PRINTER'S NO. 456
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No.
463
Session of
2017
INTRODUCED BY BLAKE, SCHWANK, FONTANA, COSTA, HAYWOOD, BREWSTER
AND HUGHES, MARCH 1, 2017
REFERRED TO FINANCE, MARCH 1, 2017
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 corporate net income tax, further providing
for definitions, for imposition of tax, for reports and
payment of tax and for consolidated reports; providing for
mandatory combined reporting; and, in general provisions,
further providing for underpayment of estimated tax.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 401(3)1(a) and (b) and 2(a)(17) and (5)
of the act of March 4, 1971 (P.L.6, No.2), known as the Tax
Reform Code of 1971, are amended, clause (3)2 is amended by
adding a phrase, clause (3)2(a) is amended by adding paragraphs
and the section is amended by adding clauses to read:
Section 401. Definitions.--The following words, terms, and
phrases, when used in this article, shall have the meaning
ascribed to them in this section, except where the context
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clearly indicates a different meaning:
* * *
(3) "Taxable income." 1. (a) In case the entire business
of the corporation is transacted within this Commonwealth, for
any taxable year which begins on or after January 1, 1971,
taxable income for the calendar year or fiscal year as returned
to and ascertained by the Federal Government, or in the case of
a corporation participating in the filing of consolidated
returns to the Federal Government or that is not required to
file a return with the Federal Government, the taxable income
which would have been returned to and ascertained by the Federal
Government if separate returns had been made to the Federal
Government for the current and prior taxable years, subject,
however, to any correction thereof, for fraud, evasion, or error
as finally ascertained by the Federal Government.
(b) Additional deductions shall be allowed from taxable
income on account of any dividends received from any other
corporation but only to the extent that such dividends are
included in taxable income as returned to and ascertained by the
Federal Government. For tax years beginning on or after January
1, 1991, additional deductions shall only be allowed for amounts
included, under section 78 of the Internal Revenue Code of 1986
(Public Law 99-514, 26 U.S.C. § 78), in taxable income returned
to and ascertained by the Federal Government and for the amount
of any dividends received from a foreign corporation included in
taxable income to the extent such dividends would be deductible
in arriving at Federal taxable income if received from a
domestic corporation. For taxable years beginning after December
31, 2022, if not otherwise allowed as a deduction, an additional
deduction is allowed for all dividends paid by one to another of
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the included corporations of a unitary business to the extent
that those dividends are included in business income of a
corporation that is required to determine its business income
under paragraph (1) of phrase (e) of subclause (2).
* * *
2. In case the entire business of any corporation, other
than a corporation engaged in doing business as a regulated
investment company as defined by the Internal Revenue Code of
1986, is not transacted within this Commonwealth, the tax
imposed by this article shall be based upon such portion of the
taxable income of such corporation for the fiscal or calendar
year, as defined in subclause 1 hereof, and may be determined as
follows:
(a) Division of Income.
* * *
(17) Sales, other than sales under paragraphs (16) [and],
(16.1), (17.1) and (17.2) , are in this State if:
(A) The income-producing activity is performed in this
State; or
(B) The income-producing activity is performed both in and
outside this State and a greater proportion of the income-
producing activity is performed in this State than in any other
state, based on costs of performance.
(17.1) Sales of services are in this State if sales are
derived from customers within this State. If part of the sales
with respect to a specific contract or other agreement to
perform services is derived from customers from within this
State, sales are in this State in proportion to the sales
derived from customers within this State to total sales with
respect to that contract or agreement.
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(17.2) In order to determine sales in this State of any
railroad, truck, bus, airline, pipeline, natural gas or water
transportation company that is required to determine its
business income under paragraph (1) of phrase (e) of this
subclause, the company must convert the relevant fraction set
forth under phrase (b), (c) or (d) of this subclause to gross
receipts. Sales in this State are the result of multiplying
total gross receipts from relevant transportation activities by
the decimal equivalent of the relevant fraction set forth under
phrase (b), (c) or (d) of this subclause.
* * *
(f) Corporations That are Members of a Unitary Business.
(1) Notwithstanding any contrary provisions of this article,
for taxable years that begin after December 31, 2022, business
income of a corporation that is a member of a unitary business
that consists of two or more corporations, at least one of which
does not transact its entire business in this State, is
determined by combining the business income of either all
corporations, other than as provided under this paragraph, that
are water's-edge basis members or all corporations, other than
as provided under this paragraph, that are worldwide members of
the unitary business. Business income from an intercompany
transaction between included corporations of a unitary business
shall be deferred in the manner set forth under 26 CFR 1.1502-13
(relating to intercompany transactions) in determining the
business income of a corporation that is a member of that
unitary business. Business income of the following corporations
is not included in the determination of combined business
income:
(A) a corporation subject to taxation under Article VII,
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VIII, IX or XV;
(B) a corporation specified in the definition of
"institution" in section 1501 that would be subject to taxation
under Article VII if it was located, as defined in section 1501,
in this State;
(C) a corporation commonly known as a title insurance
company that would be subject to taxation under Article VIII if
it was incorporated in this State;
(D) a corporation specified as an insurance company,
association or exchange in Article IX that would be subject to
taxation under Article IX if its insurance business was
transacted in this State;
(E) a corporation specified in the definition of
"institution" in section 1501 that would be subject to taxation
under Article XV if it was located, as defined in section 1501,
in this State; or
(F) a corporation that is a small corporation, as defined in
section 301(s.2), or a qualified Subchapter S subsidiary, as
defined in section 301(o.3).
(2) Notwithstanding any contrary provisions of this article,
all corporations that are required to compute business income
under paragraph (1) are entitled to apportion the business
income when one corporation of the same unitary business is
entitled to apportion the business income. Notwithstanding any
contrary provisions of this article, for taxable years that
begin after December 31, 2022, the denominator of the
apportionment fraction of a corporation that is required to
compute its business income under paragraph (1) shall be
computed on a combined basis for all included corporations of
the unitary business. Gross receipts from an intercompany
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transaction between included corporations of a unitary business
shall be eliminated unless the gross receipts are derived from
transactions that are deferred in the manner set forth under 26
CFR 1.1502-13 in computing the numerator and denominator of the
apportionment fraction of a corporation that is required to
compute its business income under paragraph (1). Gross receipts
from transactions that had been deferred in the manner set forth
under 26 CFR 1.1502-13 are included in a corporation's
apportionment fraction during the same taxable year that it
realizes business income that had been deferred due to the
transaction. The apportionment fraction of the following
corporations shall not be included in the determination of the
combined apportionment fraction:
(A) a corporation subject to taxation under Article VII,
VIII, IX or XV;
(B) a corporation specified in the definition of
"institution" in section 1501 that would be subject to taxation
under Article VII if it was located, as defined in section 1501,
in this State;
(C) a corporation commonly known as a title insurance
company that would be subject to taxation under Article VIII if
it was incorporated in this State;
(D) a corporation specified as an insurance company,
association or exchange in Article IX that would be subject to
taxation under Article IX if its insurance business was
transacted in this State;
(E) a corporation specified in the definition of
"institution" in section 1501 that would be subject to taxation
under Article XV if it was located, as defined in section 1501,
in this State;
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(F) a corporation that is a small corporation, as defined in
section 301(s.2), or a qualified Subchapter S subsidiary, as
defined in section 301(o.3).
(3) A corporation that is required to compute its business
income under paragraph (1) shall apportion the combined business
income by multiplying the combined business income by a fraction
which is the combined apportionment fraction set forth under
paragraph (2).
(4) Nonbusiness income of a corporation that is required to
compute business income under paragraph (1) shall be allocated
as provided in paragraphs (5), (6), (7) and (8) of phrase (a) of
this subclause.
(5) Each corporation that is a member of a unitary business
that consists of two or more corporations shall determine its
tax liability based on its apportioned share of the combined
business income of the unitary business plus its nonbusiness
income or loss allocated to this State, minus its net loss
deduction.
(6) If any provision of this phrase operates so that an
amount is added to or deducted from taxable income for a taxable
year for any corporation of a unitary business that previously
had been added to or deducted from taxable income of any
corporation of the same unitary business, an appropriate
adjustment shall be made for the taxable year in order to
prevent double taxation or double deduction. If this adjustment
is not made by the appropriate corporation of the unitary
business, the Secretary of Revenue is authorized to make this
adjustment.
(7) The Secretary of Revenue shall have the authority and
responsibility to make adjustments to insure that a corporation
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does not incur an unfair penalty nor realize an unfair benefit
because it is required to compute its business income under
paragraph (1). Fairness shall be measured by whether the
corporation's income allocated and apportioned to this State
fairly reflects the corporation's share of the unitary business
conducted in this State in the taxable year.
* * *
(5) "Taxable year." [The] 1. Except as set forth in
subclause 2, the taxable year which the corporation, or any
consolidated group with which the corporation participates in
the filing of consolidated returns, actually uses in reporting
taxable income to the Federal Government[.], or which the
corporation would have used in reporting taxable income to the
Federal Government had it been required to report its taxable
income to the Federal Government. With regard to the tax imposed
by Article IV of this act (relating to the Corporate Net Income
Tax), the terms "annual year," "fiscal year," "annual or fiscal
year," "tax year" and "tax period" shall be the same as the
corporation's taxable year, as defined in this [paragraph.]
subclause or subclause 2.
2. All corporations of a unitary business shall have a
common taxable year for purposes of computing tax due under this
article. The taxable year for the purposes of computing tax
shall be the common taxable year adopted, in a manner prescribed
by the department, by all corporations of a unitary business.
The common taxable year must be used by all corporations of that
unitary business in the year of adoption and all future years
unless otherwise permitted by the department.
* * *
(11) "Tax haven." A jurisdiction that at the beginning of a
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taxable year is a tax haven as identified by the Organization
for Economic Co-operation and Development, plus the
sovereignties of Bermuda, the Cayman Islands, the Bailiwick of
Jersey and the Grand Duchy of Luxembourg.
(12) "Unitary business." A single economic enterprise that
is made up of separate parts of a single corporation, of a
commonly controlled group of corporations, or both, that are
sufficiently interdependent, integrated and interrelated through
their activities so as to provide a synergy and mutual benefit
that produces a sharing or exchange of value among them and a
significant flow of value to the separate parts. A unitary
business shall include only those parts and corporations which
may be included as a unitary business under the Constitution of
the United States.
(13) "Water's-edge basis." A system of reporting that
includes the business income and apportionment factor of certain
corporations of a unitary business, described as follows:
1. The business income and apportionment factor of any
member incorporated in the United States or formed under the
laws of any state of the United States, the District of
Columbia, any territory or possession of the United States or
the Commonwealth of Puerto Rico.
2. The business income and apportionment factor of any
member, regardless of the place incorporated or formed, if the
average of its property, payroll and sales factors within the
United States is twenty per cent or more.
3. The business income and apportionment factor of any
member which is a domestic international sales corporation as
described in sections 991, 992, 993 and 994 of the Internal
Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §§ 991, 992,
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993 and 994); a foreign sales corporation as described in former
sections 921, 922, 923, 924, 925, 926 and 927 of the Internal
Revenue Code of 1986 (formerly 26 U.S.C. §§ 921, 922, 923, 924,
925, 926 and 927); or any member which is an export trade
corporation, as described in sections 970 and 971 of the
Internal Revenue Code of 1986 ( 26 U.S.C. §§ 970 and 971).
4. Any member not described in subclauses 1, 2 and 3 shall
include the portion of its business income derived from or
attributable to sources within the United States, as determined
under the Internal Revenue Code of 1986 without regard to
Federal treaties, and its apportionment factor related thereto.
5. Any member that is a "controlled foreign corporation" as
defined in section 957 of the Internal Revenue Code of 1986 (26
U.S.C. § 957), to the extent the business income of that member
is income defined in section 952 of the Internal Revenue Code of
1986 (26 U.S.C. § 952), not excluding lower-tier subsidiaries'
distributions of the income which were previously taxed,
determined without regard to Federal treaties, and the
apportionment factor related to that income; any item of income
received by a controlled foreign corporation and the
apportionment factor related to the income shall be excluded if
the corporation establishes to the satisfaction of the Secretary
of Revenue that the income was subject to an effective rate of
income tax imposed by a foreign country greater than ninety per
cent of the maximum rate of tax specified in section 11 of the
Internal Revenue Code of 1986 (26 U.S.C. § 11). The effective
rate of income tax determination shall be based upon the
methodology set forth under 26 CFR 1.954-1 (relating to foreign
base company income).
6. The business income and apportionment factor of any
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member that is not described in subclauses 1, 2, 3, 4 and 5 and
that is doing business in a tax haven. The business income and
apportionment factor of a corporation doing business in a tax
haven shall be excluded if the corporation establishes to the
satisfaction of the Secretary of Revenue that its income was
subject to an effective rate of income tax imposed by a foreign
country greater than ninety per cent of the maximum rate of tax
specified in section 11 of the Internal Revenue Code of 1986.
(14) "Commonly controlled group." For a corporation, the
corporation is a member of a group of two or more corporations
and more than fifty per cent of the voting stock of each member
of the group is directly or indirectly owned by a common owner
or by common owners, either corporate or noncorporate, or by one
or more of the member corporations of the group.
(15) "Separate company." A corporation that is not a member
of a unitary business that consists of two or more corporations.
(16) "Tax." Includes interest, penalties and additions to
tax unless a more limited meaning is disclosed by the context.
Section 2. Section 402(b) of the act is amended to read:
Section 402. Imposition of Tax.--* * *
(b) The annual rate of tax on corporate net income imposed
by subsection (a) for taxable years beginning for the calendar
year or fiscal year on or after the dates set forth shall be as
follows:
Taxable Year Tax Rate
[January 1, 1995, and each
taxable year thereafter 9.99%]
January 1, 1995, through taxable
years ending December 31,
2018 9.99%
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January 1, 2019, to December 31,
2019 9.39%
January 1, 2020, to December 31,
2020 8.79%
January 1, 2021, to December 31,
2021 8.19%
January 1, 2022, to December 31,
2022 7.59%
January 1, 2023, to December 31,
2023, and each taxable year
thereafter 6.99%
* * *
Section 3. Section 403 of the act is amended by adding
subsections to read:
Section 403. Reports and Payment of Tax.--* * *
(a.1) The following apply regarding an annual report:
(1) Each corporation subject to tax under this article shall
file an annual report in accordance with this section. Each
corporation that is a member of a unitary business that consists
of two or more corporations, unless excluded by the provisions
of this article, shall file as part of a combined annual report.
The corporations of the unitary business shall designate one
member that is subject to tax under this article to file the
combined annual report and to act as agent on behalf of all
other corporations that are members of the unitary business.
Each corporation that is a member of a unitary business shall be
responsible for its tax liability under this article.
(2) The oath or affirmation of the designated member's
president, vice president or other principal officer and of its
treasurer or assistant treasurer shall constitute the oath or
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affirmation of each corporation that is a member of that unitary
business.
(3) The designated member shall transmit to the department
upon a form prescribed by the department an annual combined
report under oath or affirmation of its president, vice
president or other principal officer and of its treasurer or
assistant treasurer. The report shall set forth:
(i) All corporations included in the unitary business.
(ii) All necessary data, both in the aggregate and for each
corporation of the unitary business, that sets forth the
determination of tax liability for each corporation of the
unitary business.
(iii) Any other information that the department may require.
(a.2) The following apply regarding a significant flow of
value:
(1) Activities that evidence a significant flow of value
among commonly controlled corporations shall include the
following:
(i) Assisting in the acquisition of equipment.
(ii) Assisting with filling personnel needs.
(iii) Lending funds or guaranteeing loans.
(iv) Interplay in the area of corporate expansion.
(v) Providing technical assistance.
(vi) Supervising.
(vii) Providing general operational guidance.
(viii) Providing overall operational strategic advice.
(ix) Common use of trade names and patents.
(2) Significant flow of value must be more than the flow of
funds arising out of passive investment and shall consist of
more than periodic financial oversight.
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(a.3) The following apply regarding a unitary business:
(1) With respect to a commonly controlled group of
corporations, the presence of any of these factors creates a
presumption of a unitary business:
(i) Corporations engaged in the same type of business.
(ii) Corporations engaged in different steps in a vertically
structured enterprise.
(iii) Strong centralized management of corporations.
(2) A corporation newly formed by a corporation that is a
member of a unitary business is rebuttably presumed to be a
member of the unitary business.
(3) A corporation that owns a controlling interest in two or
more corporations of a unitary business is rebuttably presumed
to be a member of the unitary business.
(4) A corporation that permits one or more other
corporations of a unitary business to substantially use its
patents, trademarks, service marks, logo-types, trade secrets,
copyrights or other proprietary assets or that is principally
engaged in loaning money to one or more other corporations of a
unitary business is rebuttably presumed to be a member of the
unitary business. This presumption only applies to a commonly
controlled group of corporations.
(a.4) As far as applicable to a specific unitary business,
unless there is a revision of applicable State law or unless a
corporation is not included under the provisions of this
article, there is a rebuttable presumption for all tax years
that begin in years 2023 and 2024 that a unitary business of two
or more corporations includes at least all corporations that are
part of a unitary business under the law of any state of the
United States in which the corporation files a tax report or tax
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return of combined net income for the same tax year.
(a.5) Unless an election is made to use a worldwide basis of
accounting, a corporation that is a member of a unitary business
of two or more corporations must determine its business income
and apportionment factor upon a water's-edge basis. This basis
shall apply to all corporations of the unitary business. If an
election is made to use a worldwide basis of accounting, all
corporations of the unitary business must make the election,
upon a form prescribed, prepared and furnished by the
department. This election shall bind all corporations of the
unitary business for the period of time that the election
remains in effect. An initial election is binding for a period
of seven years. Subsequent elections shall be binding for a
period of five years.
* * *
Section 4. Section 404 of the act is amended to read:
Section 404. Consolidated Reports.--The department shall not
permit any corporation owning or controlling, directly or
indirectly, any of the voting capital stock of another
corporation or of other corporations, subject to the provisions
of this article, to make a consolidated report[, showing the
combined net income].
Section 5. The act is amended by adding an article to read:
ARTICLE IV-A
MANDATORY COMBINED REPORTING
Section 401-A. 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:
"Commonly controlled group." For a corporation, the
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corporation is a member of a group of two or more corporations
and more than 50% of the voting stock of each member of the
group is directly or indirectly owned by a common owner or by
common owners, either corporate or noncorporate, or by one or
more of the member corporations of the group.
"Corporation." As defined in section 401.
"Department." The Department of Revenue of the Commonwealth.
"Secretary." The Secretary of Revenue of the Commonwealth.
"Separate company." A corporation that is not a member of a
unitary business that consists of two or more corporations.
"Tax." Includes interest, penalties and additions to tax,
unless a more limited meaning is disclosed by the context.
"Tax haven." Any of the following:
(1) A jurisdiction which, at the beginning of a taxable
year, is a tax haven as identified by the Organization for
Economic Co-operation and Development.
(2) Bermuda.
(3) The Cayman Islands.
(4) The Bailiwick of Jersey.
(5) The Grand Duchy of Luxembourg.
"Unitary business." A single economic enterprise that is
made up of separate parts of a single corporation, of a commonly
controlled group of corporations, or both, which are
sufficiently interdependent, integrated and interrelated through
their activities so as to provide a synergy and mutual benefit
that produces a sharing or exchange of value among them and a
significant flow of value to the separate parts. The term
includes only those parts and corporations which may be included
as a unitary business under the Constitution of the United
States.
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"Water's-edge basis." The system of reporting required under
section 402-A.
Section 402-A. Water's-edge basis.
A unitary business shall report as follows:
(1) The business income and apportionment factor of each
member incorporated in the United States or formed under the
laws of a state, the District of Columbia, a territory or
possession of the United States or the Commonwealth of Puerto
Rico.
(2) The business income and apportionment factor of
every member, regardless of the place incorporated or formed,
if the average of the corporation's or unitary business's
property, payroll and sales factors within the United States
is at least 20%.
(3) The business income and apportionment factor of each
member which is:
(i) a domestic international sales corporation, as
described in sections 991, 992, 993 and 994 of the
Internal Revenue Code of 1986 (Public Law 99-514, 26
U.S.C. §§ 991, 992, 993 and 994);
(ii) a foreign sales corporation as described in
former sections 921, 922, 923, 924, 925, 926 and 927 of
the Internal Revenue Code of 1986 (114 Stat. 2423); or
(iii) an export trade corporation, as described in
sections 970 and 971 of the Internal Revenue Code of 1986
(26 U.S.C. §§ 970 and 971).
(4) For each member which is a "controlled foreign
corporation," as defined in section 957 of the Internal
Revenue Code of 1986 (26 U.S.C. § 957), to the extent the
business income of that member is income defined in section
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952 of the Internal Revenue Code of 1986 (26 U.S.C. § 952),
all of the following:
(i) Subpart F income, not excluding lower-tier
subsidiaries' distributions of the income which were
previously taxed, determined without regard to a Federal
treaty, and the apportionment factor related to that
income.
(ii) Any item of income received by a controlled
foreign corporation and the apportionment factor related
to the income shall be excluded if the corporation
establishes to the satisfaction of the secretary that the
income was subject to an effective rate of income tax
imposed by a foreign country greater than 90% of the
maximum rate of tax specified in section 11 of the
Internal Revenue Code of 1986 (26 U.S.C. § 11). The
effective rate of income tax determination shall be based
upon the methodology set forth under 26 CFR 1.954-1
(relating to foreign base company income).
(5) For each member that is not described in paragraph
(1), (2) or (3):
(i) the portion of its business income derived from
or attributable to sources within the United States, as
determined under the Internal Revenue Code of 1986,
without regard to a Federal treaty; and
(ii) its apportionment factor related to the portion
of income under subparagraph (i).
(6) For each member that is not described in paragraph
(1), (2), (3) or (4) and which is doing business in a tax
haven:
(i) Except as set forth in subparagraph (ii), the
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business income and apportionment factor.
(ii) If the member establishes to the satisfaction
of the secretary that its income was subject to an
effective rate of income tax imposed by a foreign country
greater than 90% of the maximum rate of tax specified in
section 11 of the Internal Revenue Code of 1986,
subparagraph (i) shall not apply.
Section 403-A. Corporate members of unitary businesses.
(a) Scope.--This section applies to a corporation that is a
member of a unitary business which consists of two or more
corporations, at least one of which does not transact its entire
business in this Commonwealth.
(b) Returns.--For taxable years beginning after December 31,
2016, a corporation subject to this section shall, in addition
to the tax return filed under Article IV, file a return in
accordance with this section. For a taxable year which begins
after December 31, 2017, and ends before January 1, 2019, the
return filed under this subsection shall be for informational
purposes only and shall not be subject to section 404-A(b) or
(c).
(c) Business income.--
(1) For purposes of the return under subsection (b),
business income of a corporation shall be computed, subject
to paragraph (2) and subsections (d), (e) and (f), by
combining the business income of:
(i) each corporation required to report on a
water's-edge basis; or
(ii) each corporation that is a worldwide member of
the unitary business.
(2) The following shall apply:
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(i) Business income from an intercompany transaction
between included corporations of a unitary business shall
be deferred in the manner set forth under 26 CFR 1.1502-
13 (relating to intercompany transactions) in determining
the business income of a corporation which is a member of
that unitary business.
(ii) Business income of the following corporations
shall not be included in the determination of combined
business income:
(A) A corporation subject to taxation under
Article VII, VIII, IX or XV.
(B) An institution, as defined in section 1501,
that would be subject to taxation under Article VII
if it was located, as defined in section 1501, in
this Commonwealth.
(C) A corporation commonly known as a title
insurance company that would be subject to taxation
under Article VIII if it was incorporated in this
Commonwealth.
(D) A corporation specified as an insurance
company, association or exchange in Article IX that
would be subject to taxation under Article IX if its
insurance business was transacted in this
Commonwealth.
(E) A mutual thrift institution, as defined in
section 1501, that would be subject to taxation under
Article XV if it was located, as defined in section
1501, in this Commonwealth.
(F) A small corporation, as defined in section
301(s.2).
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(G) A qualified Subchapter S subsidiary, as
defined in section 301(o.3).
(d) Apportionment.--Notwithstanding any provision of this
act, a corporation computing business income under subsection
(c) may apportion the business income when one corporation of
the same unitary business is entitled to apportion the business
income.
(e) Apportionment fraction.--For a corporation computing
business income under subsection (c), subject to subsection (f),
the following apply:
(1) Computation shall be as follows:
(i) The denominator of the apportionment fraction
shall be computed on a combined basis for all included
corporations of the unitary business.
(ii) Gross receipts from an intercompany transaction
between included corporations of a unitary business shall
be eliminated unless the gross receipts are derived from
transactions that are deferred in the manner set forth
under 26 CFR 1.1502-13, in computing the numerator and
denominator of the apportionment fraction.
(iii) Gross receipts from transactions which were
deferred under 26 CFR 1.1502-13 shall be included in a
corporation's apportionment fraction during the same
taxable year in which it realizes business income which
was deferred due to the transaction.
(2) Apportionment shall be accomplished by multiplying:
(i) the combined business income; by
(ii) a fraction which is the combined apportionment
fraction under paragraph (1).
(f) Exclusions.--For purposes of subsection (e), the
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apportionment fraction of the following corporations shall not
be included in the determination of the combined apportionment
fraction:
(1) A corporation subject to taxation under Article VII,
VIII, IX or XV.
(2) An institution, as defined in section 1501, that
would be subject to taxation under Article VII if it was
located, as defined in section 1501, in this Commonwealth.
(3) A corporation commonly known as a title insurance
company that would be subject to taxation under Article VIII
if it was incorporated in this Commonwealth.
(4) A corporation specified as an insurance company,
association or exchange in Article IX that would be subject
to taxation under Article IX if its insurance business was
transacted in this Commonwealth.
(5) A mutual thrift institution, as defined in section
1501, that would be subject to taxation under Article XV if
it was located, as defined in section 1501, in this
Commonwealth.
(6) A small corporation, as defined in section 301(s.2).
(7) A qualified Subchapter S subsidiary, as defined in
section 301(o.3).
(g) Nonbusiness income.--A corporation subject to this
section shall allocate nonbusiness income as provided in section
401(3)2(a)(5), (6), (7) and (8).
Section 404-A. Surtax.
(a) Estimated tax liability.--Each corporation that is
required to submit a return under this article shall determine
its estimated tax liability under this article based on its
apportioned share of the combined business income of the unitary
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business plus its nonbusiness income or loss allocated to this
State, minus its net loss deduction, multiplied by the tax rate
applicable to the taxable year being reported in Article IV.
(b) Surtax.--If, after determining its estimated tax
liability under subsection (a), the corporation determines that
its estimated tax liability calculated under subsection (a) is
greater than the corporation's tax liability calculated under
Article IV, the corporation shall pay a surtax to the department
in an amount equal to the following:
(1) For a taxable year which begins after December 31,
2017, and ends before January 1, 2019, 20% of the difference
between the tax liability calculated under subsection (a) and
the tax paid to the department for that taxable year as set
forth in the return filed under Article IV.
(2) For a taxable year which begins after December 31,
2018, and ends before January 1, 2020, 40% of the difference
between the tax liability calculated under subsection (a) and
the tax paid to the department for that taxable year as set
forth in the return filed under Article IV.
(3) For a taxable year which begins after December 31,
2019, and ends before January 1, 2021, 60% of the difference
between the tax liability calculated under subsection (a) and
the tax paid to the department for that taxable year as set
forth in the return filed under Article IV.
(4) For a taxable year which begins after December 31,
2020, and ends before January 1, 2022, 80% of the difference
between the tax liability calculated under subsection (a) and
the tax paid to the department for that taxable year as set
forth in the return filed under Article IV.
(5) For a taxable year which begins after December 31,
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2021, and ends before January 1, 2023, 100% of the difference
between the tax liability calculated under subsection (a) and
the tax paid to the department for that taxable year as set
forth in the return filed under Article IV.
(c) Credit.--If, after determining its estimated tax
liability under subsection (a), the corporation determines that
its estimated tax liability calculated under subsection (a) is
less than the corporation's tax liability calculated under
Article IV, the corporation shall be entitled to a credit
against the tax paid under Article IV in an amount equal to the
difference between the two calculations.
(d) Unitary business adjustment.--If any provision of this
article operates so that an amount is added to or deducted from
taxable income for a taxable year for any corporation of a
unitary business that previously had been added to or deducted
from taxable income of any corporation of the same unitary
business, an appropriate adjustment shall be made for the
taxable year in order to prevent double taxation or double
deduction. If the adjustment is not made by the appropriate
corporation of the unitary business, the secretary is authorized
to make the adjustment.
(e) Secretary.--The secretary shall have the duty to make
adjustments to ensure that a corporation does not incur an
unfair penalty nor realize an unfair benefit because it is
required to compute its business income under this article.
Fairness shall be measured by whether the corporation's income
allocated and apportioned to this Commonwealth fairly reflects
the corporation's share of the unitary business conducted in
this Commonwealth in the taxable year.
Section 405-A. Common tax year.
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All corporations of a unitary business shall have a common
taxable year for purposes of computing tax due under this
article. The taxable year shall be the common taxable year
adopted, in a manner prescribed by the department, by all
corporations of a unitary business. The common taxable year must
be used by all corporations of that unitary business in the year
of adoption and all future years unless otherwise permitted by
the department.
Section 406-A. Reports and payment of surtax.
(a) Designation.--The corporations of a unitary business
shall designate one member that is subject to tax under Article
IV to file the annual report and remit the surtax required under
this article and to act as agent on behalf of all other
corporations that are members of the unitary business. Each
corporation that is a member of a unitary business shall be
responsible for its tax liability under Article IV and the
surtax under this article.
(b) Oath or affirmation.--The oath or affirmation of the
designated member's president, vice president or other principal
officer and of its treasurer or assistant treasurer shall
constitute the oath or affirmation of each corporation that is a
member of that unitary business.
(c) Annual report.--The designated member shall transmit to
the department upon a form prescribed by the department an
annual report under oath or affirmation of its president, vice
president or other principal officer and of its treasurer or
assistant treasurer. The report shall set forth:
(1) All corporations included in the unitary business.
(2) All necessary data, both in the aggregate and for
each corporation of the unitary business, that sets forth the
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determination of tax liability for each corporation of the
unitary business.
(3) Any other information that the department may
require.
(d) Activities.--
(1) Activities that evidence a significant flow of value
among commonly controlled corporations shall include the
following:
(i) Assisting in the acquisition of equipment.
(ii) Assisting with filling personnel needs.
(iii) Lending funds or guaranteeing loans.
(iv) Interplay in the area of corporate expansion.
(v) Providing technical assistance.
(vi) Supervising.
(vii) Providing general operational guidance.
(viii) Providing overall operational strategic
advice.
(ix) Common use of trade names and patents.
(2) Significant flow of value must be more than the flow
of funds arising out of passive investment and must consist
of more than periodic financial oversight.
Section 407-A. Rebuttable presumptions for unitary business.
(a) Commonly controlled group of corporations.--With respect
to a commonly controlled group of corporations, the presence of
any of these factors creates a presumption of a unitary
business:
(1) Corporations engaged in the same type of business.
(2) Corporations engaged in different steps in a
vertically structured enterprise.
(3) Strong centralized management of corporations.
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(b) Newly formed corporation.--A corporation newly formed by
a corporation that is a member of a unitary business shall be
rebuttably presumed to be a member of the unitary business.
(c) Controlling interest.--A corporation that owns a
controlling interest in at least two corporations of a unitary
business shall be rebuttably presumed to be a member of the
unitary business.
(d) Substantial use.--A corporation that permits at least
one other corporation of a unitary business to substantially use
its patents, trademarks, service marks, logo-types, trade
secrets, copyrights or other proprietary assets or that is
principally engaged in loaning money to at least one other
corporation of a unitary business shall be rebuttably presumed
to be a member of the unitary business. The presumption under
this subsection shall only apply to a commonly controlled group
of corporations.
(e) Specific unitary business.--As far as applicable to a
specific unitary business, unless there is a revision of
applicable State law or unless a corporation is not included
under the provisions of this article, there is a rebuttable
presumption for all tax years that begin in years 2017 and 2018
that a unitary business of at least two corporations includes at
least all of the corporations that are part of a unitary
business under the law of any state in which the corporation
files a tax report or tax return of combined net income for the
same tax year.
Section 408-A. Election.
(a) Nonworldwide basis.--Unless an election is made to use a
worldwide basis of accounting, a corporation that is a member of
a unitary business of at least two corporations shall determine
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its business income and apportionment factor upon a water's-edge
basis. The basis shall apply to all corporations of the unitary
business.
(b) Worldwide basis.--If an election is made to use a
worldwide basis of accounting, all corporations of the unitary
business must make the election, upon a form prescribed,
prepared and furnished by the department. The election shall
bind all corporations of the unitary business for the period of
time that the election remains in effect. An initial election
shall be binding for a period of seven years. Subsequent
elections shall be binding for a period of five years.
Section 409-A. Expiration.
This article shall expire January 1, 2024.
Section 6. Section 3003.3(d) of the act is amended and the
section is amended by adding subsections to read:
Section 3003.3. Underpayment of Estimated Tax.--* * *
(d) Notwithstanding the provisions of the preceding
subsections, other than as set forth under subsection (e),
interest with respect to any underpayment of any installment of
estimated tax shall not be imposed if the total amount of all
payments of estimated tax made on or before the last date
prescribed for the payment of such installment equals or exceeds
the amount which would have been required to be paid on or
before such date if the estimated tax were an amount equal to
the tax computed at the rates applicable to the taxable year,
including any minimum tax imposed, but otherwise on the basis of
the facts shown on the report of the taxpayer for, and the law
applicable to, the safe harbor base year, adjusted for any
changes to sections 401, 601, 602 and 1101 enacted for the
taxable year, if a report showing a liability for tax was filed
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by the taxpayer for the safe harbor base year. If the total
amount of all payments of estimated tax made on or before the
last date prescribed for the payment of such installment does
not equal or exceed the amount required to be paid per the
preceding sentence, but such amount is paid after the date the
installment was required to be paid, then the period of
underpayment shall run from the date the installment was
required to be paid to the date the amount required to be paid
per the preceding sentence is paid. Provided, that if the total
tax for the safe harbor base year exceeds the tax shown on such
report by ten per cent or more, the total tax adjusted to
reflect the current tax rate shall be used for purposes of this
subsection. In the event that the total tax for the safe harbor
base year exceeds the tax shown on the report by ten per cent or
more, interest resulting from the utilization of such total tax
in the application of the provisions of this subsection shall
not be imposed if, within forty-five days of the mailing date of
each assessment, payments are made such that the total amount of
all payments of estimated tax equals or exceeds the amount which
would have been required to be paid on or before such date if
the estimated tax were an amount equal to the total tax adjusted
to reflect the current tax rate. In any case in which the
taxable year for which an underpayment of estimated tax may
exist is a short taxable year, in determining the tax shown on
the report or the total tax for the safe harbor base year, the
tax will be reduced by multiplying it by the ratio of the number
of installment payments made in the short taxable year to the
number of installment payments required to be made for the full
taxable year.
(e) (1) Notwithstanding subsections (a), (b) and (c),
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interest with respect to any underpayment of any installment of
estimated corporate net income tax for any tax year that begins
in year 2019 or 2020 shall not be imposed if the total amount of
all payments of estimated corporate net income tax made on or
before the last date prescribed for the payment of the
installment equals or exceeds the amount which would have been
required to be paid on or before that date if the estimated tax
were an amount equal to the tax shown on the report of the
taxpayer for the safe harbor base year, if a report showing a
liability for tax was filed by the taxpayer for the safe harbor
base year.
(2) If the total amount of all payments of estimated tax
made on or before the last date prescribed for the payment of
the installment does not equal or exceed the amount required to
be paid under paragraph (1), but the amount is paid after the
date the installment was required to be paid, the period of
underpayment shall run from the date the installment was
required to be paid to the date the amount required to be paid
under paragraph (1) is paid.
(3) If the total tax for the safe harbor base year exceeds
the tax shown on the report by ten per cent or more, the total
tax shall be used for purposes of this subsection. If the total
tax for the safe harbor base year exceeds the tax shown on the
report by ten per cent or more, interest resulting from the
utilization of the total tax in the application of the
provisions of this subsection shall not be imposed if, within
forty-five days of the mailing date of a notice from the
department increasing the total tax, payments are made such that
the total amount of all payments of estimated tax equals or
exceeds the amount which would have been required to be paid on
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or before the required date if the estimated tax were an amount
equal to the total tax.
(4) If the taxable year for which an underpayment of
estimated tax may exist is a short taxable year, in determining
the tax shown on the report or the total tax for the safe harbor
base year, the tax shall be reduced by multiplying it by the
ratio of the number of installment payments made in the short
taxable year to the number of installment payments required to
be made for the full taxable year.
(f) (1) If there is a substantial underpayment, as
described in subsection (a), of any installment of estimated
corporate net income tax or estimated capital stock franchise
tax for any taxable year beginning in 2023 or 2024, there shall
be imposed additional interest in an amount determined at one
hundred twenty per cent of the annual rate as provided by law
upon the entire underpayment for the period of the substantial
underpayment.
(2) The additional interest imposed under this subsection
shall be in addition to any other interest imposed on
underpayments under this section.
Section 7. This act shall apply as follows:
(1) The amendment or addition of the following
provisions shall apply to taxable years beginning after
December 31, 2016:
(i) Section 402(b) of the act.
(ii) Article IV-A of the act.
(2) The amendment or addition of the following
provisions shall apply to taxable years beginning after
December 31, 2022:
(i) Section 401(3)1(a) and (b) and 2(a) and (f),
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(5), (11), (12), (13), (14), (15) and (16) of the act.
(ii) Section 403(a.1), (a.2), (a.3), (a.4) and (a.5)
of the act.
(iii) Section 404 of the act.
(iv) Section 3003.3(d), (e) and (f) of the act.
Section 8. This act shall take effect as follows:
(1) The following provisions shall take effect
immediately:
(i) The amendment of section 402(b) of the act.
(ii) The addition of Article IV-A of the act.
(iii) Section 7 of this act.
(iv) This section.
(2) The remainder of this act shall take effect January
1, 2024.
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