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PRINTER'S NO. 1891
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No.
1320
Session of
2022
INTRODUCED BY AUMENT, MENSCH, YUDICHAK, PHILLIPS-HILL, PITTMAN
AND STEFANO, SEPTEMBER 12, 2022
REFERRED TO FINANCE, SEPTEMBER 12, 2022
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 personal income tax, further providing for
definitions, providing for elective tax imposed at pass-
through entity level and further providing for taxability of
partners, for income of a Pennsylvania S corporation and for
income taxes imposed by other states.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 301(w) of the act of March 4, 1971
(P.L.6, No.2), known as the Tax Reform Code of 1971, is amended
to read:
Section 301. Definitions.--Any reference in this article to
the Internal Revenue Code of 1986 shall mean the Internal
Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.),
as amended to January 1, 1997, unless the reference contains the
phrase "as amended" and refers to no other date, in which case
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the reference shall be to the Internal Revenue Code of 1986 as
it exists as of the time of application of this article. 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 clearly indicates a different meaning:
* * *
(w) "Taxpayer" means any individual, estate or trust subject
to the tax imposed by this article, any partnership having a
partner who is a taxpayer under this act, any Pennsylvania S
corporation having a shareholder who is a taxpayer under this
act [and], any person required to withhold tax under this
article and, unless otherwise provided, a pass-through entity
that elects to pay the tax imposed under section 302.3.
Section 2. The act is amended by adding a section to read:
Section 302.3. Elective Tax Imposed at Pass-Through Entity
Level.--(a) Notwithstanding any other provision of this
article, a pass-through entity may elect, on an annual basis, to
have the tax imposed under this article applied to the income of
the pass-through entity. The following shall apply:
(1) An electing pass-through entity shall be subject to and
shall pay a tax imposed at the rate provided in section 302(b)
on:
(i) Each resident taxable owner's share of each class of
income and gain enumerated in section 303 for the taxable year.
(ii) Each nonresident taxable owner's share of each class of
income and gain enumerated in section 303 from sources within
this Commonwealth for the taxable year.
(2) An electing resident Pennsylvania S corporation shall be
subject to and shall pay a tax imposed at the rate provided in
section 302(b) on each resident taxable owner's share of each
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class of income and gain enumerated in section 303 for the
taxable year.
(3) An electing standard Pennsylvania S corporation shall be
subject to and shall pay a tax imposed at the rate provided in
section 302(b) on each taxable owner's share of each class of
income and gain enumerated in section 303 from sources within
this Commonwealth for the taxable year.
(4) An entity that is disregarded for tax purposes under
this article shall be disregarded for the purposes of this
section.
(5) In determining its tax under this section, a pass-
through entity that owns a direct or indirect ownership interest
in one or more pass-through entities shall include its share of
each class of income enumerated in section 303 received from
those pass-through entities. The pass-through entity that
generates an item of income, gain or loss shall determine its
classification and whether that item of income, gain or loss
constitutes income or loss from sources within this
Commonwealth.
(6) Guaranteed payments made to a partner in a partnership
shall be treated as additional income allocated to the partner.
With respect to a nonresident taxable owner, only guaranteed
payments that constitute income from sources within this
Commonwealth shall be subject to the tax under this section.
(7) In determining the tax due under this section, a pass-
through entity shall not be permitted to use any tax credits
otherwise available to the pass-through entity except a credit
for estimated taxes paid for the current taxable year under this
section or an overpayment of a prior-year tax paid under this
section.
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(b) (1) Any election described under subsection (a) shall
be made by an individual with authority to bind the pass-through
entity or sign returns under this article or who is authorized
to make the election and represents to having the authorization
under penalty of perjury on or before the fifteenth day of the
fourth month of the pass-through entity's taxable year in a
manner prescribed by the department.
(2) In instances where a pass-through entity does not have
either a resident individual, estate or trust as a partner,
member, shareholder or beneficiary, or income or loss from
sources within this Commonwealth as of the fifteenth day of the
fourth month of its taxable year, the pass-through entity may
make an election no later than ninety days from the date the
pass-through entity meets the requirements specified under
section 335(c)(1) to file a return, or the last day of the pass-
through entity's taxable year, whichever is earlier. For the
purpose of determining the filing requirements of a pass-through
entity under this clause, the reference to partnership in
section 335(c)(1) shall include a Pennsylvania S corporation.
(3) An election under this section shall take effect for the
taxable year in which the election is submitted to the
department. Only one election may be submitted by an individual
identified under clause (1) on behalf of the pass-through entity
to the department for the taxable year.
(4) An election made under this section shall be irrevocable
for the taxable year.
(5) An election under this section may be made only for tax
years that the limitation on individual deductions applies under
section 164(b)(6) of the Internal Revenue Code of 1986 (Public
Law 99-514, 26 U.S.C. § 164(b)(6)).
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(c) (1) A taxable owner of an interest in a pass-through
entity that elects to pay tax under subsection (a) shall be
allowed a refundable credit against the tax imposed under
section 302 in the amount of the taxable owner's share of the
tax that the pass-through entity actually paid under this
section. A taxable owner's share of the tax shall take into
account guaranteed payments and other special allocations made
to the owner.
(2) A taxable owner shall be entitled to claim the credit
under clause (1) on the taxable owner's tax return that includes
the last day of the taxable year of the pass-through entity.
(3) The credit allowed under this subsection shall be
applied after the application of all other tax credits available
to the owner for the taxable year. If the amount of the credit
allowable under this subsection for any taxable year exceeds the
tax due for the year under this article, the excess amount shall
be treated as an overpayment, to be credited or refunded.
(4) No credit shall be allowed to a taxable owner under
clause (1) unless the electing pass-through entity paid the tax
imposed under this article and provides the department on its
tax return all the information required in subsection (e)(2) and
(3).
(5) The aggregate amount of credits claimed by all taxable
owners of a pass-through entity under clause (1) may not exceed
the tax that the pass-through entity paid under subsection (a)
for the taxable year.
(d) A pass-through entity that elects to pay tax under
subsection (a) shall be required to make estimated tax payments
in four equal installments on or before the fifteenth day of the
fourth, sixth and ninth month of its taxable year, and the
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fifteenth day of the first month of its subsequent taxable year.
(e) (1) On or before the date provided under section
330(a), each pass-through entity that elects to pay tax under
subsection (a) shall file a return for the taxable year
reporting the information required under this article.
(2) The return filed under clause (1) shall include, in a
format as prescribed by the department, a certification by an
individual authorized to act on behalf of the pass-through
entity, which includes the following:
(i) A timely, valid election to be subject to the tax under
this article and whether a Pennsylvania S corporation is
electing to be treated as a resident Pennsylvania S corporation
or standard Pennsylvania S corporation.
(ii) That all statements contained in the certification are
true.
(3) Each pass-through entity that elects to pay tax under
subsection (a) shall report on a return required under this
article the following:
(i) Any tax due under this article. The balance of any tax
shown on the return, not previously paid as installments of
estimated tax or an overpayment of a prior-year tax, shall be
paid with the return.
(ii) Identifying information of each taxable owner eligible
to receive a credit under subsection (c), including a Social
Security number or tax identification number and status as a
resident or nonresident. The pass-through entity must provide
information sufficient to identify a disregarded entity and its
taxable owners.
(iii) For each taxable owner who will be entitled to claim a
credit on a tax return, the taxable owner's share of the tax
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imposed on the pass-through entity under this section.
(iv) Each resident taxable owner's share of the pass-through
entity's income and each nonresident taxable owner's share of
income from sources from within this Commonwealth included in
the tax base under this section.
(v) The classification of each owner as a taxable resident
or nonresident for purposes of calculating the pass-through
entity's tax liability under this section.
(vi) Any other information as required by the department.
(4) A pass-through entity that elects to pay tax under
subsection (a) shall not be required to withhold tax from a
nonresident taxable owner under section 324.
(5) To meet the requirements of this section, if a taxable
owner holds an interest in the pass-through entity through an
entity that is a disregarded entity for purposes of this
article, the pass-through entity must provide information
sufficient to identify both the disregarded entity that holds an
interest in the pass-through entity and the taxable owner that
owns the disregarded entity and is eligible for a credit under
subsection (c).
(6) Each pass-through entity paying tax under this section
shall report to each taxable owner required to file a return
under this article a statement that contains the following
information:
(i) Classification as a resident taxable owner or a
nonresident taxable owner for purposes of calculating the pass-
through entity's tax under subsection (a).
(ii) The taxable owner's allocable share of the pass-through
entity's income included in the tax base for purposes of
computing the tax under subsection (a).
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(iii) The owner's allocable share of the tax paid under
subsection (a).
(iv) Any other information, as required by the department.
(f) (1) Any assessment of tax imposed under this section,
including interest, penalties and additions, shall be assessed
against the pass-through entity at the tax rate applicable to
the tax year. The department may not assess any additional tax,
including interest, penalties and additions, against the taxable
owners.
(2) Any determination of an overpayment or refund of tax
imposed under this section made subsequent to the filing of the
return under subsection (e) shall be made at the pass-through
entity level at the tax rate applicable to the tax year.
(3) The pass-through entity shall be required to provide
each owner a statement of any adjustment of the taxable owner's
credit within ninety days of an assessment, overpayment or
refund becoming final.
(4) The taxable owner shall report the adjustment of the
credit on an amended return for the taxable owner's taxable year
that includes the pass-through entity's taxable year for which
the tax was assessed.
(5) Only the pass-through entity may appeal or settle an
assessment or overpayment of tax issued under this section or
petition for a refund of tax imposed under this section.
(g) The basis of both a resident taxable owner and
nonresident taxable owner of a pass-through entity that elects
to pay tax under subsection (a) shall be determined as if the
election under subsection (b) had not been made and each of the
taxable owners of the taxed pass-through entity had properly
taken into account each taxable owner's pro rata share of the
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taxed pass-through entity's items of income, gain, loss and
deduction in the manner required with respect to a pass-through
entity for which no such election is in effect.
(h) (1) Unless otherwise provided in , or inconsistent with,
this section, the provisions of this article shall apply to this
section.
(2) The department may issue guidelines and promulgate
regulations necessary for the implementation of this section.
(i) (1) In the case of any taxable year that includes the
effective date of this section, a pass-through entity may file
an election under subsection (b)(1) at any time within ninety
days of the effective date of this section provided that if the
election is made, the pass-through entity must, on or before the
date the next estimated tax payment is due after the election,
make an estimated tax payment equal to the total estimated tax
that would have been due for the tax year had the election been
made for the full tax year, and any nonresident withholding made
under section 324 by the pass-through entity for the current tax
year may be applied by the pass-through entity against its
estimated tax liability.
(2) In the case of any taxable year that includes the
effective date of this section, any nonresident withholding made
under section 324 by the pass-through entity for the current tax
year for an owner shall be applied by the pass-through entity
against its estimated tax liability.
(3) In the case of any taxable year that includes the
effective date of this section, the department may not assess
interest and penalties against an eligible pass-through entity
for any underpayment of estimated tax due under subsection (d),
so long as the eligible pass-through entity acted in good faith
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with no intent to defraud the Commonwealth.
(j) As used in this section, the following words and phrases
shall have the meanings given to them in this subsection unless
the context clearly indicates otherwise:
"Electing pass-through entity." A pass-through entity that
elects at the time it makes its election to be subject to the
tax under this section to determine its tax in accordance with
subsection (a).
"Electing resident Pennsylvania S corporation." A
Pennsylvania S corporation that is a pass-through entity whose
shareholders only include resident individuals, estates or
trusts, and disregarded entities whose owners only include
resident individuals, estates or trusts that elects at the time
it makes its election to be subject to the tax under this
section to determine its tax in accordance with subsection (a).
"Electing standard Pennsylvania S corporation." A
Pennsylvania S corporation that is a pass-through entity whose
shareholders only include resident and nonresident individuals,
estates or trusts, and disregarded entities whose owners only
include resident and nonresident individuals, estates or trusts
that elects at the time it makes its election to be subject to
the tax under this section to determine its tax in accordance
with subsection (a).
"Nonresident taxable owner." An individual, estate or trust
subject to the tax imposed under this article, other than a
resident taxable owner, that is a partner, shareholder, member
or other owner of an interest in a pass-through entity that has
income from sources within this Commonwealth.
"Partnership." A domestic or foreign general partnership,
joint venture, limited partnership, limited liability company,
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business trust or other unincorporated entity that for Federal
income tax purposes is classified as a partnership. The term
does not include a publicly traded partnership.
"Pass-through entity." A partnership or Pennsylvania S
corporation.
"Resident taxable owner." A resident individual, resident
trust or resident estate that is a partner, shareholder, member
or other owner of an interest in a pass-through entity.
"Taxable owner." A resident taxable owner or nonresident
taxable owner.
Section 3. Sections 306, 307.8(a) and 314 of the act are
amended to read:
Section 306. Taxability of Partners.--Except as provided
under [section] sections 302.3 and 306.2, a partnership as an
entity shall not be subject to the tax imposed by this article,
but the income or gain of a member of a partnership in respect
of said partnership shall be subject to the tax and the tax
shall be imposed on his share, whether or not distributed, of
the income or gain received by the partnership for its taxable
year ending within or with the member's taxable year.
Section 307.8. Income of a Pennsylvania S Corporation.--(a)
A Pennsylvania S corporation shall not be subject to the tax
imposed by this article, except as provided under subsection (f)
and section 302.3, but the shareholders of the Pennsylvania S
corporation shall be subject to the tax imposed under this
article as provided in this article.
* * *
Section 314. Income Taxes Imposed by Other States.--(a) A
resident taxpayer before allowance of any credit under section
302.3 or 312 shall be allowed a credit against the tax otherwise
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due under this article for the amount of any income tax, wage
tax or tax on or measured by gross or net earned or unearned
income imposed on him or on a Pennsylvania S corporation or
partnership in which he is a direct or indirect shareholder or
partner, to the extent [of his pro rata share thereof determined
in accordance with section 307.9,] that the tax was imposed on
the taxpayer's distributive share or other share thereof by
another state with respect to income which is also subject to
tax under this article. For purposes of this subsection, the
term "state" shall only include a state of the United States,
the District of Columbia, the Commonwealth of Puerto Rico and
any territory or possession of the United States.
(b) The credit provided under this section shall not exceed
the proportion of the tax otherwise due under this article that
the amount of the taxpayer's income subject to tax by the other
jurisdiction bears to his entire taxable income.
(c) In lieu of submitting a copy of each State return in
which a tax liability is reported and tax is paid, a partner,
shareholder, partnership or Pennsylvania S corporation may
provide a certified statement that reflects each partner's or
shareholder's share of taxable income, amount of State income
tax paid and other information that the department requires.
Section 4. This act shall apply as follows:
(1) The amendment or addition of sections 301(w), 302.3,
306 and 307.8(a) of the act shall apply to taxable years
beginning after December 31, 2021.
(2) The amendment of section 314(a) shall apply to
taxable years beginning after December 31, 2020.
Section 5. This act shall take effect immediately.
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