shall

include the names of all taxpayers utilizing the angel

investment tax credit as of the date of the report and the

amount of the angel investment tax credits approved and utilized

by each taxpayer. Notwithstanding any law providing for the

confidentiality of tax records, the information contained in the

report shall be public information. The report may also include

any recommendations for changes in the calculation or

administration of the angel investment tax credit.

(b)  Report to Secretary of the Senate and the Chief Clerk of

the House of Representatives.--The department shall submit a

report to the Secretary of the Senate and the Chief Clerk of the

House of Representatives indicating the effectiveness of the

angel investment tax credit by December 31, 2013 and by December

31, 2016. Notwithstanding any law providing for the

confidentiality of tax records, the report shall include the

names of all taxpayers awarded the angel investment tax credits,

all taxpayers utilizing the angel investment tax credits, the

amount of angel investment tax credits approved and utilized by

each taxpayer and the locations of the keystone innovation zone

companies as defined in section 3702 (relating to definitions)

awarded the angel investment tax credits. The report shall be

considered a public record under section 102 of the act of

February 14, 2008 (P.L.6, No.3), known as the Right-to-Know Law.

§ 3809.  Termination.

The department shall not approve an angel investment tax

credit for taxable years ending after December 31, 2021.

§ 3810.  Regulations.

The secretary shall promulgate regulations necessary for the

implementation and administration of this chapter.

Section 2.  This act shall take effect immediately.

Section 1.  Title 12 of the Pennsylvania Consolidated

<--

Statutes is amended by adding a chapter to read:

CHAPTER 38

ANGEL INVESTMENT TAX CREDIT

Sec.

3801.  Scope of chapter.

3802.  Definitions.

3803.  Establishment.

3804.  Qualified business plans.

3805.  Credit for qualified investment.

3806.  Carryover, application of tax credit, carryback, refund

and assignment.

3807.  Time limitation.

3808.  Limitation on tax credits.

3809.  Shareholder, owner or member pass-through.

3810.  Repayment and penalty.

3811.  Reports.

3812.  Termination.

3813.  Regulations.

§ 3801.  Scope of chapter.

This chapter relates to angel investment tax credits.

§ 3802.  Definitions.

The following words and phrases, when used in this chapter,

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

the context clearly indicates otherwise:

"Accredited investor."  Any of the following:

(1)  An individual whose net worth or joint net worth

with the individual's spouse exceeds $1,000,000.

(2)  An individual who had individual income in excess of

$200,000 in each of the two most recent years or joint income

with that individual's spouse in excess of $300,000 in each

of those years and has a reasonable expectation of reaching

the same income level in the current year.

(3)  Any entity in which all of the equity owners meet

paragraph (1) or (2).

"Business plan."  An outline of business structure and a

formal statement of business goals, including an explanation of

how the goals are anticipated to be achieved.

"Department."  The Department of Community and Economic

Development of the Commonwealth.

"Pass-through entity."  A partnership as defined in section

301(n.o) of the act of March 4, 1971 (P.L.6, No.2), known as the

Tax Reform Code of 1971, or a Pennsylvania S corporation as

defined in section 301(n.1) of the Tax Reform Code of 1971.

"Qualified business venture."  A business that is all of the

following:

(1)  Headquartered or that will establish its

headquarters in this Commonwealth prior to the time the

taxpayer is eligible to apply for the tax credit.

(2)  Maintains its headquarters in this Commonwealth for

at least five years after the taxpayer applied for the tax

credit.

(3)  Where at least 51% of its employees are employed in

this Commonwealth at the time the taxpayer applies for the

tax credit.

(4)  Has fewer than 100 employees at the time the

taxpayer applies for the tax credit.

(5)  Has been in operation in this Commonwealth for not

more than five consecutive years at the time the taxpayer

applies for the tax credit.

(6)  Has not received more than $5,000,000, in the

aggregate, in private equity investments.

"Qualified investment."  A payment of money or its equivalent

for a private equity interest in a qualified business venture.

"Qualified tax liability."  The liability for taxes imposed

under Article III, IV or VI of the act of March 4, 1971 (P.L.6,

No.2), known as the Tax Reform Code of 1971. The term shall

include the liability for taxes imposed under Article III of the

Tax Reform Code of 1971 on an owner of a pass-through entity.

"Secretary."  The Secretary of Community and Economic

Development of the Commonwealth.

"Tax credit."  The angel investment tax credit authorized

under this chapter.

"Taxpayer."  A person subject to tax under Article III, IV or

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

Reform Code of 1971. The term shall include the shareholder,

owner or member of a pass-through entity that receives an angel

investment tax credit.

§ 3803.  Establishment.

There is established a tax credit program to be known as the

Angel Investment Tax Credit. The program shall:

(1)  Create a business environment that attracts and

encourages early-stage financing for businesses with the

potential for high growth.

(2)  Increase capital investment.

(3)  Encourage job creation.

§ 3804.  Qualified business plans.

In order for a business plan to be qualified, the business

plan shall:

(1)  Indicate the potential for increasing jobs in this

Commonwealth.

(2)  Indicate the potential for increasing capital

investment in this Commonwealth.

(3)  Specify that the plan is based upon the development

or commercialization of intellectual property for which

either of the following apply:

(i)  patent protection under 35 U.S.C. (relating to

patents) has been secured or is pending; or

(ii)  a copyright under 17 U.S.C. (relating to

copyrights) has been secured or is pending.

§ 3805.  Credit for qualified investment.

(a)  Application.--A taxpayer that made a qualified

investment in a taxable year may apply for a tax credit. The

application must be on a form required by the department and

shall include all of the following:

(1)  The name and address of the applicant.

(2)  The name and address of the business in which the

taxpayer has invested.

(3)  A certified copy of the qualified business plan.

(4)  Documentation that the applicant is an accredited

investor.

(5)  Documentation that the business in which the

taxpayer has invested is a qualified business venture.

(6)  Documentation that the qualified investment has been

made by the applicant.

(7)  Any other information required by the department.

(b)  Review.--The department, in conjunction with the

Department of Revenue, shall review the application and

determine if:

(1)  All requirements established under this chapter have

been met.

(2)  The applicant has filed all required State tax

reports and returns for all applicable taxable years and paid

any balance of State tax due as determined at settlement,

assessment or determination by the Department of Revenue.

(c)  Approval.--Upon being satisfied under subsection (b),

the department shall approve the application and award the

taxpayer a tax credit for the taxable year in the amount equal

to 25% of the taxpayer's qualified investment made during the

taxable year.

(d)  Notification.--The department shall notify the taxpayer

of the amount of the taxpayer's tax credit within 30 days after

approval by the department.

§ 3806.  Carryover, application of tax credit, carryback, refund

and assignment.

(a)  Carryover.--If the taxpayer cannot use the entire amount

of the tax credit for the taxable year in which the tax credit

is first approved, the excess may be carried over to succeeding

taxable years and used as a credit against the qualified tax

liability of the taxpayer for those taxable years. Each time

that the tax credit is carried over to a succeeding taxable

year, it shall be reduced by the amount that was used as a

credit during the immediately preceding taxable year. The tax

credit may be carried over and applied to succeeding taxable

years for no more than seven taxable years following the first

taxable year for which the taxpayer was entitled to claim the

tax credit.

(b)  Application of tax credit.--A tax credit approved by the

department for a qualified investment in a taxable year shall

first be applied against the taxpayer's qualified tax liability

for the current taxable year as of the date on which the tax

credit was approved before the tax credit is applied against any

tax liability under subsection (a).

(c)  Carryback or refund.--A taxpayer is not entitled to

carry back or obtain a refund of an unused tax credit.

(d)  Sale or assignment.--A taxpayer, upon application to and

approval by the department in consultation with the Department

of Revenue, may sell or assign, in whole or in part, a tax

credit granted to the taxpayer under this chapter if the

taxpayer does not have a qualified tax liability against which

the tax credit may be applied in the current taxable year. The

department shall establish guidelines, in consultation with the

Department of Revenue, for the approval of applications under

this subsection. Before an application is approved, the

Department of Revenue shall make a finding that the taxpayer and

its assignee have filed all required State tax reports and

returns for all applicable taxable years and paid any balance of

State tax due as determined at settlement, assessment or

determination by the Department of Revenue.

(e)  Purchasers and assignees.--The purchaser or assignee of

all or a portion of a tax credit under subsection (d) shall

immediately claim the credit in the taxable year in which the

purchase or assignment is made, although the purchaser or

assignee may carry over unused tax credits to the succeeding

taxable year for up to two years. The amount of the tax credit

that a purchaser or assignee may use against any one qualified

tax liability may not exceed 75% of the qualified tax liability

for the taxable year. The purchaser or assignee may not carry

back or obtain a refund of or sell or assign the tax credit. The

purchaser or assignee shall notify the department, and the

department shall notify the Department of Revenue of the seller

or assignor of the tax credit in compliance with procedures

specified by the department, in consultation with the Department

of Revenue.

§ 3807.  Time limitation.

A taxpayer shall not be entitled to a tax credit for

qualified investments incurred in taxable years ending after

December 31, 2021.

§ 3808.  Limitation on tax credits.

(a)  Total amount.--The total amount of tax credits approved

by the department in any calendar year shall not exceed the

amount of keystone innovation zone tax credits authorized but

unissued under section 3706 (relating to keystone innovation

zone tax credits) as of December 15 of the prior calendar year.

On or before December 20 of each calendar year the department

shall post on its publicly accessible Internet website the

amount available for the tax credit authorized under this

chapter.

(b)  Allocation.--Tax credits shall be allocated by the

department on a first-come-first-served basis.

§ 3809.  Shareholder, owner or member pass-through.

(a)  Shareholder entitlement.--If a Pennsylvania S

corporation does not have an eligible tax liability against

which the tax credit may be applied, a shareholder of the

Pennsylvania S corporation shall be entitled to a tax credit

equal to the tax credit determined for the Pennsylvania S

corporation for the taxable year multiplied by the percentage of

the Pennsylvania S corporation's distributive income to which

the shareholder is entitled.

(b)  Pass-through entity entitlement.--If a pass-through

entity other than a Pennsylvania S corporation does not have tax

liability against which the tax credit may be applied, an owner

or member of the pass-through entity shall be entitled to a tax

credit equal to the tax credit determined for the pass-through

entity for the taxable year multiplied by the percentage of the

pass-through entities' distributive income to which the owner or

member is entitled.

(c)  Additional credit.--

(1)  Except as provided under paragraph (2), the tax

credit provided under subsections (a) or (b) shall be in

addition to any other tax credit to which a shareholder,

owner or member of a pass-through entity is otherwise

entitled under this chapter.

(2)  A pass-through entity and a shareholder, owner or

member of a pass-through entity shall not claim a tax credit

under this chapter for the same qualified investment.

§ 3810.  Repayment.

The department shall require the taxpayer to repay any tax

credit received and any monetary value received from the sale or

assignment of a tax credit where it has been determined that the

recipient taxpayer did not satisfy the requirements of the

qualified business plan submitted by the applicant or received

such as the result of fraud.

§ 3811.  Reports.

The secretary shall submit an annual report to the chair and

minority chair of the standing committees in the Senate and the

chair and minority chair of the standing committees in the House

of Representatives with jurisdiction over the department and the

Department of Revenue indicating the effectiveness of the tax

credit provided under this chapter no later than March 15

following the fiscal year in which the tax credits were

approved. Notwithstanding any law providing for the

confidentiality of tax records, the report shall include the

names of all taxpayers awarded the tax credits, all taxpayers

utilizing the tax credits, the amount of tax credits approved

and utilized by each taxpayer and the names and locations of the

qualified business ventures for which the tax credits were

awarded. The report may also include any recommendations for

changes in the calculation or administration of the tax credit.

The report and the information contained in it shall be

considered a public record under section 102 of the act of

February 14, 2008 (P.L.6, No.3), known as the Right-to-Know Law.

§ 3812.  Termination.

The department shall not approve a tax credit for qualified

investments incurred in taxable years ending after December 31,

2021.

§ 3813.  Guidelines.

The department, in consultation with the Department of

Revenue, shall develop written guidelines for the implementation

and administration of this chapter. The guidelines shall be

posted on the department's publicly accessible Internet website:

Section 2.  The addition of 12 Pa.C.S. Ch. 38 shall apply to

qualified investments made in taxable years beginning after

December 31, 2011.

Section 3.  This act shall take effect immediately.