THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY DINNIMAN, STACK, SCHWANK, WASHINGTON, BLAKE, BOSCOLA, BREWSTER, COSTA, ERICKSON, FONTANA, WILLIAMS AND TARTAGLIONE, OCTOBER 24, 2011

REFERRED TO FINANCE, OCTOBER 24, 2011  

AN ACT

Amending Title 12 (Commerce and Trade) of the Pennsylvania

Consolidated Statutes, further providing for Keystone

Innovation Zone tax credits; and providing for research and

development tax credits for KIZ companies, for KIZ company

corporate net income tax net loss deduction transfer program

and for KIZ company tax credits for new jobs.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Section 3706(d) of Title 12 of the Pennsylvania

Consolidated Statutes is amended to read:

§ 3706.  Keystone innovation zone tax credits.

* * *

(d)  Application of tax credit and election.--[A]

(1)  Except as set forth in paragraph (2), a tax credit

approved under this section must be first applied against the

KIZ company's tax liability 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, for the taxable year during which the

tax credit is approved. If the amount of tax liability owed

by the KIZ company is less than the amount of the tax credit,

the KIZ company may elect to carry forward the amount of the

remaining tax credit for a period not to exceed four

additional taxable years and to apply the credit against tax

liability incurred during those tax years; or the KIZ company

may elect to sell or assign a portion of the tax credit in

accordance with the provisions of subsection (f). A KIZ

company may not carry back or obtain a refund of an unused

keystone innovation zone tax credit.

(2)  A KIZ company that is approved for a tax credit

under this section may elect not to apply the credit against

the KIZ company's tax liability as prescribed in this

subsection if the KIZ company submitted with its tax credit

application a current tax lien certificate issued by the

department showing that the KIZ company has no unpaid tax

liability due to the Commonwealth or a political subdivision.

A KIZ company that submitted a current tax lien certificate

with its application and is awarded a credit under this

section may immediately sell or assign the tax credit under

subsection (f).

* * *

Section 2.  Title 12 is amended by adding sections to read:

§ 3706.1.  Research and development tax credits for KIZ

companies.

In addition to the provisions of Article XVII-B of the act of

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

1971, the following shall apply to research and development tax

credits awarded to KIZ companies:

(1)  Notwithstanding any other provision of the Tax

Reform Code of 1971, a KIZ company that is approved for a

research and development tax credit under Article XVII-B of

the Tax Reform Code of 1971 may elect not to apply the credit

against the KIZ company's qualified tax liability, as defined

in section 1702-B of the Tax Reform Code of 1971, if the

company submitted with its research and development tax

credit application a current tax lien certificate issued by

the department showing that the KIZ company has no unpaid tax

liability due to the Commonwealth or its political

subdivisions. A KIZ company that submitted a current tax lien

certificate with its application and is awarded a credit

under Article XVII-B of the Tax Reform Code of 1971 may

immediately sell or assign the tax credit in accordance with

section 3706(f) (relating to keystone innovation zone tax

credits).

(2)  The purchaser or assignee of a research and

development tax credit from a KIZ company also may claim the

tax credit against tax liability of the purchaser or assignee

under Article VII, VIII, IX or XV of the Tax Reform Code of

1971.

§ 3706.2.  KIZ company corporate net income tax net loss

deduction transfer program.

(a)  Establishment.--The department shall establish a

corporate net income tax net loss deduction transfer program for

KIZ companies. The program shall allow KIZ companies in this

Commonwealth with unused net loss carryover deductions under

section 401 of the act of March 4, 1971 (P.L.6, No.2), known as

the Tax Reform Code of 1971, to transfer, in exchange for

private financial assistance, those unused deductions to other

corporate net income taxpayers in this Commonwealth, provided

that the taxpayer receiving the unused deductions is not

affiliated with the KIZ company that is surrendering its unused

deductions.  

(b)  Affiliation.--For the purposes of subsection (a), the

test of affiliation is whether the same entity directly or

indirectly owns or controls 5% or more of the voting rights or

5% or more of the value of the classes of stock of both the

taxpayer receiving the unused deductions and the KIZ company

that is surrendering the unused deductions.  

(c)  Applications.--The department, in cooperation with the

Department of Revenue, shall accept, review and approve

applications by submitted KIZ companies. The application shall

be on the form prescribed by the department and must be received

on or before November 30 of each fiscal year.

(d)  Contents of application.--At a minimum, the application

shall include:

(1)  The name and tax identification number of the

applicant.

(2)  The name, location and tax identification number of

the corporate net income taxpayer that will acquire the

corporate net income tax net loss deduction transfer

certificate from the applicant.

(3)  The total amount of the corporate net income tax net

loss deduction the applicant seeks to transfer.

(4)  A brief description of the applicant's KIZ company.  

(5)  A statement that the applicant is not prohibited

from participating in the program based on subsection (f).

(6)  A brief summary of the intended use of the private

financial assistance to be received by the applicant under

subsection (h).

(7)  Any other information deemed relevant by the

department.

(e)  Approvals.--Approvals of applications filed under

subsection (c) shall be issued in the form of corporate net

income tax net loss deduction transfer certificates. A corporate

net income tax net loss deduction transfer certificate shall not

be issued unless the applicant certifies that as of the date of

the receipt of the corporate net income tax net loss deduction

transfer certificate it is operating as a KIZ company and has no

current intention to cease operating as a KIZ company.  

(f)  Prohibitions.--No application for a corporate net income

tax net loss deduction transfer shall be approved if the KIZ

company:

(1)  has demonstrated positive net operating income in

any of the two previous full years of ongoing operations as

determined on its financial statements issued according to

generally accepted accounting standards; or

(2)  is directly or indirectly at least 50% owned or

controlled by another corporation that has demonstrated

positive net operating income in any of the two previous full

years of ongoing operations as determined on its financial

statements issued according to generally accepted accounting

standards or is part of a consolidated group of affiliated

corporations, as filed for Federal income tax purposes, that

in the aggregate has demonstrated positive net operating

income in any of the two previous full years of ongoing

operations as determined on its combined financial statements

issued according to generally accepted accounting standards.

(g)  Carryover, carryback and refund of corporate net income

tax net operating loss deduction transfer certificate.--The

following shall apply:

(1)  A corporate net income tax net loss deduction

transfer certificate approved by the department in a taxable

year first shall be applied against recipient taxpayer's

corporate net income tax liability under Article IV of the

Tax Reform Code of 1971 for the current taxable year as of

the date on which the certificate was received.

(2)  If the recipient of a corporate net income tax net

loss deduction transfer certificate cannot use the entire

amount of the certificate for the taxable year in which the

certificate is first approved, then the excess may be carried

over to succeeding taxable years and used against the

qualified tax liability of the taxpayer for those taxable

years. Each time the tax certificate is carried over to a

succeeding taxable year, it shall be reduced by the amount

that was used during the immediately preceding taxable year.

The certificate may be carried over and applied to succeeding

taxable years for no more than three taxable years following

the first taxable year for which the taxpayer received the

certificate.

(3)  A recipient taxpayer is not entitled to carry back,

assign or obtain a refund of all or any portion of an unused

corporate net income tax net operating loss deduction

transfer certificate granted to the taxpayer under this 

chapter.

(h)  Use of private financial assistance.--

(1)  Private financial assistance shall assist in funding

expenses incurred in connection with the operation of the KIZ

company, including, but not limited to, the expenses of fixed

assets, such as the construction, acquisition and development

of real estate, materials, start-up, tenant fit-out, working

capital, salaries, research and development expenditures and

other expenses determined by the department to be necessary

to carry out the purposes of this section.

(2)  The department shall require a corporate net income

taxpayer that acquires a corporate net income tax net loss

deduction transfer certificate to enter into a written

agreement with the KIZ company concerning the terms and

conditions of the private financial assistance made in

exchange for the certificate. The written agreement may

contain terms concerning the maintenance by the KIZ company

of a headquarters or a base of operation in this

Commonwealth.

(i)  Recapture.--The department, in consultation with the

Department of Revenue, shall establish rules for the recapture

of all of, or a portion of, the amount of a grant of a corporate

net income tax net loss deduction transfer from the KIZ company

having surrendered tax benefits under this section if the KIZ

company fails to use the private financial assistance received

for the surrender of tax benefits as required by this section or

fails to maintain a headquarters or a base of operation in this

Commonwealth during the five years following receipt of the

private financial assistance, except if the failure to maintain

a headquarters or a base of operation in this Commonwealth is

due to the liquidation of the KIZ company.

(j)  Annual report.--Not later than one year following the

effective date of this section, and for each succeeding year in

which a financial assistance agreement entered into under this

section is in effect, the department shall prepare a report on

the program. The report shall include, but need not be limited

to:

(1)  A description of the demand for the program from KIZ

companies and financial institutions.

(2)  The efforts made by the department to promote the

program.

(3)  The total amount of financial assistance approved by

the department under the program.

(4)  An assessment of the effectiveness of the program in

meeting the goals of this section.

(5)  Recommendations for legislation to improve the

effectiveness of the program.

The department shall submit its report to the Governor and the

General Assembly.

(k)  Limitations.--

(1)  In no case shall the department approve the transfer

of more than $25,000,000 in corporate net income tax net

operating loss deductions in a year.

(2)  The maximum lifetime value of net loss deduction

that a KIZ company shall be permitted to transfer is

$10,000,000.

(3)  If the total amount of transferable tax benefits

requested to be transferred by approved applicants exceeds

$25,000,000 in a year, the department, in cooperation with

the Department of Revenue, shall develop a formula to

allocate the transfer of tax benefits by approved companies,

provided that:

(i)  An eligible applicant with $250,000 or less of

transferable tax benefits shall be authorized to

surrender the entire amount of its transferable tax

benefits.

(ii)  An eligible applicant with more than $250,000

of transferable tax benefits shall be authorized to

surrender a minimum of $250,000 of its transferable tax

benefits.

§ 3706.3.  KIZ company tax credits for new jobs.

(a)  Sale or assignment.--Notwithstanding any other provision

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

Reform Code of 1971, upon application to and approval by the

department, a KIZ company that is approved for a tax credit for

new jobs under Article XVIII-B of the Tax Reform Code of 1971

may sell or assign, in whole or in part, a tax credit granted to

the KIZ company under the article. The department shall

establish guidelines for the approval of applications under this

section.

(b)  Purchaser or assignee.--The purchaser or assignee of a

portion of a tax credit under subsection (a) shall immediately

claim the credit in the taxable year in which the purchase or

assignment is made. The purchaser or assignee may claim the

credit against the tax liability of the purchaser or assignee

imposed under Article III, IV, VI, VII, VIII, IX or XV of the

Tax Reform Code of 1971. The credit may not be claimed against a

tax withheld by an employer from an employee under Article III

of the Tax Reform Code of 1971. The amount of the credit that a

purchaser or assignee may use against a tax liability may not

exceed 75% of the tax liability for the taxable year. The

purchaser or assignee may not carry over, carry back, obtain a

refund of or assign the tax credit. The purchaser or assignee

shall notify the Department of Revenue of the seller or assignor

of the tax credit in compliance with procedures specified by the

Department of Revenue.

Section 3.  This act shall take effect in 60 days.