Regular Session 2021-2022 Senate Bill 0271 P.N. 0249

PRINTER'S NO. 249

THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

No.

271

Session of

2021

INTRODUCED BY STREET, FONTANA, SANTARSIERO, BLAKE, COSTA AND

KANE, FEBRUARY 22, 2021

REFERRED TO FINANCE, FEBRUARY 22, 2021

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 research and development tax credit, further

providing for limitation on credits; and providing for Angel

Investment Tax Credit.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1. Section 1709-B(a) of the act of March 4, 1971

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

to read:

Section 1709-B. Limitation on Credits.--(a) The total

amount of credits approved by the department shall not exceed

[fifty-five million dollars ($55,000,000)] one hundred million

dollars ($100,000,000) in any fiscal year. Of that amount,

[eleven million dollars ($11,000,000)] twenty million dollars

($20,000,000) shall be allocated exclusively for small

businesses. However, if the total amounts allocated to either

the group of applicants exclusive of small businesses or the

group of small business applicants is not approved in any fiscal

year, the unused portion will become available for use by the

other group of qualifying taxpayers.

* * *

Section 2. The act is amended by adding an article to read:

ARTICLE XVII-M

ANGEL INVESTMENT TAX CREDIT

Section 1701-M. Scope of article.

This article relates to the Angel Investment Tax Credit.

Section 1702-M. Definitions.

The following words and phrases when used in this article

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Accredited investor." Any of the following:

(1) An individual whose net worth or joint net worth

with the individual's spouse exceeds $1,000,000.

(2) An individual who had 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 entity in which all of the equity owners meet

paragraph (1) or (2).

"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.

"Department." The Department of Community and Economic

Development of the Commonwealth.

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"Pass-through entity." A partnership as defined in section

301(n.0) or a Pennsylvania S corporation as defined in section

301(n.1).

"Qualified business venture." A business that is all of the

following:

(1) Headquartered or that will establish its

headquarters in this Commonwealth prior to the time the

taxpayer is eligible to apply for the tax credit.

(2) Maintains its headquarters in this Commonwealth for

at least five years after the taxpayer applied for the tax

credit.

(3) Where at least 51% of its employees are employed in

this Commonwealth at the time the taxpayer applies for the

tax credit.

(4) Has fewer than 100 employees at the time the

taxpayer applies for the tax credit.

(5) Has been in operation in this Commonwealth for not

more than five consecutive years at the time the taxpayer

applies for the tax credit.

(6) Has not received more than $2,000,000, in the

aggregate, in private equity investments of which not more

than $1,000,000 was invested by a single investor.

"Qualified investment." A payment of money or its equivalent

for a private equity interest in a qualified business venture.

"Qualified tax liability." The liability for taxes imposed

under Article III, IV or VI. The term shall include the

liability for taxes imposed under Article III on an owner of a

pass-through entity.

"Secretary." The Secretary of Community and Economic

Development of the Commonwealth.

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"Tax credit." The Angel Investment Tax Credit authorized

under this article.

"Taxpayer." A person subject to tax under Article III, IV or

VI. The term shall include the shareholder, owner or member of a

pass-through entity that receives an Angel Investment Tax

Credit.

Section 1703-M. Establishment.

There is established a tax credit program to be known as the

Angel Investment Tax Credit. The program shall:

(1) Create a business environment that attracts and

encourages early-stage financing for businesses with the

potential for high growth.

(2) Increase capital investment.

(3) Encourage job creation.

Section 1704-M. Qualified business plans.

In order for a business plan to be qualified, the business

plan shall:

(1) Indicate the potential for increasing jobs in this

Commonwealth.

(2) Indicate the potential for increasing capital

investment in this Commonwealth.

(3) Specify that the plan is based upon the development

or commercialization of intellectual property for which

either of the following apply:

(i) patent protection under 35 U.S.C. (relating to

patents) has been secured or is pending; or

(ii) a copyright under 17 U.S.C. (relating to

copyrights) has been secured or is pending.

Section 1705-M. Credit for qualified investment.

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

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investment in a taxable year may apply for a tax credit. The

application shall be on a form as required by the department and

shall include all of the following:

(1) The name and address of the applicant.

(2) The name and address of the business in which the

taxpayer has invested.

(3) A certified copy of the qualified business plan.

(4) Documentation that the applicant is an accredited

investor.

(5) Documentation that the business in which the

taxpayer has invested is a qualified business venture.

(6) Documentation that the qualified investment has been

made by the applicant.

(7) Any other information required by the department.

(b) Review.--The department, in conjunction with the

Department of Revenue, shall review the application and

determine if:

(1) All requirements established under this article have

been met.

(2) The applicant has filed all required State tax

reports and returns for all taxable years and paid any

balance of State tax due as determined by the Department of

Revenue.

the department shall approve the application and award the

taxpayer a tax credit for the taxable year in the amount equal

to 25% of the taxpayer's qualified investment made during the

taxable year.

(d) Notification.--The department shall notify the taxpayer

of the amount of the taxpayer's tax credit within 30 days after

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approval by the department.

Section 1706-M. Carryover, application of tax credit,

carryback, refund and assignment.

(a) 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, the tax credit 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).

carry back or obtain a refund of an unused tax credit.

(d) Sale or assignment.--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 article 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

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Department of Revenue, for the approval of applications under

this subsection. Before an application is approved, the

Department of Revenue shall make a finding that the taxpayer and

the taxpayer's assignee have filed all required State tax

reports and returns for all taxable years and paid any balance

of State tax due as determined 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.

Section 1707-M. Time limitation.

A taxpayer shall not be entitled to a tax credit for

qualified investments incurred in taxable years ending after

December 31, 2030 .

Section 1708-M. Limitation on tax credits.

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

by the department in any calendar year shall not exceed

$20,000,000.

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

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

Section 1709-M. Shareholder, owner or member pass-through.

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

corporation does not have an eligible 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 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 entity's distributive income to which the owner or

member is entitled.

(1) Except as provided under paragraph (2), the tax

credit provided under subsection (a) or (b) shall be in

addition to any other tax credit to which a shareholder,

owner or member of a pass-through entity is otherwise

entitled under this article.

(2) A pass-through entity and a shareholder, owner or

member of a pass-through entity shall not claim a tax credit

under this article for the same qualified investment.

Section 1710-M. Repayment.

The department shall require the taxpayer to repay any tax

credit received under this article where the department, in

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conjunction with the Department of Revenue, determines that any

of the following conditions exists:

(1) That the qualified business venture did not satisfy

the requirements of the qualified business plan submitted at

the time of application.

(2) That the business in which the taxpayer made the

qualified investment is no longer a qualified business

venture.

(3) That the taxpayer received the tax credit as a

result of fraud.

Section 1711-M. Recapture.

A taxpayer shall repay to the Commonwealth any or all of the

tax credit claimed by the taxpayer under this article if the

taxpayer withdraws any portion of the taxpayer's qualified

investment at any time during the period commencing with the

date of the taxpayer's investment through the taxable year that

the taxpayer claims or carries over unused portions of the tax

credit under section 1706-M. The amount of the repayment shall

be calculated as follows:

(1) If the withdrawal occurs in the taxable year in

which the investment was made or in the taxable year

following the taxable year in which the investment was made,

the aggregate amount of the tax credit claimed by the

taxpayer during both taxable years shall be repaid to the

Commonwealth.

(2) If the withdrawal occurs in the second taxable year

following the taxable year in which the investment was made

or any subsequent taxable year, the amount of the tax credit

claimed by the taxpayer in the taxable year in which the

withdrawal occurs shall be repaid to the Commonwealth.

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Section 1712-M. Reports.

(a) Annual report.--The secretary shall submit an annual

report to the chairperson and minority chairperson of the

standing committees in the Senate and the chairperson and

minority chairperson of the standing committees in the House of

Representatives with jurisdiction over the department and the

Department of Revenue as follows:

(1) The report shall indicate the effectiveness of the

tax credit provided under this article.

(2) The report shall be submitted no later than March 15

following the fiscal year in which the tax credits were

approved.

(3) Notwithstanding any law providing for the

confidentiality of tax records, the report shall include the

following:

(i) The names of all taxpayers awarded the tax

credits.

(ii) The names of all taxpayers utilizing the tax

credits.

(iii) The amount of tax credits approved and

utilized by each taxpayer.

(iv) The names and locations of the qualified

business ventures for which the tax credits were awarded.

(4) The report may also include any recommendations for

changes in the calculation or administration of the tax

credit.

(b) Public record.--The report shall be considered a public

record as defined in section 102 of the act of February 14, 2008

(P.L.6, No.3), known as the Right-to-Know Law.

Section 1713-M. Termination.

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The department shall not approve a tax credit for qualified

investments incurred in taxable years ending after December 31,

2030 .

Section 1714-M. Guidelines.

The department, in consultation with the Department of

Revenue, shall develop written guidelines for the implementation

and administration of this article. The guidelines shall be

posted on the department's publicly accessible Internet website .

Section 3. The addition of Article XVII-M of the act shall

apply to qualified investments made in taxable years beginning

after December 31, 2022.

Section 4. This act shall take effect as follows:

(1) The following shall take effect immediately:

(i) The addition of Article XVII-M of the act.

(ii) Section 3.

(iii) This section.

(2) The remainder of this act shall take effect in 60

days.

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