THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY EARLL, FONTANA, GREENLEAF, VOGEL, PIPPY, WAUGH, GORDNER, McILHINNEY, BOSCOLA, COSTA, FERLO, BROWNE, YUDICHAK, BLAKE AND FARNESE, SEPTEMBER 29, 2011

REFERRED TO FINANCE, SEPTEMBER 29, 2011  

AN ACT

Amending Title 12 (Commerce and Trade) of the Pennsylvania

Consolidated Statutes, providing for an angel investment tax

credit.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Title 12 of the Pennsylvania Consolidated

Statutes is amended by adding a chapter to read:

CHAPTER 38

ANGEL INVESTMENT TAX CREDIT

Sec.

3801.  Scope of chapter.

3802.  Purpose.

3803.  Definitions.

3804.  Credit for qualified investment.

3805.  Carryover, application of tax credit, carryback, refund

and assignment.

3806.  Time limitation.

3807.  Limitation on tax credits.

3808.  Shareholder, owner or member pass-through.

3809.  Repayment and penalty.

3810.  Reports.

3811.  Termination.

3812.  Regulations.

§ 3801.  Scope of chapter.

This chapter relates to angel investment tax credits.

§ 3802.  Purpose.

The purposes of this chapter are to:

(1)  Create a business environment in this Commonwealth

that attracts and encourages early stage financing which

creates business opportunities with the potential for high

growth.

(2)  Increase capital investment in this Commonwealth.

(3)  Encourage job creation in this Commonwealth.

§ 3803.  Definitions.

The following words and phrases, when used in this chapter,

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

the context clearly indicates otherwise:

"Accredited investor."  Any person who comes within any of

the following categories at the time qualified to claim an angel

investment tax credit:

(1)  Any natural person whose individual net worth, or

joint net worth with that individual's spouse exceeds

$1,000,000.

(2)  Any natural person who had an 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 are

accredited investors.

"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. At a minimum the

business goals should indicate the potential for increasing jobs

in this Commonwealth and increasing capital investment. A plan

shall specify that it is based upon the development or

commercialization of intellectual property for which either of

the following apply:

(1)  Patent protection under 35 U.S.C. (relating to

patents) has been secured or is pending.

(2)  A copyright under 17 U.S.C. (relating to copyrights)

has been secured or is pending.

"Department."  The Department of Community and Economic

Development of the Commonwealth.

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

301(n.o) of the act of March 4, 1971 (P.L.6, No.2), known as the

Tax Reform Code of 1971, or a Pennsylvania S corporation as

defined in section 301(n.1) of the Tax Reform Code of 1971.

"Qualified business venture."  A business that is based on a

business plan that satisfies the following requirements:

(1)  The business is headquartered or establishes its

headquarters in this Commonwealth prior to the time the

taxpayer is qualified to apply for an angel investment tax

credit and for at least five years thereafter.

(2)  At least 51% of the employees employed by the

business are employed in this Commonwealth at the time the

taxpayer is qualified to apply for an angel investment tax

credit and for at least three years thereafter.

(3)  The business has fewer than 100 employees at the

time the taxpayer is qualified to apply for an angel

investment tax credit.

(4)  The business has been in operation in this

Commonwealth for not more than five consecutive years at the

time the taxpayer is qualified to apply for an angel

investment tax credit.

(5)  The business has not received, in aggregate, more

than $5,000,000 in private equity investments.

"Qualified investment."  A private equity interest in a for-

profit business acquired by the payment of money or its

equivalent, which is subject to approval by the Department of

Community and Economic Development for purposes of qualifying

for this tax credit by an accredited investor or a network of

accredited investors who review new businesses or a proposed

business for the purpose of making an initial or subsequent

investment.

"Qualified tax liability."  The liability for taxes imposed

under Article III, IV or VI of the act of March 4, 1971 (P.L.6,

No.2), known as the Tax Reform Code of 1971. The term shall

include the liability for taxes imposed under Article III of the

Tax Reform Code of 1971 on an owner of a pass-through entity.

"Secretary."  The Secretary of Community and Economic

Development of the Commonwealth.

"Tax credit."  The angel investment tax credit authorized

under this chapter.

"Taxpayer."  An entity subject to tax under Article III, IV

or VI of the act of March 4, 1971 (P.L.6, No.2), known as the

Tax Reform Code of 1971. The term shall include the shareholder,

owner or member of a pass-through entity that receives an angel

investment tax credit.

§ 3804.  Credit for qualified investment.

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

investment in a taxable year may apply for a tax credit as

provided under this chapter. The department, in consultation

with the Department of Revenue, shall establish appropriate

filing deadlines for tax credits in a manner that allows for the

expeditious utilization of the tax credit by the taxpayer. The

application shall be submitted on a form required by the

department and must be accompanied by the business plan which

has been certified by the taxpayer applying for the tax credit.

(b)  Approval.--The department may approve the application

upon being satisfied about the following:

(1)  Upon review of the application for a tax credit, the

department finds that all requirements have been met,

including the requirements of a qualified business venture

and any corresponding guidelines the department establishes

in the best interest of the Commonwealth.

(2)  The Department of Revenue finds that all taxpayers

applying for the tax credit have filed all required State tax

reports and returns for all applicable taxable years and paid

any balance of State tax due as determined at settlement,

assessment or determination by the Department of Revenue.

(c)  Amount.--A taxpayer that is approved under subsection

(b) shall receive a tax credit for the taxable year in the

amount of 25% of the taxpayer's qualified investment in a

qualified business venture.

(d)  Notification.--By December 31 of the calendar year

following the close of the taxable year during which the

qualified investment was made, the department shall notify the

taxpayer of the amount of the taxpayer's tax credit approved by

the department.

§ 3805.  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, 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 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).

(c)  Carryback or refund.--A taxpayer is not entitled to

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 chapter 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

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 applicant

has filed all required State tax reports and returns for all

applicable taxable years and paid any balance of State tax due

as determined at settlement, assessment or determination 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.

§ 3806.  Time limitation.

A taxpayer shall not be entitled to a tax credit for

qualified investments incurred in taxable years ending after

December 31, 2021.

§ 3807.  Limitation on tax credits.

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

by the department in a fiscal year shall be equal to the

difference between $25,000,000 and the total amount of keystone

innovation zone tax credits issued under section 3706 (relating

to keystone innovation zone tax credits) through December 15th

of each year.

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

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

§ 3808.  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 entities' distributive income to which the owner or

member is entitled.

(c)  Additional credit.--

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

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

addition to any tax credit to which a shareholder, owner or

member of a pass-through entity is otherwise entitled under

this chapter.

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

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

under this chapter for the same qualified investment.

§ 3809.  Repayment and penalty.

(a)  Imposition.--Except as provided in subsection (b), the

department shall require the taxpayer to repay any tax credit

received and any monetary value received from the sale or

assignment of a tax credit and shall impose a penalty of 10%

where it has been determined that the recipient taxpayer did not

meet the requirements of the taxpayer's certified qualified

business plan or received such as the result of fraud and false

pretenses.

(b)  Exception.--The department may waive the repayment of a

tax credit or penalty required in subsection (a) if the

department determines that the failure to meet the requirements

of the certified qualified business plan was due to

circumstances outside the recipient taxpayer's control.

§ 3810.  Reports.

(a)  Annual report to General Assembly.--The secretary shall

submit an annual report to the chair and minority chair of the

standing committees in the Senate and the chair and minority

chair of the standing committees in the House of Representatives

with jurisdiction over the department and the Department of

Revenue indicating the effectiveness of the tax credit provided

under this chapter no later than March 15 following the fiscal

year in which the tax credits were approved. Notwithstanding any

law providing for the confidentiality of tax records, the report

shall include the names of all taxpayers utilizing the tax

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

credits approved and utilized by each taxpayer. The report may

also include any recommendations for changes in the calculation

or administration of the angel investment tax credit. The report

and the information contained in it shall be considered a public

record under section 102 of the act of February 14, 2008 (P.L.6,

No.3), known as the Right-to-Know Law.

(b)  Reports to General Assembly.--The department shall

submit a report to the the chair and minority chair of the

standing committees in the Senate and the chair and minority

chair of the standing committees in the House of Representatives

with jurisdiction over the department and the Department of

Revenue indicating the effectiveness of the tax credit by

December 31, 2013, and by December 31, 2016. Notwithstanding any

law providing for the confidentiality of tax records, the report

shall include the names of all taxpayers awarded the tax

credits, all taxpayers utilizing the tax credits, the amount of

tax credits approved and utilized by each taxpayer and the

locations of the qualified business awarded the tax credits. The

report and the information contained in it shall be considered a

public record.

§ 3811.  Termination.

The department shall not approve a tax credit for qualified

investments incurred in taxable years ending after December 31,

2021.

§ 3812.  Regulations.

The secretary, in consultation with the Secretary of Revenue,

shall promulgate regulations necessary for the implementation

and administration of this chapter.

Section 2.  This act shall take effect immediately.