1Amending Title 12 (Commerce and Trade) of the Pennsylvania
2Consolidated Statutes, providing for an angel investment tax
3credit.

4The General Assembly of the Commonwealth of Pennsylvania
5hereby enacts as follows:

6Section 1.  Title 12 of the Pennsylvania Consolidated
7Statutes is amended by adding a chapter to read:

8CHAPTER 38

9ANGEL INVESTMENT TAX CREDIT

10Sec.

113801.  Scope of chapter.

123802.  Purpose.

133803.  Definitions.

143804.  Program established.

153805.  Credit for qualified investment.

163806.  Application of tax credit, carryover, carryback, refund 
17and assignment.

183807.  Time limitation.

13808.  Limitation on tax credits.

23809.  Shareholder, owner or member pass-through.

33810.  Repayment and penalty.

43811.  Reports.

53812.  Termination.

63813.  Guidelines.

7§ 3801.  Scope of chapter.

8This chapter relates to angel investment tax credits.

9§ 3802.  Purpose.

10The purposes of this chapter are to:

11(1)  Create a business environment in this Commonwealth
12that attracts and encourages early stage financing which
13creates business opportunities with the potential for high
14growth.

15(2)  Increase capital investment in this Commonwealth.

16(3)  Encourage job creation in this Commonwealth.

17§ 3803.  Definitions.

18The following words and phrases, when used in this chapter,
19shall have the meanings given to them in this section, unless
20the context clearly indicates otherwise:

21"Accredited investor."  A person who comes within any of the 
22following categories at the time qualified to claim an angel 
23investment tax credit:

24(1)  A natural person whose individual net worth, or 
25joint net worth with that individual's spouse exceeds 
26$1,000,000.

27(2)  A natural person who had an individual income in 
28excess of $200,000 in each of the two most recent years or 
29joint income with that individual's spouse in excess of 
30$300,000 in each of those years and has a reasonable 

1expectation of reaching the same income level in the current 
2year.

3(3)  An entity in which all of the equity owners are 
4persons who satisfy paragraph (1) or (2), or both. For 
5purposes of this paragraph an equity owner shall mean the 
6beneficial owner of equity securities or equity interest in 
7the entity.

8"Business plan."  An outline of business structure and a 
9formal statement of business goals, including an explanation of 
10how the goals are anticipated to be achieved. At a minimum the 
11business goals should indicate the potential for increasing jobs 
12and capital investment in this Commonwealth. A plan shall 
13specify that it is based upon the development or 
14commercialization of intellectual property for which either of 
15the following apply:

16(1)  Patent protection under 35 U.S.C. (relating to
17patents) has been secured or is pending.

18(2)  A copyright under 17 U.S.C. (relating to copyrights)
19has been secured or is pending.

20"Department."  The Department of Community and Economic
21Development of the Commonwealth.

22"Net worth."  The value of all long-term assets minus the
23value of all liabilities of a person, except as follows:

24(1)  the person's primary residence shall not be included
25as an asset; and

26(2)  indebtedness that is secured by the person's primary
27residence, up to the estimated fair market value of the
28primary residence at the time qualified to claim an angel
29investment tax credit, shall not be included as a liability,
30except that if the amount of such indebtedness outstanding at

1the time qualified to claim an angel investment tax credit
2exceeds the amount outstanding 60 days before such time,
3other than as a result of the acquisition of the primary
4residence, the amount of such excess shall be included in a
5liability.

6"Pass-through entity."  A partnership as defined in section 
7301(n.0) of the act of March 4, 1971 (P.L.6, No.2), known as the 
8Tax Reform Code of 1971, or a Pennsylvania S corporation as 
9defined in section 301(n.1) of the Tax Reform Code of 1971.

10"Qualified business venture."  A business that is based on a 
11business plan that satisfies all of the following:

12(1)  The business is headquartered in this Commonwealth 
13at the time the taxpayer applies for the angel investment tax 
14credit.

15(2)  The business maintains its headquarters in this
16Commonwealth for at least five years after the taxpayer
17applied for the angel investment tax credit.

18(3)  At least 51% of the employees of the business are 
19employed in this Commonwealth at the time the taxpayer 
20applies for the angel investment tax credit and for at least 
21three years thereafter.

22(4)  The business has fewer than 100 employees at the 
23time the taxpayer applies for the angel investment tax 
24credit.

25(5)  The business has been in operation in this 
26Commonwealth for not more than five consecutive years at the 
27time the taxpayer applies for the angel investment tax 
28credit.

29(6)  The business has not received more than $5,000,000, 
30in the aggregate, in private equity investments at the time 

1the taxpayer applies for the angel investment tax credit.

2"Qualified investment."  A private equity interest in a for-
3profit business acquired by the payment of money or its 
4equivalent, which is subject to approval by the Department of 
5Community and Economic Development for purposes of qualifying 
6for this tax credit by an accredited investor or a network of 
7accredited investors who review new businesses or proposed 
8businesses for the purpose of making an initial or subsequent 
9investment.

10"Qualified tax liability."  The liability for taxes imposed 
11under Article III, IV or VI of the act of March 4, 1971 (P.L.6, 
12No.2), known as the Tax Reform Code of 1971. The term shall 
13include the liability for taxes imposed under Article III of the 
14Tax Reform Code of 1971 on a member, owner or shareholder of a 
15pass-through entity.

16"Secretary."  The Secretary of Community and Economic
17Development of the Commonwealth.

18"Tax credit."  The angel investment tax credit authorized
19under this chapter.

20"Taxpayer."  A person subject to tax under Article III, IV or 
21VI of the act of March 4, 1971 (P.L.6, No.2), known as the Tax 
22Reform Code of 1971. The term shall include a member, owner or 
23shareholder of a pass-through entity that receives an angel 
24investment tax credit.

25§ 3804.  Program established.

26The Angel Investment Tax Credit Program is established in the
27department.

28§ 3805.  Credit for qualified investment.

29(a)  Application.--A taxpayer that made a qualified 
30investment in a taxable year may apply for a tax credit. The 

1department, in consultation with the Department of Revenue, 
2shall establish appropriate application filing deadlines for tax 
3credits in a manner that allows for the expeditious utilization 
4of the tax credit by the taxpayer. The application shall be 
5submitted on a form required by the department and must be 
6accompanied by the business plan which has been certified by the 
7taxpayer applying for the tax credit.

8(b)  Approval.--The department may approve the application
9upon being satisfied about the following:

10(1)  Upon review of the application for a tax credit, the
11department finds that all requirements have been met,
12including the requirements of a qualified business venture
13and any corresponding guidelines the department establishes
14in the best interest of the Commonwealth.

15(2)  The Department of Revenue finds that all taxpayers 
16applying for the tax credit have:

17(i)  filed all required State tax reports and returns
18for all taxable years; and

19(ii)  entered into a payment plan under which 
20payments have been maintained or paid any balance of 
21State tax due as determined by the Department of Revenue.

22(c)  Amount.--A taxpayer that is approved under subsection
23(b) shall receive a tax credit for the taxable year in the
24amount of 25% of the taxpayer's qualified investment in a
25qualified business venture.

26(d)  Notification.--By December 31 of the calendar year
27following the close of the taxable year during which the
28qualified investment was made, the department shall notify the
29taxpayer of the amount of the taxpayer's tax credit approved by
30the department.

1§ 3806.  Application of tax credit, carryover, carryback, refund 
2and assignment.

3(a)  Application of tax credit.--A tax credit approved by the
4department for a qualified investment in a taxable year shall
5first be applied against the taxpayer's qualified tax liability
6for the current taxable year as of the date on which the tax
7credit was approved before the tax credit is applied against any
8tax liability under subsection (b).

9(b)  Carryover.--If the taxpayer cannot use the entire amount 
10of the tax credit for the taxable year in which the tax credit 
11is first approved, the excess may be carried over to succeeding 
12taxable years and used as a credit against the qualified tax 
13liability of the taxpayer for those taxable years. Each time 
14that the tax credit is carried over to a succeeding taxable 
15year, it shall be reduced by the amount that was used as a 
16credit during the immediately preceding taxable year. The tax 
17credit may be carried over and applied to succeeding taxable 
18years for no more than seven taxable years following the first 
19taxable year for which the taxpayer was entitled to claim the 
20tax credit.

21(c)  Carryback or refund.--A taxpayer is not entitled to
22carry back or obtain a refund of an unused tax credit.

23(d)  Sale or assignment.--

24(1)  A taxpayer, upon application to and approval by the 
25department in consultation with the Department of Revenue, 
26may sell or assign, in whole or in part, a tax credit granted 
27to the taxpayer under this chapter if the taxpayer does not 
28have a qualified tax liability against which the tax credit 
29may be applied in the current taxable year. The department 
30shall establish guidelines, in consultation with the 

1Department of Revenue, for the approval of applications under 
2this subsection.

3(2)  Before an application is approved, the Department of 
4Revenue shall make a finding that the taxpayer and assignee, 
5if any, have:

6(i)  filed all required State tax reports and returns
7for all taxable years; and

8(ii)  entered into a payment plan under which
9payments have been maintained or paid any balance of
10State tax due as determined at settlement, assessment or
11determination by the Department of Revenue.

12(e)  Purchasers and assignees.--The purchaser or assignee of
13all or a portion of a tax credit under subsection (d) shall
14immediately claim the credit in the taxable year in which the
15purchase or assignment is made, although the purchaser or
16assignee may carry over unused tax credits to the succeeding
17taxable year for up to two years. The amount of the tax credit
18that a purchaser or assignee may use against any one qualified
19tax liability may not exceed 75% of the qualified tax liability
20for the taxable year. The purchaser or assignee may not carry
21back or obtain a refund of or sell or assign the tax credit. The
22purchaser or assignee shall notify the department, and the
23department shall notify the Department of Revenue of the seller
24or assignor of the tax credit in compliance with procedures
25specified by the department, in consultation with the Department
26of Revenue.

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

28(1)  A taxpayer's adjusted basis in a qualified
29investment must be reduced by an amount equal to the tax
30credit approved under section 3805(c) (relating to credit for

1qualified investment).

2(2)  Except for the reduction in adjusted basis required 
3in paragraph (1), a taxpayer's adjusted basis in a qualified 
4investment is determined under the act of March 4, 1971 
5(P.L.6, No.2), known as the Tax Reform Code of 1971, and the 
6regulations promulgated thereunder.

7§ 3807.  Time limitation.

8A taxpayer shall not be entitled to a tax credit for 
9qualified investments made in taxable years ending after 
10December 31, 2021.

11§ 3808.  Limitation on tax credits.

12(a)  Total amount.--The total amount of tax credits approved
13by the department in a fiscal year shall be equal to the
14difference between $25,000,000 and the total amount of keystone
15innovation zone tax credits issued under section 3706 (relating
16to keystone innovation zone tax credits) through December 15th
17of each year.

18(b)  Allocation.--Tax credits shall be allocated by the
19department on a first-come-first-served basis.

20§ 3809.  Shareholder, owner or member pass-through.

21(a)  Shareholder entitlement.--If a Pennsylvania S 
22corporation does not have a qualified tax liability against 
23which the tax credit may be applied, a shareholder of the 
24Pennsylvania S corporation shall be entitled to a tax credit 
25equal to the tax credit determined for the Pennsylvania S 
26corporation for the taxable year multiplied by the percentage of 
27the Pennsylvania S corporation's distributive income to which 
28the shareholder is entitled.

29(b)  Pass-through entity entitlement.--If a pass-through 
30entity other than a Pennsylvania S corporation does not have a 

1qualified tax liability against which the tax credit may be 
2applied, an owner or member of the pass-through entity shall be 
3entitled to a tax credit equal to the tax credit determined for 
4the pass-through entity for the taxable year multiplied by the 
5percentage of the pass-through entities' distributive income to 
6which the owner or member is entitled.

7(c)  Additional credit.--

8(1)  Except as provided under paragraph (2), the tax
9credit provided under subsection (a) or (b) shall be in
10addition to any tax credit to which a shareholder, owner or
11member of a pass-through entity is otherwise entitled under
12this chapter.

13(2)  A pass-through entity and a shareholder, owner or
14member of a pass-through entity shall not claim a tax credit
15under this chapter for the same qualified investment.

16§ 3810.  Repayment and penalty.

17(a)  Imposition.--Except as provided in subsection (b), the 
18department shall require the taxpayer to repay any tax credit 
19received and any monetary value received from the sale or 
20assignment, if any, of a tax credit and shall impose a penalty 
21of 10% based on the total amount of the tax credit received, 
22where the department, in conjunction with the Department of 
23Revenue, determines that any of the following conditions exists:

24(1)  The qualified business venture did not satisfy the
25requirements of the certified qualified business plan.

26(2)  The business in which the taxpayer made the
27qualified investment is no longer a qualified business
28venture.

29(3)  The taxpayer received the tax credit as a result of
30fraud or false pretenses.

1(b)  Exception.--The department may waive the repayment of a 
2tax credit and any monetary value received from the sale or 
3assignment, if any, of the tax credit and may waive the penalty 
4required by subsection (a) if the department determines that the 
5failure to meet the requirements of the certified qualified 
6business plan was due to circumstances outside the recipient 
7taxpayer's control.

8§ 3811.  Reports.

9The secretary shall submit an annual report to the chair and 
10minority chair of the standing committees in the Senate and the 
11chair and minority chair of the standing committees in the House 
12of Representatives with jurisdiction over the department and the 
13Department of Revenue indicating the effectiveness of the tax 
14credit provided under this chapter no later than March 15 
15following the fiscal year in which the tax credits were 
16approved. Notwithstanding any law providing for the 
17confidentiality of tax records, the report shall include the 
18names of all taxpayers awarded the tax credit, utilizing the tax 
19credit as of the date of the report, the amount of the tax 
20credits approved and utilized by each taxpayer and the names and 
21locations of the qualified business ventures for which the tax 
22credits were awarded. The report may also include any 
23recommendations for changes in the calculation or administration 
24of the tax credit. The report and the information contained in 
25it shall be considered a public record under section 102 of the 
26act of February 14, 2008 (P.L.6, No.3), known as the Right-to-
27Know Law.

28§ 3812.  Termination.

29The department shall not approve a tax credit for qualified 
30investments made in taxable years ending after December 31, 

12021.

2§ 3813.  Guidelines.

3The department, in conjunction with the Department of
4Revenue, shall develop written guidelines for the implementation
5and administration of this chapter. The guidelines shall be
6posted on the department's publicly accessible Internet website.

7Section 2.  This act shall take effect immediately.