THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY EARLL, FONTANA, GREENLEAF, VOGEL, PIPPY, WAUGH, GORDNER, McILHINNEY, BOSCOLA, COSTA, FERLO, BROWNE, YUDICHAK, BLAKE AND FARNESE, SEPTEMBER 29, 2011

SENATOR BRUBAKER, FINANCE, AS AMENDED, MAY 9, 2012   

AN ACT

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

Statutes is amended by adding a chapter to read:

CHAPTER 38

ANGEL INVESTMENT TAX CREDIT

Sec.

3801.  Scope of chapter.

3802.  Purpose.

3803.  Definitions.

3804.  Program established.

<--

3804 3805.  Credit for qualified investment.

<--

3805.  Carryover, application of tax credit 3806.  Application

<--

of tax credit, carryover, carryback, refund and

assignment.

3806 3807.  Time limitation.

<--

3807 3808.  Limitation on tax credits.

<--

3808 3809.  Shareholder, owner or member pass-through.

<--

3809 3810.  Repayment and penalty.

<--

3810 3811.  Reports.

<--

3811 3812.  Termination.

<--

3812 Regulations 3813. Guidelines.

<--

§ 3801.  Scope of chapter.

This chapter relates to angel investment tax credits.

§ 3802.  Purpose.

The purposes of this chapter are to:

(1)  Create a business environment in this Commonwealth

that attracts and encourages early stage financing which

creates business opportunities with the potential for high

growth.

(2)  Increase capital investment in this Commonwealth.

(3)  Encourage job creation in this Commonwealth.

§ 3803.  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 A person who comes within any of

<--

the following categories at the time qualified to claim an angel

investment tax credit:

(1)  Any A natural person whose individual net worth, or

<--

joint net worth with that individual's spouse exceeds

$1,000,000.

(2)  Any A natural person who had an 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 An entity in which all of the equity owners are

<--

accredited investors persons who satisfy paragraph (1) or

<--

(2), or both. For purposes of this paragraph an equity owner

shall mean the beneficial owner of equity securities or

equity interest in the entity.

"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. At a minimum the

business goals should indicate the potential for increasing jobs

in this Commonwealth and increasing and capital investment in

<--

this Commonwealth. A plan shall specify that it is based upon

the development or commercialization of intellectual property

for which either of the following apply:

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

patents) has been secured or is pending.

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

has been secured or is pending.

"Department."  The Department of Community and Economic

Development of the Commonwealth.

"Net worth."  The value of all long-term assets minus the

<--

value of all liabilities of a person, except as follows:

(1)  the person's primary residence shall not be included

as an asset; and

(2)  indebtedness that is secured by the person's primary

residence, up to the estimated fair market value of the

primary residence at the time qualified to claim an angel

investment tax credit, shall not be included as a liability,

except that if the amount of such indebtedness outstanding at

the time qualified to claim an angel investment tax credit

exceeds the amount outstanding 60 days before such time,

other than as a result of the acquisition of the primary

residence, the amount of such excess shall be included in a

liability.

"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 based on a

business plan that satisfies the following requirements all of

<--

the following:

(1)  The business is headquartered or establishes its

<--

headquarters in this Commonwealth prior to at the time the

<--

taxpayer is qualified to apply for an applies for the angel

<--

investment tax credit and for at least five years thereafter.

<--

(2)  The business maintains its headquarters in this

<--

Commonwealth for at least five years after the taxpayer

applied for the angel investment tax credit.

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

<--

business are employed in this Commonwealth at the time the

taxpayer is qualified to apply for an applies for the angel

<--

investment tax credit and for at least three years

thereafter.

(3) (4)  The business has fewer than 100 employees at the

<--

time the taxpayer is qualified to apply for an applies for

<--

the angel investment tax credit.

(4) (5)  The business has been in operation in this

<--

Commonwealth for not more than five consecutive years at the

time the taxpayer is qualified to apply for an applies for

<--

the angel investment tax credit.

(5) (6)  The business has not received, in aggregate, 

<--

more than $5,000,000, in the aggregate, in private equity

<--

investments at the time the taxpayer applies for the angel

<--

investment tax credit.

"Qualified investment."  A private equity interest in a for-

profit business acquired by the payment of money or its

equivalent, which is subject to approval by the Department of

Community and Economic Development for purposes of qualifying

for this tax credit by an accredited investor or a network of

accredited investors who review new businesses or a proposed

<--

business businesses for the purpose of making an initial or

<--

subsequent investment.

"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 a member, owner or

<--

shareholder 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."  An entity 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 a member, owner or shareholder of a

<--

pass-through entity that receives an angel investment tax

credit.

§ 3804.  Program established.

<--

The Angel Investment Tax Credit program is established in the

department.

§ 3804 3805.  Credit for qualified investment.

<--

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

investment in a taxable year may apply for a tax credit as

<--

provided under this chapter. The department, in consultation

with the Department of Revenue, shall establish appropriate 

application filing deadlines for tax credits in a manner that

<--

allows for the expeditious utilization of the tax credit by the

taxpayer. The application shall be submitted on a form required

by the department and must be accompanied by the business plan

which has been certified by the taxpayer applying for the tax

credit.

(b)  Approval.--The department may approve the application

upon being satisfied about the following:

(1)  Upon review of the application for a tax credit, the

department finds that all requirements have been met,

including the requirements of a qualified business venture

and any corresponding guidelines the department establishes

in the best interest of the Commonwealth.

(2)  The Department of Revenue finds that all taxpayers

applying for the tax credit have filed all required State tax

<--

reports and returns for all applicable taxable years and paid

applying for the tax credit have:

<--

(i)  filed all required State tax reports and returns

for all taxable years; and

(ii)  entered into a payment plan under which

payments have been maintained or paid any balance of

State tax due as determined at settlement, assessment or

<--

determination by the Department of Revenue.

(c)  Amount.--A taxpayer that is approved under subsection

(b) shall receive a tax credit for the taxable year in the

amount of 25% of the taxpayer's qualified investment in a

qualified business venture.

(d)  Notification.--By December 31 of the calendar year

following the close of the taxable year during which the

qualified investment was made, the department shall notify the

taxpayer of the amount of the taxpayer's tax credit approved by

the department.

§ 3805.  Carryover, application of tax credit 3806.  Application

<--

of tax credit, carryover, carryback, refund and

assignment.

(a)  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 (b).

(a) (b)  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

<--

(d)  Sale or assignment.--

<--

(1)  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

<--

this subsection.

<--

(2)  Before an application is approved, the Department of

Revenue shall make a finding that the applicant has filed all

<--

required State tax reports and returns for all applicable

taxable years and paid any balance of State tax due taxpayer

<--

and assignee, if any, have:

(i)  filed all required State tax reports and returns

for all taxable years; and

(ii)  entered into a payment plan under which

payments have been maintained or 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.

(f)  Taxpayer's adjusted basis in a qualified investment.--

<--

(1)  A taxpayer's adjusted basis in a qualified

investment must be reduced by an amount equal to the tax

credit approved under section 3805(c) (relating to credit for

qualified investment).

(2)  Except for the reduction in adjusted basis required

in paragraph (1), a taxpayer's adjusted basis in a qualified

investment is determined under the act of March 4, 1971

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

regulations promulgated thereunder.

§ 3806 3807.  Time limitation.

<--

A taxpayer shall not be entitled to a tax credit for

qualified investments incurred made in taxable years ending

<--

after December 31, 2021.

§ 3807 3808.  Limitation on tax credits.

<--

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

by the department in a fiscal year shall be equal to 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 each year.

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

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

§ 3808 3809.  Shareholder, owner or member pass-through.

<--

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

corporation does not have an eligible a qualified 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 a 

<--

qualified 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 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.

§ 3809 3810.  Repayment and penalty.

<--

(a)  Imposition.--Except as provided in subsection (b), the

department shall require the taxpayer to repay any tax credit

received and any monetary value received from the sale or

assignment, if any, of a tax credit and shall impose a penalty

<--

of 10% where it has been determined that the recipient taxpayer

<--

did not meet the requirements of the taxpayer's certified

qualified business plan or received such as the result of fraud

and false pretenses. based on the total amount of the tax credit

<--

received, where the department, in conjunction with the

Department of Revenue, determines that any of the following

conditions exists:

(1)  The qualified business venture did not satisfy the

requirements of the certified qualified business plan.

(2)  The business in which the taxpayer made the

qualified investment is no longer a qualified business

venture.

(3)  The taxpayer received the tax credit as a result of

fraud or false pretenses.

(b)  Exception.--The department may waive the repayment of a

tax credit or and any monetary value received from the sale or

<--

assignment, if any, of the tax credit and may waive the penalty

required in by subsection (a) if the department determines that

<--

the failure to meet the requirements of the certified qualified

business plan was due to circumstances outside the recipient

taxpayer's control.

§ 3810 3811.  Reports.

<--

(a)  Annual report to General Assembly.--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 credit,

<--

utilizing the tax credit as of the date of the report and, the

<--

amount of the 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 angel investment 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.

(b)  Reports to General Assembly.--The department shall

<--

submit a report to the 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 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 tax

credits, all taxpayers utilizing the tax credits, the amount of

tax credits approved and utilized by each taxpayer and the

locations of the qualified business awarded the tax credits. The

report and the information contained in it shall be considered a

public record.

§ 3811 3812.  Termination.

<--

The department shall not approve a tax credit for qualified

investments incurred made in taxable years ending after December

<--

31, 2021.

§ 3812.  Regulations.

<--

The secretary, in consultation with the Secretary of Revenue,

shall promulgate regulations necessary for the implementation

and administration of this chapter.

§ 3813.  Guidelines.

<--

The department, in conjunction 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.  This act shall take effect immediately.