PRIOR PRINTER'S NO. 1859 PRINTER'S NO. 3006
No. 1472 Session of 2003
INTRODUCED BY J. TAYLOR, ADOLPH, BARRAR, BUNT, CAPPELLI, CORRIGAN, CRAHALLA, DALLY, FICHTER, HORSEY, LAUGHLIN, LEDERER, LEH, LEWIS, McILHATTAN, S. MILLER, PHILLIPS, REICHLEY, R. STEVENSON, E. Z. TAYLOR, WATSON AND YOUNGBLOOD, MAY 29, 2003
AS REPORTED FROM COMMITTEE ON FINANCE, HOUSE OF REPRESENTATIVES, AS AMENDED, NOVEMBER 24, 2003
AN ACT 1 Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An 2 act relating to tax reform and State taxation by codifying 3 and enumerating certain subjects of taxation and imposing 4 taxes thereon; providing procedures for the payment, 5 collection, administration and enforcement thereof; providing 6 for tax credits in certain cases; conferring powers and 7 imposing duties upon the Department of Revenue, certain 8 employers, fiduciaries, individuals, persons, corporations 9 and other entities; prescribing crimes, offenses and 10 penalties," adding definitions; and further providing for the 11 capital stock franchise tax. 12 The General Assembly of the Commonwealth of Pennsylvania 13 hereby enacts as follows: 14 Section 1. Section 601(a) of the act of March 4, 1971 15 (P.L.6, No.2), known as the Tax Reform Code of 1971, is amended 16 by adding definitions to read: 17 Section 601. Definitions and Reports.--(a) The following 18 words, terms and phrases when used in this Article VI shall have 19 the meaning ascribed to them in this section, except where the 20 context clearly indicates a different meaning:
1 * * * 2 "Exchange-related activities." Include the activities: <-- 3 (1) of: 4 (i) acting as a market maker, specialist, broker, floor 5 broker, introducing broker, dealer, floor trader, futures 6 commission merchant, commodity trading advisory, commodity pool 7 operator, or foreign currency option participant or in a similar 8 capacity that is registered with the Securities Exchange 9 Commission, the Pennsylvania Securities Commission or the 10 Commodity Futures Trading Commission; 11 (ii) otherwise dealing in, trading or hedging securities, 12 municipal securities, commodities, futures, options, hybrid 13 instruments, derivative security products, derivative commodity 14 products, security futures, security futures products, foreign 15 currencies or foreign currency derivative products; or 16 (iii) performing clearing or settlement functions in 17 securities, commodities, futures, options, hybrid instruments, 18 derivative security products, derivative commodity products, 19 security futures, security futures products, foreign currencies 20 or foreign currency derivative products; 21 and 22 (2) on or through a national securities exchange, a 23 registered securities association, a registered clearing agency, 24 a foreign financial regulatory authority, a facility, a trading 25 facility, an alternative trading system, an electronic 26 communications network, an electronic trading facility, a 27 designated contract market, a derivatives transaction execution 28 facility, a derivatives clearing organization or clearing house 29 or similar trading market or facility. The terms "market maker," 30 "specialist," "national securities exchange," "registered 20030H1472B3006 - 2 -
1 securities association," "foreign financial regulatory 2 authority," "facility," "registered clearing agency," 3 "alternative trading system," "electronic communications 4 network," "security," "broker," "dealer," "security future" and 5 "security futures product" shall have the same meaning as set 6 forth under the Securities Exchange Act of 1934 (15 U.S.C. § 78a 7 et seq.), as amended, and the rules promulgated thereunder. The 8 terms "commodity," "future," "option," "hybrid instrument," 9 "floor broker," "introducing broker," "floor trader," "trading 10 facility," "electronic trading facility," "futures commission 11 merchant," "commodity trading advisor," "commodity pool 12 operator," "designated contract market," "derivatives 13 transaction execution facility" and "derivatives clearing 14 organization" shall have the same meaning as set forth under the 15 Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended, The 16 Municipal Securities Rulemaking Board and the rules promulgated 17 thereunder. 18 "Exchange-related assets." Tangible and intangible assets 19 used in exchange-related activities. Exchange-related assets 20 include all of the following, whether dealt, traded or used as 21 hedges in connection with securities exchange activities: 22 securities, municipal securities, commodities, futures, options, 23 hybrid instruments, derivative security products, derivative 24 commodity products, security futures, security futures products, 25 foreign currencies, foreign currency derivative products, 26 exchange memberships and cash and deposits to the extent such 27 cash and deposits are used in or to support exchange-related 28 activities. Exchange-related assets of an entity shall be deemed 29 to include: 30 (1) Any exchange-related assets of any direct or indirect 20030H1472B3006 - 3 -
1 subsidiary of the entity. 2 (2) Any receivable resulting from a loan to another entity 3 of funds or other assets for use in exchange-related activities, 4 to the extent that the value of such exchange-related assets is 5 reflected in the value of assets held by the entity. 6 "EXCHANGE-RELATED ACTIVITIES." ACTIVITIES WHICH ARE ALL OF <-- 7 THE FOLLOWING: 8 (1) CONDUCTED BY: 9 (I) A MARKET MAKER, SPECIALIST OR FLOOR BROKER THAT IS 10 REGISTERED WITH THE UNITED STATES SECURITIES EXCHANGE COMMISSION 11 OR THE COMMODITIES FUTURES TRADING COMMISSION; OR 12 (II) A PERSON PERFORMING REGISTERED CLEARING OR SETTLEMENT 13 FUNCTIONS WITH RESPECT TO SECURITIES. 14 (2) OCCURS ON OR THROUGH A NATIONAL SECURITIES EXCHANGE, A 15 REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY, DESIGNATED 16 COMMODITIES MARKET, FOREIGN FINANCIAL AUTHORITY OR A REGISTERED 17 ELECTRONIC TRADING, EXECUTION, MARKET OR CLEARING FACILITY FOR 18 SECURITIES AS THESE TERMS ARE DEFINED IN THE SECURITIES EXCHANGE 19 ACT OF 1934 (48 STAT. 881, 15 U.S.C. § 78A ET SEQ.) AND THE 20 COMMODITY EXCHANGE ACT (42 STAT. 988, 7 U.S.C. § 1 ET SEQ.). 21 "EXCHANGE-RELATED ASSET." A TANGIBLE OR INTANGIBLE ASSET TO 22 THE EXTENT THAT IT IS USED IN EXCHANGE-RELATED ACTIVITIES. THE 23 TERM INCLUDES SECURITIES USED IN CONNECTION WITH EXCHANGE- 24 RELATED ACTIVITIES; EXCHANGE MEMBERSHIPS; CASH AND DEPOSITS USED 25 IN SUPPORT OF EXCHANGE-RELATED ACTIVITIES; INVESTMENTS IN 26 ORGANIZATIONS TO THE EXTENT THAT THE ORGANIZATIONS USE THE 27 INVESTMENT AS EXCHANGE-RELATED ASSETS; AND DEBT EXTENDED BY A 28 LENDER UNDER COMMON CONTROL WITH THE BORROWER IF THE FUNDS 29 BORROWED ARE USED AS EXCHANGE-RELATED ASSETS. 30 * * * 20030H1472B3006 - 4 -
1 "SECURITIES." A SECURITY, MUNICIPAL SECURITY, FINANCIAL 2 INSTRUMENT, COMMODITY, CURRENCY, OPTION OR FUTURE AS THOSE TERMS 3 ARE DEFINED IN THE SECURITIES EXCHANGE ACT OF 1934 (48 STAT. 4 881, 15 U.S.C. § 78A ET SEQ.) AND THE COMMODITY EXCHANGE ACT (42 5 STAT. 988, 7 U.S.C. § 1 ET SEQ.). 6 * * * 7 Section 2. Section 602(a) of the act, amended May 24, 2000 8 (P.L.106, No.23), is amended and the section is amended by <-- 9 adding a subsection to read: 10 Section 602. Imposition of Tax.--(a) That every domestic <-- 11 entity from which a report is required under section 601 hereof 12 shall be subject to, and pay to the department annually, a tax 13 which is the amount computed by multiplying each dollar of the 14 capital stock value as defined in section 601(a) by the 15 appropriate rate of tax as set forth in subsection (h); except 16 that any domestic entity or company subject to the tax 17 prescribed herein may elect to compute and pay its tax under and 18 in accordance with the provisions of subsection (b) of this 19 section 602: Provided, That the provisions of this section shall 20 not apply to the taxation of the capital stock of entities 21 organized for manufacturing, processing, research or development 22 purposes, which is invested in and actually and exclusively 23 employed in carrying on manufacturing, processing, research or 24 development within the State, except such entities as enjoy and 25 exercise the right of eminent domain, but every entity organized 26 for the purpose of manufacturing, processing, research or 27 development except such entities as enjoy and exercise the right 28 of eminent domain shall pay the State tax of the amount computed 29 by multiplying each dollar of the capital stock value as defined 30 in section 601(a) by the appropriate rate of tax as set forth in 20030H1472B3006 - 5 -
1 subsection (h) upon such proportion of its capital stock, if 2 any, as may be invested in any property or business not strictly 3 incident or appurtenant to the manufacturing, processing, 4 research or development business, in addition to the local taxes 5 assessed upon its property in the district where located, it 6 being the object of this provision to relieve from State 7 taxation only so much of the capital stock as is invested purely 8 in the manufacturing, processing, research or development plant 9 and business: [and] Provided further, That the provisions of 10 this section shall not apply to the taxation of so much of the 11 capital stock value attributable to student loan assets owned or 12 held by an entity created for the securitization of student 13 loans or by a trustee on its behalf[.]: and Provided further, 14 That the provisions of this section shall not apply to the 15 taxation of so much of the capital stock value of an entity 16 attributable to exchange-related assets calculated by including 17 exchange-related assets as assets relieved from taxation under 18 the act of June 22, 1931 (P.L.685, No.250), entitled "An act 19 providing for the settlement of capital stock tax in the cases 20 of corporations, joint-stock associations, limited partnerships, 21 and companies which own assets which are exempted or relieved 22 from capital stock tax." 23 * * * 24 (b.1) The capital stock value before apportionment of an 25 entity subject to the capital stock or franchise tax shall not 26 include that portion of the entity's capital stock value 27 attributable to exchange-related assets. The portion of capital 28 stock value attributable to exchange-related assets shall be 29 calculated by multiplying the entity's capital stock value, 30 otherwise determined under section 601, times the value of 20030H1472B3006 - 6 -
1 exchange-related assets over the value of all assets. An entity 2 may apportion its capital stock value after the exclusion 3 provided hereunder, as provided by law. 4 SECTION 602. IMPOSITION OF TAX.--(A) THAT EVERY DOMESTIC <-- 5 ENTITY FROM WHICH A REPORT IS REQUIRED UNDER SECTION 601 HEREOF 6 SHALL BE SUBJECT TO, AND PAY TO THE DEPARTMENT ANNUALLY, A TAX 7 WHICH IS THE AMOUNT COMPUTED BY MULTIPLYING EACH DOLLAR OF THE 8 CAPITAL STOCK VALUE AS DEFINED IN SECTION 601(A) BY THE 9 APPROPRIATE RATE OF TAX AS SET FORTH IN SUBSECTION (H); EXCEPT 10 THAT ANY DOMESTIC ENTITY OR COMPANY SUBJECT TO THE TAX 11 PRESCRIBED HEREIN MAY ELECT TO COMPUTE AND PAY ITS TAX UNDER AND 12 IN ACCORDANCE WITH THE PROVISIONS OF SUBSECTION (B) OF THIS 13 SECTION 602: PROVIDED, THAT THE PROVISIONS OF THIS SECTION SHALL 14 NOT APPLY TO THE TAXATION OF THE CAPITAL STOCK OF ENTITIES 15 ORGANIZED FOR MANUFACTURING, PROCESSING, RESEARCH OR DEVELOPMENT 16 PURPOSES, WHICH IS INVESTED IN AND ACTUALLY AND EXCLUSIVELY 17 EMPLOYED IN CARRYING ON MANUFACTURING, PROCESSING, RESEARCH OR 18 DEVELOPMENT WITHIN THE STATE, EXCEPT SUCH ENTITIES AS ENJOY AND 19 EXERCISE THE RIGHT OF EMINENT DOMAIN, BUT EVERY ENTITY ORGANIZED 20 FOR THE PURPOSE OF MANUFACTURING, PROCESSING, RESEARCH OR 21 DEVELOPMENT EXCEPT SUCH ENTITIES AS ENJOY AND EXERCISE THE RIGHT 22 OF EMINENT DOMAIN SHALL PAY THE STATE TAX OF THE AMOUNT COMPUTED 23 BY MULTIPLYING EACH DOLLAR OF THE CAPITAL STOCK VALUE AS DEFINED 24 IN SECTION 601(A) BY THE APPROPRIATE RATE OF TAX AS SET FORTH IN 25 SUBSECTION (H) UPON SUCH PROPORTION OF ITS CAPITAL STOCK, IF 26 ANY, AS MAY BE INVESTED IN ANY PROPERTY OR BUSINESS NOT STRICTLY 27 INCIDENT OR APPURTENANT TO THE MANUFACTURING, PROCESSING, 28 RESEARCH OR DEVELOPMENT BUSINESS, IN ADDITION TO THE LOCAL TAXES 29 ASSESSED UPON ITS PROPERTY IN THE DISTRICT WHERE LOCATED, IT 30 BEING THE OBJECT OF THIS PROVISION TO RELIEVE FROM STATE 20030H1472B3006 - 7 -
1 TAXATION ONLY SO MUCH OF THE CAPITAL STOCK AS IS INVESTED PURELY 2 IN THE MANUFACTURING, PROCESSING, RESEARCH OR DEVELOPMENT PLANT 3 AND BUSINESS: [AND] PROVIDED FURTHER, THAT THE PROVISIONS OF 4 THIS SECTION SHALL NOT APPLY TO THE TAXATION OF SO MUCH OF THE 5 CAPITAL STOCK VALUE ATTRIBUTABLE TO STUDENT LOAN ASSETS OWNED OR 6 HELD BY AN ENTITY CREATED FOR THE SECURITIZATION OF STUDENT 7 LOANS OR BY A TRUSTEE ON ITS BEHALF[.]; AND PROVIDED FURTHER, 8 THAT THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO THE 9 TAXATION OF SO MUCH OF THE CAPITAL STOCK VALUE OF AN ENTITY 10 ATTRIBUTABLE TO EXCHANGE-RELATED ASSETS CALCULATED BY INCLUDING 11 EXCHANGE RELATED ASSETS AS ASSETS RELIEVED FROM TAXATION UNDER 12 THE ACT OF JUNE 22, 1931 (P.L.685, NO.250), ENTITLED "AN ACT 13 PROVIDING FOR THE SETTLEMENT OF CAPITAL STOCK TAX IN THE CASES 14 OF CORPORATIONS, JOINT-STOCK ASSOCIATIONS, LIMITED PARTNERSHIPS, 15 AND COMPANIES WHICH OWN ASSETS WHICH ARE EXEMPTED OR RELIEVED 16 FROM CAPITAL STOCK TAX." 17 * * * 18 Section 3. This act shall apply retroactively to tax years 19 beginning on or after January 1, 2003. 20 Section 4. This act shall take effect immediately. D11L72JS/20030H1472B3006 - 8 -