THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY STACK, RAFFERTY, TARTAGLIONE, ERICKSON, ALLOWAY, FONTANA, WILLIAMS, SOLOBAY, FARNESE, GREENLEAF, BOSCOLA AND BROWNE, MARCH 2, 2012

REFERRED TO FINANCE, MARCH 2, 2012  

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," providing for higher education scholarship tax

credit.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows: 

Section 1.  The act of March 4, 1971 (P.L.6, No.2), known as

the Tax Reform Code of 1971, is amended by adding an article to

read:

ARTICLE XVII-G

HIGHER EDUCATION SCHOLARSHIP TAX CREDIT

Section 1701-G.  Scope of article.

This article establishes the higher education scholarship 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:

"Business firm."  An entity authorized to do business in this

Commonwealth and subject to taxes imposed under Article III, IV,

VI, VII, VIII, IX or XV. The term includes a pass-through

entity.

"Contribution."  A donation of cash, personal property or

services, the value of which is the net cost of the donation to

the donor or the pro rata hourly wage, including benefits, of

the individual performing the services.

"Department."  The Department of Community and Economic

Development of the Commonwealth.

"Eligible student."  An individual who satisfies all of the

criteria for an eligible student under the act of January 25,

1966 (1965 P.L.1546, No.541), referred to as the Higher

Education Scholarship Law.

"Higher education scholarship organization."  A nonprofit

entity which:

(1)  is exempt from Federal taxation under section 501(c)

(3) of the Internal Revenue Code of 1986 (Public Law 99-514,

26 U.S.C. § 1 et seq.); and

(2)  contributes at least 80% of its annual cash receipts

to a higher education scholarship program.

For the purposes of this definition, a nonprofit entity

contributes its annual cash receipts to a higher education

scholarship program when it expends or otherwise irrevocably

encumbers those funds for distribution during the then current

fiscal year of the nonprofit entity or during the next

succeeding fiscal year of the nonprofit entity.

"Higher education scholarship program."  A program to provide

a scholarship to eligible students for attendance at an

institution of higher education. A higher education scholarship

program must include an application and review process for the

purpose of making awards to eligible students. The award of

scholarships to eligible students shall be made without limiting

availability to only students of one school.

"Institution of higher education."  A public or private

institution that is located within this Commonwealth and is

authorized by the Department of Education to grant an associate

degree or higher degree.

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

301(n.0), a single-member limited liability company treated as a

disregarded entity for Federal income tax purposes or a

Pennsylvania S corporation as defined in section 301(n.1).

"State-related institution."  The Pennsylvania State

University, the University of Pittsburgh, Temple University,

Lincoln University and their branch campuses.

"State system."  The State System of Higher Education

established under Article XX-A of the act of March 10, 1949

(P.L.30, No.14), known as the Public School Code of 1949.

Section 1703-G.  Qualification and application for higher

education scholarship organization.

(a)  Program established.--There is established a higher

education improvement tax credit program to enhance the higher

education opportunities available to all students in this

Commonwealth.

(b)  Submission of information.--In order to qualify under

this article, a scholarship organization must submit information

to the department that enables the department to confirm that

the organization qualifies as an organization under section

501(c)(3) of the Internal Revenue Code of 1986 (Public Law

99-514, 26 U.S.C. § 1 et seq.) and is exempt from taxation under

section 501(a) of that act.

(c)  Requirements.--

(1)  A higher education scholarship organization must

certify to the department that the organization is eligible

to participate in the program established under this article

and must agree to annually report to the department by

December 1, 2012, and September 1 of each year thereafter,

all of the following:

(i)  The number of higher education scholarships

awarded during the immediately preceding academic year to

eligible students.

(ii)  The total and average amounts of the higher

education scholarships awarded during the immediately

preceding academic year to eligible students.

(iii)  The number of higher education scholarships

awarded during the immediately preceding academic year to

eligible students who attended community colleges.

(iv)  The total and average amounts of the higher

education scholarships awarded during the immediately

preceding academic year to eligible students who attended

community colleges.

(v)  The number of higher education scholarships

awarded during the immediately preceding academic year to

eligible students who attended an institution of the

State system.

(vi)  The total and average amounts of the higher

education scholarships awarded during the immediately

preceding academic year to eligible students who attended

an institution of the State system.

(vii)  The number of higher education scholarships

awarded during the immediately preceding academic year to

eligible students who attended a State-related

institution.

(viii)  The total and average amounts of the higher

education scholarships awarded during the immediately

preceding academic year to eligible students who attended

a State-related institution.

(ix)  The number of higher education scholarships

awarded during the immediately preceding academic year to

eligible students who attended a private institution of

higher education.

(x)  The total and average amounts of the higher

education scholarships awarded during the immediately

preceding academic year to eligible students who attended

a private institution of higher education.

(2)  The information required under paragraph (1) shall

be submitted on a form provided by the department. No later

than September 1, 2012, and May 1 of each year thereafter,

the department shall annually distribute such sample forms,

together with the forms on which the reports are required to

be made, to each listed higher education scholarship

organization.

(3)  The department may not require any other information

to be provided by a higher education scholarship

organization, except as expressly authorized in this article.

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

education scholarship organization whether the organization

meets the requirements of this article for that fiscal year no

later than 60 days after the organization has submitted the

information required under this section.

(e)  Publication.--The department shall annually publish a

list of each higher education scholarship organization qualified

under this section in the Pennsylvania Bulletin. The list shall

also be posted and updated as necessary on the publicly

accessible Internet website of the department.

Section 1704-G.  Application for tax credit by business firm.

(a)  Requirements.--A business firm upon application to the

department for a tax credit under section 1705-G may receive a

tax credit under this article if the higher education

scholarship organization that receives the contribution appears

on the list established under section 1703-G(e).

(b)  Availability of tax credits.--Tax credits under this

article shall be made available by the department on a first-

come-first-served basis within the limitation established under

section 1706-G(a).

(c)  Contributions.--A contribution by a business firm to a

higher education scholarship organization shall be made no later

than 60 days following the approval of an application under

subsection (a) or (b).

Section 1705-G.  Tax credit.

(a)  General rule.--In accordance with section 1706-G(a), the

Department of Revenue shall grant a tax credit against any tax

due under Article III, IV, VI, VII, VIII, IX or XV to a business

firm providing proof of a contribution to a higher education

scholarship organization in the taxable year in which the

contribution is made, which shall not exceed 75% of the total

amount contributed during the taxable year by the business firm.

The credit shall not exceed $300,000 annually per business firm

for contributions made to higher education scholarship

organizations.

(b)  Additional amount.--The Department of Revenue shall

grant a tax credit of up to 90% of the total amount contributed

during the taxable year if the business firm provides a written

commitment to provide the higher education scholarship

organization with the same amount of contribution for two

consecutive tax years. The business firm must provide the

written commitment under this subsection to the department at

the time of application.

(c)  Combination of tax credits.--A business firm may receive

tax credits from the Department of Revenue in any tax year for

any combination of contributions under subsection (a) or (b). In

no case shall a business firm receive tax credits in any tax

year in excess of $300,000 for contributions under subsection

(a) or (b).

(d)  Pass-through entity.--

(1)  If a pass-through entity does not intend to use all

approved tax credits under this section, it may elect in

writing to transfer all or a portion of the credit to

shareholders, members or partners in proportion to the share

of the entity's distributive income to which the shareholder,

member or partner is entitled for use in the taxable year in

which the contribution is made or in the taxable year

immediately following the year in which the contribution is

made. The election shall designate the year in which the

transferred credits are to be used and shall be made

according to procedures established by the Department of

Revenue.

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

partner of a pass-through entity shall not claim the credit

under this section for the same contribution.

(3)  The shareholder, member or partner may not carry

forward, carry back, obtain a refund of or sell or assign the

credit.

(e)  Restriction on applicability of credits.--No credits

granted under this section shall be applied against any tax

withheld by an employer from an employee under Article III.

(f)  Time of application for credits.--

(1)  Except as provided in paragraphs (2) and (3), the

department may accept applications for tax credits available

during a fiscal year no earlier than July 1 of each fiscal

year.

(2)  The application of any business firm for tax credits

available during a fiscal year as part of the second year of

a two-year commitment may be accepted no earlier than May 15

preceding the fiscal year.

(3)  The application under subsection (a) of any pass-

through entity for approval of single-year tax credits

available during a fiscal year against the taxes imposed

under Article III or under subsection (b) for approval of

credits against such taxes for the first year of a two-year

commitment may be accepted by the department no earlier than

the first business day following July 7 of the fiscal year.

Section 1706-G.  Limitations.

(a)  Amount.--The total aggregate amount of all tax credits

approved by the department shall not exceed $25,000,000 in a

fiscal year.

(b)  Activities.--No tax credit shall be approved for

activities that are a part of a business firm's normal course of

business.

(c)  Tax liability.--

(1)  Except as provided in paragraph (2), a tax credit

granted for any one taxable year may not exceed the tax

liability of a business firm.

(2)  In the case of a credit granted to a pass-through

entity which elects to transfer the credit according to

section 1705-G(d), a tax credit granted for any one taxable

year and transferred to a shareholder, member or partner may

not exceed the tax liability of the shareholder, member or

partner.

(d)  Use.--A tax credit not used by the applicant in the

taxable year the contribution was made or in the year designated

by the shareholder, member or partner to whom credit was

transferred under section 1705-G(d) may not be carried forward

or carried back and is not refundable or transferable.

(e)  Nontaxable income.--A scholarship received by an

eligible student shall not be considered to be taxable income

for purposes of Article III.

Section 1707-G.  List of organizations receiving contributions.

The Department of Revenue shall provide a list of all higher

education scholarship organizations receiving contributions from

business firms granted a tax credit under this article to the

General Assembly by June 30 of each year.

Section 2.  The addition of Article XVII-G of the act shall

apply to tax years beginning after December 31, 2011.

Section 3.  This act shall take effect immediately.