THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

INTRODUCED BY REED, DePASQUALE, CHRISTIANA, BENNINGHOFF, VULAKOVICH, AUMENT, BAKER, BOBACK, BOYD, CALTAGIRONE, CLYMER, CREIGHTON, CUTLER, DALEY, DUNBAR, D. EVANS, J. EVANS, EVERETT, FLECK, GEIST, GERGELY, GIBBONS, GINGRICH, GROVE, HALUSKA, HARHART, HARPER, HARRIS, HELM, HENNESSEY, HESS, M. K. KELLER, KILLION, KNOWLES, MAJOR, MALONEY, MANN, MARSICO, MICOZZIE, MILLARD, MIRABITO, MOUL, MURPHY, OBERLANDER, O'NEILL, PAYNE, PETRI, PICKETT, QUIGLEY, QUINN, READSHAW, REESE, ROCK, SAYLOR, SIMMONS, S. H. SMITH, STEPHENS, STEVENSON, STURLA, SWANGER, TALLMAN, TOBASH, VEREB, WATSON, DELOZIER, SONNEY AND DAVIDSON, JANUARY 26, 2012

AS REPORTED FROM COMMITTEE ON FINANCE, HOUSE OF REPRESENTATIVES, AS AMENDED, APRIL 3, 2012   

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," in sales and use tax, further providing for

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discount; and, in corporate net income, further providing for

definitions and for imposition of tax.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Section 401(3)2(a)(9) and 4(c) of the act of

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

1971, amended October 9, 2009 (P.L.451, No.48), are amended,

clause (3)1 is amended by adding a paragraph and the section is

amended by adding clauses to read:

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

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No.2), known as the Tax Reform Code of 1971, is amended to read:

Section 227.  Discount.--(a)  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] tax due by him and as a consideration of the prompt

payment thereof.

(b)  For returns filed on or after the effective date of this

subsection, the discount under subsection (a) shall be limited

to the following:

(i)  For a monthly filer, twenty-five dollars ($25) per

return.

(ii)  For a quarterly filer, seventy-five dollars ($75) per

return.

(iii)  For a semi-annual filer, one hundred fifty dollars

($150) per return.

Section 2.  Section 401(3)2(a)(9) and 4(c) of the act,

amended October 9, 2009 (P.L.451, No.48), are amended, clause

(3)1 is amended by adding a paragraph 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:

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(3)  "Taxable income."  1.  * * *

(t)  For taxable years beginning after December 31, 2012, no

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deduction shall be allowed for an intangible expense or cost

paid, accrued or incurred in connection with one or more

transactions with an affiliated entity. The following apply:

(i)  The adjustment required by this term shall not apply to

a transaction that was directly related to a valid business

purpose.

(ii)  In calculating taxable income, when the taxpayer is

engaged in one or more transactions with an affiliated entity

that was subject to tax in this Commonwealth or another state or

possession of the United States on a tax base that included the

intangible expense or cost paid, accrued or incurred by the

taxpayer, the taxpayer shall receive a credit against tax due in

this Commonwealth in an amount equal to the tax paid by the

affiliated entity with respect to the portion of its income

representing the intangible expense paid, accrued or incurred by

the taxpayer multiplied by the apportionment factor of the

taxpayer in this Commonwealth. The credit shall not exceed the

taxpayer's liability in this Commonwealth attributable to the

net income taxed as a result of the adjustment required by this

term.

(t)  (1)  Except as provided in paragraph (2), (3) or (4) for

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taxable years beginning after December 31, 2012, no deduction

shall be allowed for an intangible expense or cost, or an

interest expense or cost, paid, accrued or incurred directly or

indirectly in connection with one or more transactions with an

affiliated entity. In calculating taxable income under this

paragraph, when the taxpayer is engaged in one or more

transactions with an affiliated entity that was subject to tax

in this Commonwealth or another state or possession of the

United States on a tax base that included the intangible expense

or cost, or the interest expense or cost, paid, accrued or

incurred by the taxpayer, the taxpayer shall receive a credit

against tax due in this Commonwealth in an amount equal to the

apportionment factor of the taxpayer in this Commonwealth

multiplied by the greater of the following:

(A)  the tax liability of the affiliated entity with respect

to the portion of its income representing the intangible expense

or cost, or the interest expense or cost, paid, accrued or

incurred by the taxpayer; or

(B)  the tax liability that would have been paid by the

affiliated entity under subparagraph (A) if that tax liability

had not been offset by a credit.

The credit issued under this paragraph shall not exceed the

taxpayer's liability in this Commonwealth attributable to the

net income taxed as a result of the adjustment required by this

paragraph.

(2)  The adjustment required by paragraph (1) shall not apply

to a transaction that was directly related to a valid business

purpose.

(3)  The adjustment required by paragraph (1) shall not apply

to a transaction between a taxpayer and an affiliated entity

domiciled in a foreign nation which has in force a comprehensive

income tax treaty with the United States providing for the

allocation of all categories of income subject to taxation, or

the withholding of tax, on royalties, licenses, fees and

interest for the prevention of double taxation of the respective

nations' residents and the sharing of information.

(4)  The adjustment required by paragraph (1) shall not apply

to a transaction where an affiliated entity directly or

indirectly paid, accrued or incurred a payment to a person who

is not an affiliated entity, if the transaction is paid, accrued

or incurred on the intangible expense or cost, or interest

expense or cost.

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.

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(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.

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

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, 2012, all

business income shall be apportioned to this State by

multiplying the income by the sales factor.

(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.

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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,

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]

(V)  For taxable years beginning after December 31, 2013, the

greater of twenty-nine thirty-three per cent of taxable income

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

or four million dollars ($4,000,000);

(VI)  For taxable years beginning after December 31, 2014,

the greater of thirty-eight forty-five per cent of taxable

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income as determined under subclause 1 or, if applicable,

subclause 2 or five million dollars ($5,000,000);

(VII)  For taxable years beginning after December 31, 2015,

the greater of forty-seven fifty-six per cent of taxable income

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

or six million dollars ($6,000,000);

(VIII)  For taxable years beginning after December 31, 2016,

the greater of fifty-six sixty-six per cent of taxable income as

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

seven million dollars ($7,000,000);

(IX)  For taxable years beginning after December 31, 2017,

the greater of sixty-four seventy-five per cent of taxable

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income as determined under subclause 1 or, if applicable,

subclause 2 or eight million dollars ($8,000,000);

(X)  For taxable years beginning after December 31, 2018, the

greater of seventy-three eighty-three per cent of taxable income

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

or nine million dollars ($9,000,000);

(XI)  For taxable years beginning after December 31, 2019,

the greater of eighty-two ninety per cent of taxable income as

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

ten million dollars ($10,000,000);

(XII)  For taxable years beginning after December 31, 2020,

the greater of ninety-one ninety-six per cent of taxable income

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

or eleven million dollars ($11,000,000);

(XIII)  For taxable years beginning after December 31, 2021,

taxable income as determined under subclause 1 or, if

applicable, subclause 2; 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.

(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.

(V)  The greater of twenty-nine thirty-three per cent of

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taxable income as determined under subclause 1 or, if

applicable, subclause 2 or four million dollars ($4,000,000) for

taxable years beginning after December 31, 2013.

(VI)  The greater of thirty-eight forty-five per cent of

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taxable income as determined under subclause 1 or, if

applicable, subclause 2 or five million dollars ($5,000,000) for

taxable years beginning after December 31, 2014.

(VII)  The greater of forty-seven fifty-six per cent of

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taxable income as determined under subclause 1 or, if

applicable, subclause 2 or six million dollars ($6,000,000) for

taxable years beginning after December 31, 2015.

(VIII)  The greater of fifty-six sixty-six per cent of

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taxable income as determined under subclause 1 or, if

applicable, subclause 2 or seven million dollars ($7,000,000)

for taxable years beginning after December 31, 2016.

(IX)  The greater of sixty-four seventy-five per cent of

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taxable income as determined under subclause 1 or, if

applicable, subclause 2 or eight million dollars ($8,000,000)

for taxable years beginning after December 31, 2017.

(X)  The greater of seventy-three eighty-three per cent of

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taxable income as determined under subclause 1 or, if

applicable, subclause 2 or nine million dollars ($9,000,000) for

taxable years beginning after December 31, 2018.

(XI)  The greater of eighty-two ninety per cent of taxable

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income as determined under subclause 1 or, if applicable,

subclause 2 or ten million dollars ($10,000,000) for taxable

years beginning after December 31, 2019.

(XII)  The greater of ninety-one ninety-six per cent of

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taxable income as determined under subclause 1 or, if

applicable, subclause 2 or eleven million dollars ($11,000,000)

for taxable years beginning after December 31, 2020.

(XIII)  For taxable years beginning after December 31, 2021,

taxable income as determined under subclause 1 or, if

applicable, subclause 2.

* * *

(8)  "Intangible expense or cost."  Royalties, licenses or

fees paid for the acquisition, use, maintenance, management,

ownership, sale, exchange or other disposition of patents,

patent applications, trade names, trademarks, service marks,

copyrights, mask works or other similar expenses or costs.

(9)  "Interest expense or cost."  A deduction allowed under

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section 163 of the Internal Revenue Code of 1986 (26 U.S.C. §

163) to the extent that such deduction is directly related to an

intangible expense or cost.

(9) (10)  "Affiliated entity."  A person with a relationship

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to the taxpayer during all or any portion of the taxable year

that is any of the following:

(i)  a stockholder who is an individual, or a member of the

stockholder's family as set forth in section 318 of the Internal

Revenue Code of 1986 (26 U.S.C. § 318), if the stockholder and

the members of the stockholder's family own, directly,

indirectly, beneficially or constructively, in the aggregate, at

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least more than fifty per cent of the value of the taxpayer's

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outstanding stock;

(ii)  a stockholder, or a stockholder's partnership, limited

liability company, estate, trust or corporation, if the

stockholder and the stockholder's partnerships, limited

liability companies, estates, trusts and corporations own

directly, indirectly, beneficially or constructively, in the

aggregate, at least more than fifty per cent of the value of the

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taxpayer's outstanding stock;

(iii)  a corporation, or a party related to the corporation

in a manner that would require an attribution of stock from the

corporation to the party or from the party to the corporation

under the attribution rules of the Internal Revenue Code of

1986, if the taxpayer owns, directly, indirectly, beneficially

or constructively, at least more than fifty per cent of the

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value of the corporation's outstanding stock. The attribution

rules of section 318 of the Internal Revenue Code of 1986 shall

apply for purposes of determining whether the ownership

requirements of this definition have been met;

(iv)  a component member as defined in section 1563(b) of the

Internal Revenue Code of 1986; or

(v)  a person to or from whom there is attribution of stock

ownership in accordance with section 1563(e) of the Internal

Revenue Code of 1986.

(10) (11)  "Valid business purpose."  A purpose, other than

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the avoidance or reduction of taxation, which alone or in

combination with other purposes constitute the primary

motivation for a business activity or transaction which changes

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in a meaningful way, apart from a reduction of taxation, the

economic position of a taxpayer. The economic position of the

taxpayer includes an increase in the market share of the

taxpayer or the entry of the taxpayer into new business markets.

A transaction done at arm's length terms shall be presumed to be

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directly related to a valid business purpose.

Section 2 3.  Section 402(b) of the act, amended June 29,

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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 4.  This act shall take effect immediately.

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