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| THE GENERAL ASSEMBLY OF PENNSYLVANIA |
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| SENATE BILL |
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| INTRODUCED BY TARTAGLIONE, COSTA, SOLOBAY, FONTANA, HUGHES, YUDICHAK, BREWSTER, BLAKE, FARNESE AND KASUNIC, MARCH 28, 2011 |
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| REFERRED TO FINANCE, MARCH 28, 2011 |
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| AN ACT |
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1 | Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An |
2 | act relating to tax reform and State taxation by codifying |
3 | and enumerating certain subjects of taxation and imposing |
4 | taxes thereon; providing procedures for the payment, |
5 | collection, administration and enforcement thereof; providing |
6 | for tax credits in certain cases; conferring powers and |
7 | imposing duties upon the Department of Revenue, certain |
8 | employers, fiduciaries, individuals, persons, corporations |
9 | and other entities; prescribing crimes, offenses and |
10 | penalties," in corporate net income tax, further providing |
11 | for definitions, for imposition, for reports and payment and |
12 | for consolidated reports; and in general provisions, further |
13 | providing for underpayment of estimated tax. |
14 | The General Assembly of the Commonwealth of Pennsylvania |
15 | hereby enacts as follows: |
16 | Section 1. Section 401(3)1(a) and (b) and 2(a) and (5) of |
17 | the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform |
18 | Code of 1971, amended or added December 23, 1983 (P.L.370, |
19 | No.90), July 1, 1985 (P.L.78, No.29), August 4, 1991 (P.L.97, |
20 | No.22), May 12, 1999 (P.L.26, No.4), June 22, 2001 (P.L.353, |
21 | No.23), June 29, 2002 (P.L.559, No.89) and October 9, 2009 |
22 | (P.L.451, No.48) are amended, clause (3)2 is amended by adding a |
23 | phrase and the section is amended by adding clauses to read: |
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1 | Section 401. Definitions.--The following words, terms, and |
2 | phrases, when used in this article, shall have the meaning |
3 | ascribed to them in this section, except where the context |
4 | clearly indicates a different meaning: |
5 | * * * |
6 | (3) "Taxable income." 1. (a) In case the entire business |
7 | of the corporation is transacted within this Commonwealth, for |
8 | any taxable year which begins on or after January 1, 1971, |
9 | taxable income for the calendar year or fiscal year as returned |
10 | to and ascertained by the Federal Government, or in the case of |
11 | a corporation participating in the filing of consolidated |
12 | returns to the Federal Government or that is not required to |
13 | file a return with the Federal Government, the taxable income |
14 | which would have been returned to and ascertained by the Federal |
15 | Government if separate returns had been made to the Federal |
16 | Government for the current and prior taxable years, subject, |
17 | however, to any correction thereof, for fraud, evasion, or error |
18 | as finally ascertained by the Federal Government. |
19 | (b) Additional deductions shall be allowed from taxable |
20 | income on account of any dividends received from any other |
21 | corporation but only to the extent that such dividends are |
22 | included in taxable income as returned to and ascertained by the |
23 | Federal Government. For tax years beginning on or after January |
24 | 1, 1991, additional deductions shall only be allowed for amounts |
25 | included, under section 78 of the Internal Revenue Code of 1986 |
26 | (Public Law 99-514, 26 U.S.C. § 78), in taxable income returned |
27 | to and ascertained by the Federal Government and for the amount |
28 | of any dividends received from a foreign corporation included in |
29 | taxable income to the extent such dividends would be deductible |
30 | in arriving at Federal taxable income if received from a |
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1 | domestic corporation. For taxable years beginning on or after |
2 | January 1, 2012, if not otherwise allowed as a deduction, an |
3 | additional deduction is allowed for all dividends paid by one to |
4 | another of the included corporations of a unitary business to |
5 | the extent those dividends are included in business income of a |
6 | corporation that is required to determine its business income |
7 | pursuant to paragraph (1) of phrase (e) of subclause (2). |
8 | * * * |
9 | 2. In case the entire business of any corporation, other |
10 | than a corporation engaged in doing business as a regulated |
11 | investment company as defined by the Internal Revenue Code of |
12 | 1986, is not transacted within this Commonwealth, the tax |
13 | imposed by this article shall be based upon such portion of the |
14 | taxable income of such corporation for the fiscal or calendar |
15 | year, as defined in subclause 1 hereof, and may be determined as |
16 | follows: |
17 | (a) Division of Income. |
18 | (1) As used in this definition, unless the context otherwise |
19 | requires: |
20 | (A) "Business income" means income arising from transactions |
21 | and activity in the regular course of the taxpayer's trade or |
22 | business and includes income from tangible and intangible |
23 | property if either the acquisition, the management or the |
24 | disposition of the property constitutes an integral part of the |
25 | taxpayer's regular trade or business operations. The term |
26 | includes all income which is apportionable under the |
27 | Constitution of the United States. |
28 | (B) "Commercial domicile" means the principal place from |
29 | which the trade or business of the taxpayer is directed or |
30 | managed. |
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1 | (C) "Compensation" means wages, salaries, commissions and |
2 | any other form of remuneration paid to employes for personal |
3 | services. |
4 | (D) "Nonbusiness income" means all income other than |
5 | business income. The term does not include income which is |
6 | apportionable under the Constitution of the United States. |
7 | (E) "Sales" means all gross receipts of the taxpayer not |
8 | allocated under this definition other than dividends received, |
9 | interest on United States, state or political subdivision |
10 | obligations and gross receipts heretofore or hereafter received |
11 | from the sale, redemption, maturity or exchange of securities, |
12 | except those held by the taxpayer primarily for sale to |
13 | customers in the ordinary course of its trade or business. |
14 | (F) "State" means any state of the United States, the |
15 | District of Columbia, the Commonwealth of Puerto Rico, any |
16 | territory or possession of the United States, and any foreign |
17 | country or political subdivision thereof. |
18 | (G) "This state" means the Commonwealth of Pennsylvania or, |
19 | in the case of application of this definition to the |
20 | apportionment and allocation of income for local tax purposes, |
21 | the subdivision or local taxing district in which the relevant |
22 | tax return is filed. |
23 | (2) Any taxpayer having income from business activity which |
24 | is taxable both within and without this State other than |
25 | activity as a corporation whose allocation and apportionment of |
26 | income is specifically provided for in section 401(3)2(b)(c) and |
27 | (d) shall allocate and apportion taxable income as provided in |
28 | this definition. |
29 | (3) For purposes of allocation and apportionment of income |
30 | under this definition, a taxpayer is taxable in another state if |
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1 | in that state the taxpayer is subject to a net income tax, a |
2 | franchise tax measured by net income, a franchise tax for the |
3 | privilege of doing business, or a corporate stock tax or if that |
4 | state has jurisdiction to subject the taxpayer to a net income |
5 | tax regardless of whether, in fact, the state does or does not. |
6 | (4) Rents and royalties from real or tangible personal |
7 | property, gains, interest, patent or copyright royalties, to the |
8 | extent that they constitute nonbusiness income, shall be |
9 | allocated as provided in paragraphs (5) through (8). |
10 | (5) (A) Net rents and royalties from real property located |
11 | in this State are allocable to this State. |
12 | (B) Net rents and royalties from tangible personal property |
13 | are allocable to this State if and to the extent that the |
14 | property is utilized in this State, or in their entirety if the |
15 | taxpayer's commercial domicile is in this State and the taxpayer |
16 | is not organized under the laws of or taxable in the state in |
17 | which the property is utilized. |
18 | (C) The extent of utilization of tangible personal property |
19 | in a state is determined by multiplying the rents and royalties |
20 | by a fraction, the numerator of which is the number of days of |
21 | physical location of the property in the state during the rental |
22 | or royalty period in the taxable year and the denominator of |
23 | which is the number of days of physical location of the property |
24 | everywhere during all rental or royalty periods in the taxable |
25 | year. If the physical location of the property during the rental |
26 | or royalty period is unknown or unascertainable by the taxpayer, |
27 | tangible personal property is utilized in the state in which the |
28 | property was located at the time the rental or royalty payer |
29 | obtained possession. |
30 | (6) (A) Gains and losses from sales or other disposition of |
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1 | real property located in this State are allocable to this State. |
2 | (B) Gains and losses from sales or other disposition of |
3 | tangible personal property are allocable to this State if the |
4 | property had a situs in this State at the time of the sale, or |
5 | the taxpayer's commercial domicile is in this State and the |
6 | taxpayer is not taxable in the state in which the property had a |
7 | situs. |
8 | (C) Gains and losses from sales or other disposition of |
9 | intangible personal property are allocable to this State if the |
10 | taxpayer's commercial domicile is in this State. |
11 | (7) Interest is allocable to this State if the taxpayer's |
12 | commercial domicile is in this State. |
13 | (8) (A) Patent and copyright royalties are allocable to |
14 | this State if and to the extent that the patent or copyright is |
15 | utilized by the payer in this State, or if and to the extent |
16 | that the patent copyright is utilized by the payer in a state in |
17 | which the taxpayer is not taxable and the taxpayer's commercial |
18 | domicile is in this State. |
19 | (B) A patent is utilized in a state to the extent that it is |
20 | employed in production, fabrication, manufacturing, or other |
21 | processing in the state or to the extent that a patented product |
22 | is produced in the state. If the basis of receipts from patent |
23 | royalties does not permit allocation to states or if the |
24 | accounting procedures do not reflect states of utilization, the |
25 | patent is utilized in the state in which the taxpayer's |
26 | commercial domicile is located. |
27 | (C) A copyright is utilized in a state to the extent that |
28 | printing or other publication originates in the state. If the |
29 | basis of receipts from copyright royalties does not permit |
30 | allocation to states or if the accounting procedures do not |
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1 | reflect states of utilization, the copyright is utilized in the |
2 | state in which the taxpayer's commercial domicile is located. |
3 | (9) (A) Except as provided in subparagraph (B): |
4 | (i) For taxable years beginning before January 1, 2007, all |
5 | business income shall be apportioned to this State by |
6 | multiplying the income by a fraction, the numerator of which is |
7 | the property factor plus the payroll factor plus three times the |
8 | sales factor and the denominator of which is five. |
9 | (ii) For taxable years beginning after December 31, 2006, |
10 | all business income shall be apportioned to this State by |
11 | multiplying the income by a fraction, the numerator of which is |
12 | the sum of fifteen times the property factor, fifteen times the |
13 | payroll factor and seventy times the sales factor and the |
14 | denominator of which is one hundred. |
15 | (iii) For taxable years beginning after December 31, 2008, |
16 | all business income shall be apportioned to this State by |
17 | multiplying the income by a fraction, the numerator of which is |
18 | the sum of eight and a half times the property factor, eight and |
19 | a half times the payroll factor and eighty-three times the sales |
20 | factor and the denominator of which is one hundred. |
21 | (iv) For taxable years beginning after December 31, 2009, |
22 | all business income shall be apportioned to this State by |
23 | multiplying the income by a fraction, the numerator of which is |
24 | the sum of five times the property factor, five times the |
25 | payroll factor and ninety times the sales factor and the |
26 | denominator of which is one hundred. |
27 | (B) For purposes of apportionment of the capital stock - |
28 | franchise tax as provided in section 602 of Article VI of this |
29 | act, the apportionment fraction shall be the property factor |
30 | plus the payroll factor plus the sales factor as the numerator, |
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1 | and the denominator shall be three. |
2 | (10) The property factor is a fraction, the numerator of |
3 | which is the average value of the taxpayer's real and tangible |
4 | personal property owned or rented and used in this State during |
5 | the tax period and the denominator of which is the average value |
6 | of all the taxpayer's real and tangible personal property owned |
7 | or rented and used during the tax period but shall not include |
8 | the security interest of any corporation as seller or lessor in |
9 | personal property sold or leased under a conditional sale, |
10 | bailment lease, chattel mortgage or other contract providing for |
11 | the retention of a lien or title as security for the sales price |
12 | of the property. |
13 | (11) Property owned by the taxpayer is valued at its |
14 | original cost. Property rented by the taxpayer is valued at |
15 | eight times the net annual rental rate. Net annual rental rate |
16 | is the annual rental rate paid by the taxpayer less any annual |
17 | rental rate received by the taxpayer from subrentals. |
18 | (12) The average value of property shall be determined by |
19 | averaging the values at the beginning and ending of the tax |
20 | period but the tax administrator may require the averaging of |
21 | monthly values during the tax period if reasonably required to |
22 | reflect properly the average value of the taxpayer's property. |
23 | (13) The payroll factor is a fraction, the numerator of |
24 | which is the total amount paid in this State during the tax |
25 | period by the taxpayer for compensation and the denominator of |
26 | which is the total compensation paid everywhere during the tax |
27 | period. |
28 | (14) Compensation is paid in this State if: |
29 | (A) The individual's service is performed entirely within |
30 | the State; |
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1 | (B) The individual's service is performed both within and |
2 | without this State, but the service performed without the State |
3 | is incidental to the individual's service within this State; or |
4 | (C) Some of the service is performed in this State and the |
5 | base of operations or if there is no base of operations, the |
6 | place from which the service is directed or controlled is in |
7 | this State, or the base of operations or the place from which |
8 | the service is directed or controlled is not in any state in |
9 | which some part of the service is performed, but the |
10 | individual's residence is in this State. |
11 | (15) The sales factor is a fraction, the numerator of which |
12 | is the total sales of the taxpayer in this State during the tax |
13 | period, and the denominator of which is the total sales of the |
14 | taxpayer everywhere during the tax period. |
15 | (16) Sales of tangible personal property are in this State |
16 | if the property is delivered or shipped to a purchaser, within |
17 | this State regardless of the f.o.b. point or other conditions of |
18 | the sale. |
19 | (17) Sales, other than sales of tangible personal property |
20 | and sales set forth under paragraphs (17.1) and (17.2), are in |
21 | this State if: |
22 | (A) The income-producing activity is performed in this |
23 | State; or |
24 | (B) The income-producing activity is performed both in and |
25 | outside this State and a greater proportion of the income- |
26 | producing activity is performed in this State than in any other |
27 | state, based on costs of performance. |
28 | (17.1) Sales of services are in this State if sales are |
29 | derived from customers within this State. If part of the sales |
30 | with respect to a specific contract or other agreement to |
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1 | perform services is derived from customers from within this |
2 | State, sales are in this State in proportion to the sales |
3 | derived from customers within this State to total sales with |
4 | respect to that contract or agreement. |
5 | (17.2) In order to determine sales in this State of any |
6 | railroad, truck, bus, airline, pipeline, natural gas or water |
7 | transportation company that is required to determine its |
8 | business income under paragraph (1) of phrase (e) of this |
9 | subclause the company must convert the relevant fraction set |
10 | forth under phrase (b), (c) or (d) of this subclause to gross |
11 | receipts. Sales in this State are the result of multiplying |
12 | total gross receipts from relevant transportation activities by |
13 | the decimal equivalent of the relevant fraction set forth under |
14 | phrase (b), (c) or (d) of this subclause. |
15 | (18) If the allocation and apportionment provisions of this |
16 | definition do not fairly represent the extent of the taxpayer's |
17 | business activity in this State, the taxpayer may petition the |
18 | Secretary of Revenue or the Secretary of Revenue may require, in |
19 | respect to all or any part of the taxpayer's business activity: |
20 | (A) Separate accounting; |
21 | (B) The exclusion of any one or more of the factors; |
22 | (C) The inclusion of one or more additional factors which |
23 | will fairly represent the taxpayer's business activity in this |
24 | State; or |
25 | (D) The employment of any other method to effectuate an |
26 | equitable allocation and apportionment of the taxpayer's income. |
27 | In determining the fairness of any allocation or apportionment, |
28 | the Secretary of Revenue may give consideration to the |
29 | taxpayer's previous reporting and its consistency with the |
30 | requested relief. |
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1 | * * * |
2 | (e) Corporations That are Members of a Unitary Business. |
3 | (1) Notwithstanding any contrary provisions of this article, |
4 | for taxable years that begin on or after January 1, 2012, |
5 | business income of a corporation that is a member of a unitary |
6 | business that consists of two or more corporations, at least one |
7 | of which does not transact its entire business in this State, is |
8 | determined by combining the business income of either all |
9 | corporations, other than as provided under this paragraph, that |
10 | are water's-edge basis members or all corporations, other than |
11 | as provided under this paragraph, that are worldwide members of |
12 | the unitary business. Business income from an intercompany |
13 | transaction between included corporations of a unitary business |
14 | shall be deferred in the manner set forth under 26 CFR 1.1502-13 |
15 | (relating to intercompany transactions) in determining the |
16 | business income of a corporation that is a member of that |
17 | unitary business. Business income of the following corporations |
18 | is not included in the determination of combined business |
19 | income: |
20 | (i) any corporation subject to taxation under Article VII, |
21 | VIII, IX or XV; |
22 | (ii) any corporation specified in the definition of |
23 | "institution" in section 701.5 that would be subject to taxation |
24 | under Article VII if it was located, as defined in section |
25 | 701.5, in this State; |
26 | (iii) any corporation commonly known as a title insurance |
27 | company that would be subject to taxation under Article VIII if |
28 | it was incorporated in this State; |
29 | (iv) any corporation specified as an insurance company, |
30 | association or exchange in Article IX that would be subject to |
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1 | taxation under Article IX if its insurance business was |
2 | transacted in this State; |
3 | (v) any corporation specified in the definition of |
4 | "institution" in section 1501 that would be subject to taxation |
5 | under Article XV if it was located, as defined in section 1501, |
6 | in this State; or |
7 | (vi) any corporation that is a small corporation, as defined |
8 | in section 301(s.2), or a qualified Subchapter S subsidiary, as |
9 | defined in section 301(o.3). |
10 | (2) Notwithstanding any contrary provisions of this article, |
11 | all corporations that are required to compute business income |
12 | under paragraph (1) are entitled to apportion the business |
13 | income when one corporation of the same unitary business is |
14 | entitled to apportion the business income. Notwithstanding any |
15 | contrary provisions of this article, for taxable years that |
16 | begin on or after January 1, 2012, the denominator of the |
17 | apportionment fraction of a corporation that is required to |
18 | compute its business income under paragraph (1) shall be |
19 | computed on a combined basis for all included corporations of |
20 | the unitary business. Gross receipts from an intercompany |
21 | transaction between included corporations of a unitary business |
22 | shall be eliminated unless the gross receipts are derived from |
23 | transactions that are deferred in the manner set forth under 26 |
24 | CFR 1.1502-13 in computing the numerator and denominator of the |
25 | apportionment fraction of a corporation that is required to |
26 | compute its business income under paragraph (1). Gross receipts |
27 | from transactions that had been deferred in the manner set forth |
28 | under 26 CFR 1.1502-13 are included in a corporation's |
29 | apportionment fraction during the same taxable year that it |
30 | realizes business income that had been deferred due to the |
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1 | transaction. The apportionment fraction of the following |
2 | corporations shall not be included in the determination of the |
3 | combined apportionment fraction: |
4 | (i) any corporation subject to taxation under Article VII, |
5 | VIII, IX or XV; |
6 | (ii) any corporation specified in the definition of |
7 | "institution" in section 701.5 that would be subject to taxation |
8 | under Article VII if it was located, as defined in section |
9 | 701.5, in this State; |
10 | (iii) any corporation commonly known as a title insurance |
11 | company that would be subject to taxation under Article VIII if |
12 | it was incorporated in this State; |
13 | (iv) any corporation specified as an insurance company, |
14 | association or exchange in Article IX that would be subject to |
15 | taxation under Article IX if its insurance business was |
16 | transacted in this State; |
17 | (v) any corporation specified in the definition of |
18 | "institution" in section 1501 that would be subject to taxation |
19 | under Article XV if it was located, as defined in section 1501, |
20 | in this State; |
21 | (vi) any corporation that is a small corporation, as defined |
22 | in section 301(s.2), or a qualified Subchapter S subsidiary, as |
23 | defined in section 301(o.3). |
24 | (3) A corporation that is required to compute its business |
25 | income under paragraph (1) shall apportion the combined business |
26 | income by multiplying the combined business income by a fraction |
27 | which is the combined apportionment fraction set forth under |
28 | paragraph (2). |
29 | (4) Nonbusiness income of a corporation that is required to |
30 | compute business income under paragraph (1) shall be allocated |
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1 | as provided in paragraphs (5), (6), (7) and (8) of phrase (a) of |
2 | subclause 2 of the definition of "taxable income." |
3 | (5) Each corporation that is a member of a unitary business |
4 | that consists of two or more corporation shall determine its tax |
5 | liability based on its apportioned share of the combined |
6 | business income of the unitary business plus its nonbusiness |
7 | income or loss allocated to this State, minus its net loss |
8 | deduction. |
9 | (6) If any provision of this phrase operates so that an |
10 | amount is added to or deducted from taxable income for a taxable |
11 | year for any corporation of a unitary business that previously |
12 | had been added to or deducted from taxable income of any |
13 | corporation of the same unitary business, an appropriate |
14 | adjustment shall be made for the taxable year in order to |
15 | prevent double taxation or double deduction. If this adjustment |
16 | is not made by the appropriate corporation of the unitary |
17 | business, the Secretary of Revenue is authorized to make this |
18 | adjustment. |
19 | (7) The Secretary of Revenue shall have the authority and |
20 | responsibility to make adjustments to insure that a corporation |
21 | does not incur an unfair penalty nor realize an unfair benefit |
22 | because it is required to compute its business income under |
23 | paragraph (1). Fairness shall be measured by whether the |
24 | corporation's income allocated and apportioned to this State |
25 | fairly reflects the corporation's share of the unitary business |
26 | conducted in this State in the taxable year. |
27 | * * * |
28 | (5) "Taxable year." [The] 1. Except as set forth in |
29 | subclause 2, the taxable year which the corporation, or any |
30 | consolidated group with which the corporation participates in |
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1 | the filing of consolidated returns, actually uses in reporting |
2 | taxable income to the Federal Government[.], or which the |
3 | corporation would have used in reporting taxable income to the |
4 | Federal Government had it been required to report its taxable |
5 | income to the Federal Government. With regard to the tax imposed |
6 | by Article IV of this act (relating to the Corporate Net Income |
7 | Tax), the terms "annual year," "fiscal year," "annual or fiscal |
8 | year," "tax year" and "tax period" shall be the same as the |
9 | corporation's taxable year, as defined in this [paragraph.] |
10 | subclause or subclause 2. |
11 | 2. All corporations of a unitary business shall have a |
12 | common taxable year for purposes of computing tax due under this |
13 | article. The taxable year for the purposes shall be the common |
14 | taxable year adopted, in a manner prescribed by the department, |
15 | by all corporations of a unitary business. The common taxable |
16 | year must be used by all corporations of that unitary business |
17 | in the year of adoption and all future years unless otherwise |
18 | permitted by the department. |
19 | * * * |
20 | (8) "Tax haven." A jurisdiction that at the beginning of a |
21 | taxable year is a tax haven as identified by the Organization |
22 | for Economic Co-operation and Development, plus the |
23 | sovereignties of Bermuda, the Cayman Islands, the Bailiwick of |
24 | Jersey and the Grand Duchy of Luxembourg. |
25 | (9) "Unitary business." A single economic enterprise that |
26 | is made up of separate parts of a single corporation, of a |
27 | commonly controlled group of corporations, or both, that are |
28 | sufficiently interdependent, integrated and interrelated through |
29 | their activities so as to provide a synergy and mutual benefit |
30 | that produces a sharing or exchange of value among them and a |
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1 | significant flow of value to the separate parts. A unitary |
2 | business shall include only those parts and corporations which |
3 | may be included as a unitary business under the Constitution of |
4 | the United States. |
5 | (10) "Water's-edge basis." A system of reporting that |
6 | includes the business income and apportionment factor of certain |
7 | corporations of a unitary business, described as follows: |
8 | 1. The business income and apportionment factor of any |
9 | member incorporated in the United States or formed under the |
10 | laws of any state of the United States, the District of |
11 | Columbia, any territory or possession of the United States or |
12 | the Commonwealth of Puerto Rico. |
13 | 2. The business income and apportionment factor of any |
14 | member, regardless of the place incorporated or formed, if the |
15 | average of its property, payroll and sales factors within the |
16 | United States is twenty per cent or more. |
17 | 3. The business income and apportionment factor of any |
18 | member which is a domestic international sales corporation as |
19 | described in sections 991, 992, 993 and 994 of the Internal |
20 | Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §§ 991, 992, |
21 | 993 and 994); a foreign sales corporation as described in former |
22 | sections 921, 922, 923, 924, 925, 926 and 927 of the Internal |
23 | Revenue Code of 1986 (formerly 26 U.S.C. §§ 921, 922, 923, 924, |
24 | 925, 926 and 927); or any member which is an export trade |
25 | corporation, as described in sections 970 and 971 of the |
26 | Internal Revenue Code of 1986 (26 U.S.C. §§ 970 and 971). |
27 | 4. Any member not described in subclauses 1, 2 and 3 shall |
28 | include the portion of its business income derived from or |
29 | attributable to sources within the United States, as determined |
30 | under the Internal Revenue Code of 1986 without regard to |
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1 | Federal treaties, and its apportionment factor related thereto. |
2 | 5. Any member that is a "controlled foreign corporation" as |
3 | defined in section 957 of the Internal Revenue Code of 1986 (26 |
4 | U.S.C. § 957), to the extent the business income of that member |
5 | is income defined in section 952 of the Internal Revenue Code of |
6 | 1986 (26 U.S.C. § 952), Subpart F income, not excluding lower- |
7 | tier subsidiaries' distributions of the income which were |
8 | previously taxed, determined without regard to Federal treaties, |
9 | and the apportionment factor related to that income; any item of |
10 | income received by a controlled foreign corporation and the |
11 | apportionment factor related to the income shall be excluded if |
12 | the corporation establishes to the satisfaction of the Secretary |
13 | of Revenue that the income was subject to an effective rate of |
14 | income tax imposed by a foreign country greater than ninety per |
15 | cent of the maximum rate of tax specified in section 11 of the |
16 | Internal Revenue Code of 1986 (26 U.S.C. § 11). The effective |
17 | rate of income tax determination shall be based upon the |
18 | methodology set forth under 26 CFR 1.954-1 (relating to foreign |
19 | base company income). |
20 | 6. The business income and apportionment factor of any |
21 | member that is not described in subclause 1, 2, 3, 4 and 5 and |
22 | that is doing business in a tax haven. The business income and |
23 | apportionment factor of a corporation doing business in a tax |
24 | haven shall be excluded if the corporation establishes to the |
25 | satisfaction of the Secretary of Revenue that its income was |
26 | subject to an effective rate of income tax imposed by a country |
27 | greater than ninety per cent of the maximum rate of tax |
28 | specified in section 11 of the Internal Revenue Code of 1986 (26 |
29 | U.S.C. § 11). |
30 | (11) "Commonly controlled group." For a corporation, the |
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1 | corporation is a member of a group of two or more corporations |
2 | and more than fifty per cent of the voting stock of each member |
3 | of the group is directly or indirectly owned by a common owner |
4 | or by common owners, either corporate or noncorporate, or by one |
5 | or more of the member corporations of the group. |
6 | (12) "Separate company." A corporation that is not a member |
7 | of a unitary business that consists of two or more corporations. |
8 | (13) "Tax." Includes interest, penalties and additions to |
9 | tax unless a more limited meaning is disclosed by the context. |
10 | Section 2. Section 402(b) of the act, amended June 29, 2002 |
11 | (P.L.559, No.89), is amended to read: |
12 | Section 402. Imposition of Tax.--* * * |
13 | (b) The annual rate of tax on corporate net income imposed |
14 | by subsection (a) for taxable years beginning for the calendar |
15 | year or fiscal year on or after the dates set forth shall be as |
16 | follows: |
17 | Taxable Year | Tax Rate | 18 19 | [January 1, 1995, and each taxable year thereafter | 9.99%] | 20 21 22 | January 1, 1995, through taxable years ending December 31, 2011 | 9.99% | 23 24 25 | January 1, 2012, to December 31, 2012, and each taxable year thereafter | 7.50% |
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26 | * * * |
27 | Section 3. Section 403 of the act is amended by adding |
28 | subsections to read: |
29 | Section 403. Reports and Payment of Tax.--* * * |
30 | (a.1) (1) Each corporation subject to tax under this |
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1 | article shall file an annual report in accordance with this |
2 | section. Each corporation that is a member of a unitary business |
3 | that consists of two or more corporations, unless excluded by |
4 | the provisions of this article, shall file as part of a combined |
5 | annual report. The corporations of the unitary business shall |
6 | designate one member that is subject to tax under this article |
7 | to file the combined annual report and to act as agent on behalf |
8 | of all other corporations that are members of the unitary |
9 | business. Each corporation that is a member of a unitary |
10 | business shall be responsible for its tax liability under this |
11 | article. |
12 | (2) The oath or affirmation of the designated member's |
13 | president, vice president or other principal officer, and of its |
14 | treasurer or assistant treasurer shall constitute the oath or |
15 | affirmation of each corporation that is a member of that unitary |
16 | business. |
17 | (3) The designated member shall transmit to the department |
18 | upon a form prescribed by the department, an annual combined |
19 | report under oath or affirmation of its president, vice |
20 | president or other principal officer, and of its treasurer or |
21 | assistant treasurer. The report shall set forth: |
22 | (i) All corporations included in the unitary business. |
23 | (ii) All necessary data, both in the aggregate and for each |
24 | corporation of the unitary business, that sets forth the |
25 | determination of tax liability for each corporation of the |
26 | unitary business. |
27 | (iii) Any other information that the department may require. |
28 | (a.2) (1) Activities that evidence a significant flow of |
29 | value among commonly controlled corporations shall include the |
30 | following: |
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1 | (i) Assisting in the acquisition of equipment. |
2 | (ii) Assisting with filling personnel needs. |
3 | (iii) Lending funds or guaranteeing loans. |
4 | (iv) Interplay in the area of corporate expansion. |
5 | (v) Providing technical assistance. |
6 | (vi) Supervising. |
7 | (vii) Providing general operational guidance. |
8 | (viii) Providing overall operational strategic advice. |
9 | (ix) Common use of trade names and patents. |
10 | (2) Significant flow of value must be more than the flow of |
11 | funds arising out of passive investment and shall consist of |
12 | more than periodic financial oversight. |
13 | (a.3) (1) With respect to a commonly controlled group of |
14 | corporations, the presence of any of these factors creates a |
15 | presumption of a unitary business: |
16 | (i) Corporations engaged in the same type of business. |
17 | (ii) Corporations engaged in different steps in a vertically |
18 | structured enterprise. |
19 | (iii) Strong centralized management of corporations. |
20 | (2) A corporation newly formed by a corporation that is a |
21 | member of a unitary business is rebuttably presumed to be a |
22 | member of the unitary business. |
23 | (3) A corporation that owns a controlling interest in two or |
24 | more corporations of a unitary business is rebuttably presumed |
25 | to be a member of the unitary business. |
26 | (4) A corporation that permits one or more other |
27 | corporations of a unitary business to substantially use its |
28 | patents, trademarks, service marks, logo-types, trade secrets, |
29 | copyrights or other proprietary assets or that is principally |
30 | engaged in loaning money to one or more other corporations of a |
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1 | unitary business is rebuttably presumed to be a member of the |
2 | unitary business. This presumption only applies to a commonly |
3 | controlled group of corporations. |
4 | (a.4) As far as applicable to a specific unitary business, |
5 | unless there is a revision of applicable State law or unless a |
6 | corporation is not included under the provisions of this |
7 | article, there is a rebuttable presumption for all tax years |
8 | that begin in years 2012 and 2013 that a unitary business of two |
9 | or more corporations includes at least all corporations that are |
10 | part of a unitary business under the law of any state of the |
11 | United States in which the corporation files a tax report or tax |
12 | return of combined net income for the same tax year. |
13 | (a.5) Unless an election is made to use a worldwide basis of |
14 | accounting, a corporation that is a member of a unitary business |
15 | of two or more corporations must determine its business income |
16 | and apportionment factor upon a water's-edge basis. This basis |
17 | shall apply to all corporations of the unitary business. If an |
18 | election is made to use a worldwide basis of accounting, all |
19 | corporations of the unitary business must make the election, |
20 | upon a form, prescribed, prepared and furnished by the |
21 | department. This election shall bind all corporations of the |
22 | unitary business for the period of time that the election |
23 | remains in effect. An initial election is binding for a period |
24 | of seven years. Subsequent elections shall be binding for a |
25 | period of five years. |
26 | * * * |
27 | Section 4. Section 404 of the act is amended to read: |
28 | Section 404. Consolidated Reports.--The department shall not |
29 | permit any corporation owning or controlling, directly or |
30 | indirectly, any of the voting capital stock of another |
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1 | corporation or of other corporations, subject to the provisions |
2 | of this article, to make a consolidated report[, showing the |
3 | combined net income]. |
4 | Section 5. Section 3003.3(d) of the act, amended October 18, |
5 | 2006 (P.L.1149, No.119), is amended and the section is amended |
6 | by adding subsections to read: |
7 | Section 3003.3. Underpayment of Estimated Tax.--* * * |
8 | (d) Notwithstanding the provisions of the preceding |
9 | subsections, other than as set forth under subsection (d.1), |
10 | interest with respect to any underpayment of any installment of |
11 | estimated tax shall not be imposed if the total amount of all |
12 | payments of estimated tax made on or before the last date |
13 | prescribed for the payment of such installment equals or exceeds |
14 | the amount which would have been required to be paid on or |
15 | before such date if the estimated tax were an amount equal to |
16 | the tax computed at the rates applicable to the taxable year, |
17 | including any minimum tax imposed, but otherwise on the basis of |
18 | the facts shown on the report of the taxpayer for, and the law |
19 | applicable to, the safe harbor base year, adjusted for any |
20 | changes to sections 401, 601, 602 and 1101 enacted for the |
21 | taxable year, if a report showing a liability for tax was filed |
22 | by the taxpayer for the safe harbor base year. If the total |
23 | amount of all payments of estimated tax made on or before the |
24 | last date prescribed for the payment of such installment does |
25 | not equal or exceed the amount required to be paid per the |
26 | preceding sentence, but such amount is paid after the date the |
27 | installment was required to be paid, then the period of |
28 | underpayment shall run from the date the installment was |
29 | required to be paid to the date the amount required to be paid |
30 | per the preceding sentence is paid. Provided, that if the total |
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1 | tax for the safe harbor base year exceeds the tax shown on such |
2 | report by ten per cent or more, the total tax adjusted to |
3 | reflect the current tax rate shall be used for purposes of this |
4 | subsection. In the event that the total tax for the safe harbor |
5 | base year exceeds the tax shown on the report by ten per cent or |
6 | more, interest resulting from the utilization of such total tax |
7 | in the application of the provisions of this subsection shall |
8 | not be imposed if, within forty-five days of the mailing date of |
9 | each assessment, payments are made such that the total amount of |
10 | all payments of estimated tax equals or exceeds the amount which |
11 | would have been required to be paid on or before such date if |
12 | the estimated tax were an amount equal to the total tax adjusted |
13 | to reflect the current tax rate. In any case in which the |
14 | taxable year for which an underpayment of estimated tax may |
15 | exist is a short taxable year, in determining the tax shown on |
16 | the report or the total tax for the safe harbor base year, the |
17 | tax will be reduced by multiplying it by the ratio of the number |
18 | of installment payments made in the short taxable year to the |
19 | number of installment payments required to be made for the full |
20 | taxable year. |
21 | (d.1) (1) Notwithstanding subsections (a), (b) and (c), |
22 | interest with respect to any underpayment of any installment of |
23 | estimated corporate net income tax for any tax year that begins |
24 | in year 2012 or 2013 shall not be imposed if the total amount of |
25 | all payments of estimated corporate net income tax made on or |
26 | before the last date prescribed for the payment of the |
27 | installment equals or exceeds the amount which would have been |
28 | required to be paid on or before that date if the estimated tax |
29 | were an amount equal to the tax shown on the report of the |
30 | taxpayer for the safe harbor base year, if a report showing a |
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1 | liability for tax was filed by the taxpayer for the safe harbor |
2 | base year. |
3 | (2) If the total amount of all payments of estimated tax |
4 | made on or before the last date prescribed for the payment of |
5 | the installment does not equal or exceed the amount required to |
6 | be paid under paragraph (1), but the amount is paid after the |
7 | date the installment was required to be paid, the period of |
8 | underpayment shall run from the date the installment was |
9 | required to be paid to the date the amount required to be paid |
10 | under paragraph (1) is paid. |
11 | (3) If the total tax for the safe harbor base year exceeds |
12 | the tax shown on the report by ten per cent or more, the total |
13 | tax shall be used for purposes of this subsection. If the total |
14 | tax for the safe harbor base year exceeds the tax shown on the |
15 | report by ten per cent or more, interest resulting from the |
16 | utilization of the total tax in the application of the |
17 | provisions of this subsection shall not be imposed if, within |
18 | forty-five days of the mailing date of a notice from the |
19 | department increasing the total tax, payments are made such that |
20 | the total amount of all payments of estimated tax equals or |
21 | exceeds the amount which would have been required to be paid on |
22 | or before the date if the estimated tax were an amount equal to |
23 | the total tax. |
24 | (4) If the taxable year for which an underpayment of |
25 | estimated tax may exist is a short taxable year, in determining |
26 | the tax shown on the report or the total tax for the safe harbor |
27 | base year, the tax shall be reduced by multiplying it by the |
28 | ratio of the number of installment payments made in the short |
29 | taxable year to the number of installment payments required to |
30 | be made for the full taxable year. |
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1 | (d.2) (1) If there is a substantial underpayment, as |
2 | defined in subsection (a), of any installment of estimated |
3 | corporate net income tax or estimated capital stock/franchise |
4 | tax for any taxable year beginning in 2012 or 2013, there shall |
5 | be imposed additional interest in an amount determined at one |
6 | hundred twenty per cent of the annual rate as provided by law |
7 | upon the entire underpayment for the period of the substantial |
8 | underpayment. |
9 | (2) The additional interest imposed under this subsection |
10 | shall be in addition to any other interest imposed on |
11 | underpayments under this section. |
12 | Section 6. The amendment or addition of the following |
13 | provisions shall apply to taxable years beginning after December |
14 | 31, 2011: |
15 | (1) Section 401(3)1(a) and (b) and 2(a) and (e), (5), |
16 | (8), (9), (10), (11), (12) and (13) of the act. |
17 | (2) Section 402(b) of the act. |
18 | (3) Section 403(a.1), (a.2), (a.3), (a.4) and (a.5) of |
19 | the act. |
20 | (4) Section 404 of the act. |
21 | (5) Section 3003.3(d), (d.1) and (d.2) of the act. |
22 | Section 7. This act shall take effect immediately. |
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