PRINTER'S NO. 2995
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
2510
Session of
2022
INTRODUCED BY DALEY, HILL-EVANS, MADDEN, MALAGARI, GUENST,
SCHLOSSBERG, SANCHEZ, SHUSTERMAN, DELLOSO, JONES AND HARRIS,
APRIL 14, 2022
REFERRED TO COMMITTEE ON FINANCE, APRIL 14, 2022
AN ACT
Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
act relating to tax reform and State taxation by codifying
and enumerating certain subjects of taxation and imposing
taxes thereon; providing procedures for the payment,
collection, administration and enforcement thereof; providing
for tax credits in certain cases; conferring powers and
imposing duties upon the Department of Revenue, certain
employers, fiduciaries, individuals, persons, corporations
and other entities; prescribing crimes, offenses and
penalties," in corporate net income tax, further providing
for definitions and for imposition of tax.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 401(3)1(t) and 2(a)(17) and (9) of the
act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code
of 1971, are amended, clause (3)2(a) is amended by adding a
phrase and the section is amended by adding a clause to read:
Section 401. Definitions.--The following words, terms, and
phrases, when used in this article, shall have the meaning
ascribed to them in this section, except where the context
clearly indicates a different meaning:
* * *
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
(3) "Taxable income." 1. * * *
(t) (1) Except as provided in paragraph (2), (3) [or], (4)
[for taxable years beginning after December 31, 2014] or (5),
and in addition to any authority the department has [on the
effective date of this paragraph] for taxable years beginning
after December 31, 2014, to deny a deduction related to a
fraudulent or sham transaction, no deduction shall be allowed
for management fees, an intangible expense or cost, or an
interest expense or cost, paid, accrued or incurred directly or
indirectly in connection with one or more transactions with an
affiliated entity. In calculating taxable income under this
paragraph, when the taxpayer is engaged in one or more
transactions with an affiliated entity that was subject to tax
in this Commonwealth or another state or possession of the
United States on a tax base that included the management fees,
intangible expense or cost, or the interest expense or cost,
paid, accrued or incurred by the taxpayer, the taxpayer shall
receive a credit against tax due in this Commonwealth in an
amount equal to the apportionment factor of the taxpayer in this
Commonwealth multiplied by the greater of the following:
(A) the tax liability of the affiliated entity with respect
to the portion of its income representing the management fees,
intangible expense or cost, or the interest expense or cost,
paid, accrued or incurred by the taxpayer; or
(B) the tax liability that would have been paid by the
affiliated entity under subparagraph (A) if that tax liability
had not been offset by a credit.
The credit issued under this paragraph shall not exceed the
taxpayer's liability in this Commonwealth attributable to the
net income taxed as a result of the adjustment required by this
20220HB2510PN2995 - 2 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
paragraph.
(2) The adjustment required by paragraph (1) shall not apply
[to a transaction that did not have as the principal purpose the
avoidance of tax due under this article and was done at arm's
length rates and terms.] where the taxpayer establishes, as
determined by the Secretary of Revenue, that the adjustment is
unreasonable.
(3) The adjustment required by paragraph (1) shall not apply
to a transaction between a taxpayer and an affiliated entity
domiciled in a foreign nation which has in force a comprehensive
income tax treaty with the United States [providing] where the
affiliated entity is subject to tax in the foreign nation, at a
rate that equals or exceeds the rate set in section 402(b), on a
tax base that includes the management fees, intangible expense
or cost, or the interest expense or cost paid, accrued or
incurred by the taxpayer. The comprehensive income tax treaty
must provide for the allocation of all categories of income
subject to taxation, or the withholding of tax, on royalties,
licenses, fees and interest for the prevention of double
taxation of the respective nations' residents and the sharing of
information.
(4) The adjustment required by paragraph (1) shall not apply
to a transaction where an affiliated entity directly or
indirectly paid, accrued or incurred a payment to a person who
is not an affiliated entity, if the payment is paid, accrued or
incurred on the intangible expense or cost, or interest expense
or cost, and is equal to or less than the taxpayer's
proportional share of the transaction. The taxpayer's
proportional share shall be based on relative sales, assets,
liabilities or another reasonable method.
20220HB2510PN2995 - 3 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(5) The adjustment required under paragraph (1) shall not
apply to a transaction where the affiliated entity derives at
least one-third of its sales from entities that are not
affiliated entities and the transaction giving rise to the
adjustment was done at arm's length rates and terms.
2. In case the entire business of any corporation, other
than a corporation engaged in doing business as a regulated
investment company as defined by the Internal Revenue Code of
1986, is not transacted within this Commonwealth, the tax
imposed by this article shall be based upon such portion of the
taxable income of such corporation for the fiscal or calendar
year, as defined in subclause 1 hereof, and may be determined as
follows:
(a) Division of Income.
* * *
(17) Sales, other than sales under paragraphs (16) and
(16.1), are in this State [if:
(A) The income-producing activity is performed in this
State; or
(B) The income-producing activity is performed both in and
outside this State and a greater proportion of the income-
producing activity is performed in this State than in any other
state, based on costs of performance.] as follows:
(C) Gross receipts from the lease or license of intangible
property, including a sale or exchange of property where the
receipts from the sale or exchange derive from payments that are
contingent on the productivity, use or disposition of the
property, if and to the extent the property is used in this
State.
(D) Gross receipts from the sale of intangible property
20220HB2510PN2995 - 4 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
where the holder property sold is a contract right, government
license or similar property that authorizes the holder to
conduct a business activity in a specific geographic area, if
and to the extent the property is used in or otherwise
associated with this State.
(E) Gross receipts from the sale, redemption, maturity or
exchange of securities, held by the taxpayer primarily for sale
to customers in the ordinary course of its trade or business, if
the customers are in this State.
(F) Gross receipts received from interest, fees and
penalties imposed in connection with loans secured by real
property, if the property is located within this State.
(G) Gross receipts received from interest, fees and
penalties imposed in connection with loans related to the sale
of tangible personal property, if the property is delivered or
shipped to a purchaser in this State.
(H) Gross receipts received from interest, fees and
penalties imposed in connection with loans not described in
subparagraph (F) or (G), if the borrower is located in this
State.
(I) Gross receipts received from interest, fees and
penalties in the nature of interest from credit card receivables
and receipts from fees charged to cardholders, such as annual
fees, if the billing address of the cardholder is in this State.
(J) Gross receipts received from intangible property, not
otherwise described in this paragraph, shall be excluded from
the numerator and the denominator of the sales factor.
* * *
(19) For purposes of this subclause relating to division of
income, gross receipts received from the sale of an interest in
20220HB2510PN2995 - 5 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
a partnership, joint venture, association or other
unincorporated enterprise shall be considered a sale of the
assets of the partnership, joint venture, association or other
unincorporated enterprise and shall be sourced based on
subparagraphs (16), (16.1) and (17) by the type of asset of the
partnership, joint venture, association or other unincorporated
enterprise.
* * *
(9) "Interest expense or cost." A deduction allowed under
section 163 of the Internal Revenue Code of 1986 (26 U.S.C. §
163) [to the extent that such deduction is directly related to
an intangible expense or cost].
* * *
(11) "Management fees." Expenses and costs paid for
services pertaining to accounts receivable and payable, employe
benefit plans, insurance, legal, payroll, data processing,
purchasing, tax, financial and securities, accounting, research,
management, reporting and compliance services or similar
services, only to the extent the amounts of the expenses and
costs are allowed as a deduction or cost in determining taxable
income.
Section 2. Section 402 of the act is amended to read:
Section 402. Imposition of Tax.--(a) A corporation shall be
subject to and shall pay an excise tax for exercising, whether
in its own name or through any person, association, business
trust, corporation, joint venture, limited liability company,
limited partnership, partnership or other entity, any of the
following privileges:
(1) Doing business in this Commonwealth.
(2) Carrying on activities in this Commonwealth, including
20220HB2510PN2995 - 6 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
solicitation which is not protected activity under the act of
September 14, 1959 (Public Law 86-272, 15 U.S.C. § 381 et seq.).
(3) Having capital or property employed or used in this
Commonwealth.
(4) Owning property in this Commonwealth.
(5) (A) Having substantial nexus in this Commonwealth.
Substantial nexus in this Commonwealth means a direct or
indirect business activity that is sufficient to grant the
Commonwealth authority under the Constitution of the United
States to impose tax under this article and for which a basis
exists under section 401 to apportion or allocate the
corporation's income to this Commonwealth.
(B) For purposes of this section, business activity,
including, but not limited to:
(i) the leasing or licensing of intangible property that is
utilized in this Commonwealth;
(ii) regularly engaging in transactions with customers in
this Commonwealth involving intangible property, including
loans; or
(iii) sales of intangible property that was utilized by the
corporation within this Commonwealth.
(C) There shall be a rebuttable presumption that a
corporation with $500,000 or more of sales sourced to this
Commonwealth under section 401 has substantial nexus in this
Commonwealth without regard to physical presence in this
Commonwealth.
(b) The annual rate of tax on corporate net income imposed
by subsection (a) for taxable years beginning for the calendar
year or fiscal year on or after the dates set forth shall be as
follows:
20220HB2510PN2995 - 7 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Taxable Year Tax Rate
January 1, 1995, [and
each taxable year
thereafter] through
December 31, 2022 9.99%
January 1, 2023,
through December
31, 2025 7.99%
January 1, 2026,
through December
31, 2026 6.99%
January 1, 2027, and
each taxable year
there 5.99%
(c) An entity subject to taxation under Article VII, VIII,
IX or XV shall not be subject to the tax imposed by this
article.
Section 3. This act shall apply as follows:
(1) The amendment of section 402(a) of the act shall
apply to taxable years beginning after December 31, 2019.
(2) The remainder of this act shall apply to taxable
years beginning after December 31, 2022.
Section 4. This act shall take effect immediately.
20220HB2510PN2995 - 8 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23