THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

INTRODUCED BY SONNEY, BARRAR, CAUSER, DENLINGER, EVERETT, HUTCHINSON, PYLE AND STEVENSON, JANUARY 31, 2011

REFERRED TO COMMITTEE ON FINANCE, JANUARY 31, 2011  

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 film production tax credit, further providing

for limitations; and authorizing an onsite use natural gas

well tax credit.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Section 1707-D(a) of the act of March 4, 1971

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

25, 2007 (P.L.373, No.55), is amended to read:

Section 1707-D.  Limitations.

(a)  Cap.--In no case shall the aggregate amount of tax

credits awarded in any fiscal year under this article exceed

[$75,000,000] $50,000,000.

* * *

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

ARTICLE XVII-G

ONSITE USE NATURAL GAS WELL TAX CREDIT

Section 1701-G.  Scope.

This article authorizes an onsite use natural gas well tax

credit.

Section 1702-G.  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:

"Cogeneration."  The use of a heat engine or power station to

simultaneously generate space or water heat as well as

electricity.

"Department."  The Department of Revenue of the Commonwealth.

"Expense."  Any actual cost incurred by a taxpayer through

the construction of a qualified natural gas well.

"Pass-through entity."  Any of the following:

(1)  A partnership, limited partnership, limited

liability company, business trust or other unincorporated

entity that for Federal income tax purposes is taxable as a

partnership.

(2)  A Pennsylvania S corporation.

"Qualified natural gas well."  A bore hole drilled on real

property owned or leased by a taxpayer for the purpose of

producing or extracting gas to be used for the following

purposes:

(1)  onsite by the taxpayer for the purposes of space or

water heating for use in the taxpayer's primary residence; or

(2)  onsite by the taxpayer for the purposes of space or

water heating or cogeneration for use in the taxpayer's small

business.

"Qualified tax liability."  The liability for taxes imposed

under Article III, IV or VI. The term includes liability for

taxes imposed under Article III on an owner of a pass-through

entity.

"Secretary."  The Secretary of Revenue of the Commonwealth.

"Small business."  A Pennsylvania business employing 100 or

fewer employees during the taxable year for which a tax credit

article is sought.

"Tax credit."  The onsite use natural gas well tax credit

authorized under this article.

"Taxpayer."  A person or small business subject to tax under

Article III, IV or VI. The term includes the shareholder, owner

or member of a pass-through entity that receives a tax credit.

Section 1703-G.  Credit for onsite use natural gas wells.

(a)  General rule.--A taxpayer that incurs expenses through

drilling and construction of a qualified natural gas well in a

taxable year may apply for a tax credit as provided in this

article. By September 15, a taxpayer must submit an application

to the department for qualified natural gas well expenses

incurred in the taxable year that ended in the prior calendar

year.

(b)  Amount of tax credit.--A taxpayer that is qualified

under subsection (a) shall receive a tax credit for the taxable

year in the amount of 25% of the total qualified natural gas

well expenses, not to exceed $1,000,000.

(c)  Notification to taxpayer.--By December 15 of the

calendar year following the close of the taxable year during

which the qualified natural gas well expenses were incurred, the

department shall notify the taxpayer of the amount of the

taxpayer's tax credit approved by the department.

Section 1704-G.  Carryover, carryback, refund and assignment of

tax credit.

A tax credit is subject to the following provisions:

(1)  If a taxpayer cannot use the entire amount of the

tax credit for the taxable year in which the tax credit is

first approved, then 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, it 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 15 taxable years

following the first taxable year for which the taxpayer was

entitled to claim the credit.

(2)  The tax credit approved by the department for

qualified natural gas well expenses in a taxable year first

shall be applied against the taxpayer's qualified tax

liability for the current taxable year as of the date on

which the credit was approved before the tax credit is

applied against any tax liability under paragraph (1).

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

obtain a refund of an unused tax credit.

Section 1705-G.  Time limitations.

A taxpayer is not entitled to a tax credit for qualified

natural gas well expenses incurred in taxable years ending after

December 31, 2015.

Section 1706-G.  Limitation on tax credits.

(a)  Cap.--In no case shall the aggregate amount of tax

credits awarded in any fiscal year exceed $25,000,000.

(b)  Proration.--If the total amount of tax credits applied

for by all taxpayers exceeds the amount allocated for those

credits, then the tax credit to be received by each applicant

shall be prorated by the department among all applicants.

Section 1707-G.  Shareholder, owner or member pass-through.

(a)  General rule.--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 is

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 entities.--If a pass-through entity other

than a Pennsylvania S corporation does not have an eligible tax

liability against which the tax credit may be applied, an owner

or member of the pass-through entity is 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 entities' distributive income to which the owner or

member is entitled.

(c)  Nature of tax credit.--The tax credit provided under

subsection (a) or (b) is in addition to any tax credit to which

a shareholder, owner or member of a pass-through entity is

otherwise entitled under this article. However, a pass-through

entity and a shareholder, owner or member of a pass-through

entity may not claim a credit under this article for the same

qualified natural gas well expenses.

Section 1708-G.  Report to General Assembly.

The secretary shall submit an annual report to the General

Assembly indicating the effectiveness of the tax credit no later

than March 15 following the year in which the tax credits were

approved. The report shall include the names of all taxpayers

utilizing the tax credit as of the date of the report and the

amount of tax credits approved and utilized by each taxpayer.

Notwithstanding any law providing for the confidentiality of tax

records, the information contained in the report shall be public

information. The report may also include any recommendations for

changes in the calculation or administration of the tax credit.

Section 1709-G.  Regulations.

The secretary, in conjunction with the Department of

Environmental Protection, shall promulgate regulations necessary

for the implementation and administration of this article.

Section 3.  This act shall apply to taxable years beginning

after December 31, 2011.

Section 4.  This act shall take effect immediately.