Trial Engrossment of Amendment A04931 to House Bill 2226 P.N. 2966, Regular Session 2023-2024

A04931

THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

No.

2226

Session of

2024

INTRODUCED BY FRIEL, BURGOS, HILL-EVANS, MARCELL, SANCHEZ,

VENKAT, NEILSON, SCHLOSSBERG AND POWELL, APRIL 17, 2024

REFERRED TO COMMITTEE ON FINANCE, APRIL 17, 2024

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, establishing the Net

Operating Loss Transfer Program; imposing a penalty; and

making editorial changes.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1. Sections 410, 411 and 412 of the act of March 4,

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

renumbered to read:

Section [410] 480. Penalties.--(a) Any person violating any

of the provisions of section 409 shall be guilty of a

misdemeanor, and shall, upon conviction thereof, be sentenced to

pay a fine not exceeding one thousand dollars ($1,000) and costs

of prosecution, or to undergo imprisonment for not more than six

months, or both.

(b) Any person who shall wilfully make a false and

fraudulent return of taxable income made taxable by this

article, shall be guilty of wilful and corrupt perjury, and,

upon conviction thereof, shall be subject to punishment as

provided by law. Such penalty shall be in addition to any other

penalties imposed by this article.

make a report or to pay the tax as herein prescribed, or who

shall refuse to permit the department to examine the books,

papers, and records of any corporation liable to pay tax under

this article, shall be guilty of a misdemeanor, and, upon

conviction thereof, shall be sentenced to pay a fine not

exceeding one thousand dollars ($1,000) and costs of

prosecution, or to undergo imprisonment not exceeding six

months, or both. Such penalty shall be in addition to any other

penalties imposed by this article.

Section [411] 498. Repeal.--The act of May 16, 1935

(P.L.208), known as the "Corporate Net Income Tax Act," is

repealed.

Section [412] 499. Effective Date.--This article shall take

effect immediately, and the tax imposed shall apply to taxable

years beginning January 1, 1971 and thereafter.

Section 2. Article IV of the act is amended by adding a part

to read:

PART VI-A

NET OPERATING LOSS TRANSFER PROGRAM

Section 421. Definitions.

The following words and phrases when used in this part shall

have the meanings given to them in this section unless the

context clearly indicates otherwise:

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"Allowable expenditures." Costs incurred in connection with

the operation of the new or expanding biotechnology business or

technology business located in this Commonwealth, including the

expenses of fixed assets, such as the construction, acquisition

and development of real estate, materials, start-up, tenant fit-

out, working capital, salaries and research and development

expenditures.

"Biotechnology." The continually expanding body of

fundamental knowledge about the functioning of biological

systems from the macro level to the molecular and subatomic

levels, including novel products, services, technologies and

subtechnologies developed as a result of insights gained from

research advances, which add to that body of fundamental

knowledge.

"Biotechnology business." Any of the following:

(1) A person, whose headquarters or base of operations

is located in this Commonwealth, engaged in the research,

development, production or provision of biotechnology for the

purpose of developing or providing products or processes for

specific commercial or public purposes, including medical,

pharmaceutical, nutritional and other health-related

purposes, agricultural purposes and environmental purposes.

(2) A person, whose headquarters or base of operations

is located in this Commonwealth, engaged in providing

services or products necessary for research, development,

production or provision of a technology/biotechnology

business.

"Cost." The expenses incurred in connection with the

operation of a new or expanding biotechnology business or

technology business in this Commonwealth, including the expenses

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of fixed assets, such as the construction, acquisition and

development of real estate, materials, start-up, tenant fit-out,

working capital and any other expenses determined by the

department to be necessary to carry out the purposes of this

article.

"Financial institution." An individual or organization

deemed eligible by the department for participation in the

program, including State-chartered or federally chartered banks,

savings banks or savings and loan associations, banks organized

under the laws of a foreign government, private individuals,

insurance companies, landlords, finance companies and venture

capitalists.

"Fixed assets." Real property, interests in real property,

plants, equipment and any other assets commonly accepted as

fixed assets.

"Full-time employee." The following apply:

(1) Any of the following:

(i) a person employed by a new or expanding

biotechnology business or technology business for

consideration for at least 35 hours a week;

(ii) a person who renders any other standard of

service generally accepted by custom or practice as full-

time employment and whose wages are subject to

withholding as provided under 26 U.S.C. § 1400Z-2(c)

(relating to special rules for capital gains invested in

opportunity zones), as amended; or

(iii) a person who renders any other standard of

service generally accepted by custom or practice as full-

time employment, and whose distributive share of income,

gain, loss or deduction, or whose guaranteed payments, or

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any combination thereof, is subject to tax under this

article.

(2) The term does not include a person who works as an

independent contractor or on a consulting basis for the new

or expanding biotechnology business or technology business.

"Net operating loss carryover." The amount of the deduction

from taxable income of net losses allowable for taxpayers under

section 401(3).

"New or expanding biotechnology business or technology

business." A biotechnology business or technology business

that, as of June 30 of the year in which the business files an

application for the program:

(1) has been in operation in this Commonwealth for no

more than five years; and

(2) has at least 15% of its total United States

employees working in this Commonwealth.

"Program." The Net Operating Loss Transfer Program

established under section 422.

"Purchasing taxpayer." A taxpayer who purchases tax benefits

under this part.

"Selling taxpayer." A taxpayer who is a new or expanding

biotechnology business or technology business that sells tax

benefits under this part.

"Tax benefit." The amount of an unused but otherwise

allowable net operating loss carryover accrued by a selling

taxpayer.

"Tax benefit." The amount of net loss accrued by a selling

taxpayer that would otherwise be allowable as a deduction from

taxable income under section 4 01(3).

"Tax benefit value." The value of the tax benefit being sold

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under this chapter, calculated by multiplying the amount of the

tax benefit by the corporate net income tax rate under section

401 that is in effect during the taxable year in which the tax

benefit is being sold.

"Technology business." A business that:

(1) has its headquarters or base of operations in this

Commonwealth;

(2) owns, has filed for or has a valid license to use

protected, proprietary intellectual property; and

(3) employs a combination of highly educated or trained

managers and workers, or both, employed in this Commonwealth

who use sophisticated scientific research service or

production equipment, processes or knowledge to discover,

develop, test, transfer or manufacture a product or service.

"Working capital." Liquid capital assets other than fixed

assets.

Section 422. Transferable Net Operating Loss Program.

(a) Establishment.--

(1) The Transferable Net Operating Loss Program is

established to allow a new or expanding biotechnology

business or technology business in this Commonwealth with

amounts of unused net operating loss carryover to sell the

tax benefits for use by other taxpayers under this article.

(2) The tax benefits may be used by the purchasing

taxpayer in accordance with the program. The purchasing

taxpayer may apply the tax benefits to the purchasing

taxpayer's tax liability for the taxable year during which

the tax benefits were purchased, except that any tax benefits

received by the purchasing taxpayer plus any other net loss

deduction allowable under this article shall not cause the

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purchasing taxpayer's total net loss deduction to exceed the

limits established under section 401(3).

(b) Approval of sale of tax benefits.--

(1) The department, in consultation with the Department

of Community and Economic Development, shall review and

approve applications by new or expanding biotechnology

businesses or technology businesses in this Commonwealth with

unused but otherwise allowable net operating loss carryover

to sell those tax benefits in exchange for private financial

assistance to be contributed by a purchasing taxpayer in an

amount equal to at least 80% of the amount of the tax benefit

being sold value .

(2) A selling taxpayer's transferable tax benefits shall

be limited to net operating losses that the selling taxpayer

requests to transfer in its application to the department and

shall not, in total, exceed the maximum amount of tax

benefits that the selling taxpayer is eligible to transfer.

(3) The department shall establish rules for the

repayment of all, or a portion of, an amount equal to the

selling price of the tax benefit under section 427.

(1) The department shall review and approve applications

for the purchase of tax benefits in exchange for private

financial assistance to be made by the purchasing taxpayer in

an amount equal to at least 80% of the amount of the tax

benefit being sold value .

(2) The department shall not approve an application

unless the selling taxpayer certifies that as of the date of

the application that the selling taxpayer is operating as a

new or expanding biotechnology business or technology

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business and has no current intention to cease operating as a

new or expanding biotechnology business or technology

business.

(d) Private financial assistance.--The private financial

assistance shall assist in funding expenses incurred in

connection with the operation of the new or expanding

biotechnology business or technology business in this

Commonwealth, including the expenses of fixed assets, such as

the construction and acquisition and development of real estate,

materials, start-up, tenant fit-out, working capital, salaries,

research and development expenditures and any other expenses

determined by the department to be necessary to carry out the

purposes of the program.

(e) Distribution of tax benefits and private financial

assistance.--The department shall equally distribute tax

benefits based on the amount of tax benefits approved for sale

and the amount of private financial assistance committed by

purchasing taxpayers during the taxable year.

Section 423. Authorization to approve certain transfers of tax

benefits.

(a) Approval of sale of tax benefits.--The department shall

approve the sale of tax benefits. A selling taxpayer shall be

subject to a lifetime cap of $20,000,000 in tax benefits . During

each taxable year, a selling taxpayer that meets all eligibility

requirements shall be permitted to sell an amount of tax

benefits that shall not exceed the lifetime cap over a period of

five taxable years, except that the amount of tax benefits sold

by a selling taxpayer per taxable year shall not exceed

$5,000,000.

(b) Approval of purchase of tax benefits.--The department

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shall approve the transfer of tax benefits to a purchasing

taxpayer. A purchasing taxpayer shall be permitted to purchase

no more than $100,000,000 in tax benefits per taxable year. If

the demand from more than one purchasing taxpayer exceeds

$100,000,000, the department shall distribute the annual tax

benefits on a pro rata basis.

Section 424. Eligibility.

A new or expanding biotechnology business or technology

business shall be eligible to apply to the program if the

department, in consultation with the Department of Community and

Economic Development, finds that the business:

(1) Meets the definition of a "new or expanding

biotechnology business or technology business."

(2) Meets any of the following:

(i) has protected and proprietary intellectual

property that is exclusive to the applicant;

(ii) has use/license technology or patents developed

in this Commonwealth;

(iii) provides technology to the agriculture

industry; or

(iv) generates at least 50% of its revenue in this

Commonwealth.

(3) Has unused net operating loss carryover.

(4) Has no positive net operating income for the past

two years.

(5) Is subject to tax under this article and files all

required tax returns under this article.

Section 425. Application to program.

(a) Fee.--An application submitted by a selling taxpayer or

a purchasing taxpayer shall be accompanied by a nonrefundable

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$2,500 application fee. Completed applications must be received

by June 30 of each fiscal year.

(b) Selling taxpayer application.--An application submitted

to the program by a selling taxpayer must include:

(1) a spending certification form attesting to having

spent the proceeds of the prior year's sale of tax benefits

in accordance with the definition of "allowable

expenditures";

(2) the tax benefit identification form which summarizes

the accumulated net operating loss carryover to be sold, the

years that the net operating loss carryover was incurred and

the value intended to be sold;

(3) a private financial assistance form specifying how

the selling taxpayer will expend the private financial

assistance for allowable expenditures for the operations of

the new or expanding biotechnology business or technology

business;

(4) if a selling taxpayer was authorized to sell and did

sell tax benefits during the previous taxable year, a

spending certification that attests that the selling taxpayer

spent the proceeds of the prior year's sale of tax benefits

in accordance with the prior year's private financial

assistance form;

(5) a description of and business plan or presentation

for the selling taxpayer's new or expanding biotechnology

business or technology business, which shall demonstrate that

the business is the primary business of the selling taxpayer

and that the applicant meets the definition of a new or

expanding biotechnology business or technology business. If

applicable, documentation of protected proprietary

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intellectual property must be provided;

(6) financial statements for the two most recent full

years of operation, or if the selling taxpayer has been in

operation for less than two years, the selling taxpayer's

most recent financial statement, if any;

(7) a list of all affiliates and subsidiaries of the

selling taxpayer. A corporation is considered to be an

affiliate or subsidiary of the selling taxpayer if the

corporation is subject to tax under this article and one or

more of the following applies:

(i) the taxpayer is an entity or an affiliated group

of corporations that directly or indirectly owns or

controls 50% or greater of the selling taxpayer;

(ii) the taxpayer and the selling taxpayer are both

members of the same consolidated group of affiliated

corporations, as filed for Federal income tax purposes;

and

(iii) any other test of affiliation as determined by

the department; and

(8) any other information required by the department.

submitted by a purchasing taxpayer must include:

(1) the name, address and telephone number of the

purchasing taxpayer;

(2) a statement of the amount of tax benefits that the

purchasing taxpayer requests to receive;

(3) an attestation that includes the following:

(i) a statement that the purchasing taxpayer has

committed to contributing private financial assistance to

the program;

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(ii) the dollar amount of private financial

assistance the purchasing taxpayer will contribute, which

shall be equal to at least 80% of the amount of the tax

benefit value of the tax benefits the purchasing taxpayer

requests to receive; and

(iii) a statement that the purchasing taxpayer has

the financial ability to contribute the amount specified

under subparagraph (ii);

(4) a statement of the total amount of unused net

operating loss carryover, if any, that the purchasing

taxpayer has accrued;

(5) a list of all affiliates and subsidiaries of the

purchasing taxpayer. A corporation is considered to be an

affiliate or subsidiary of the purchasing taxpayer if the

corporation is subject to tax under this article and one or

more of the following applies:

(i) the corporation is an entity or an affiliated

group of corporations that directly or indirectly owns or

controls 50% or greater of the purchasing taxpayer;

(ii) the corporation and the purchasing taxpayer are

both members of the same consolidated group of affiliated

corporations, as filed for Federal income tax purposes;

and

(iii) any other test of affiliation as determined by

the department; and

(6) any other information required by the department.

Section 426. Review of applications.

(a) Review of application.--The department, in consultation

with the Department of Community and Economic Development, shall

review each program application the department receives to

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determine whether the application meets all of the requirements

established under this part.

(b) Approval.--Except as provided for under subsection (c),

if the department determines that an application was received on

or before the June 30 deadline and meets all the requirements

established under this part, the department shall approve the

application and shall notify a selling taxpayer or a purchasing

taxpayer of the approval.

or more of the following applies:

(1) An applicant does not meet all requirements under

this part.

(2) The application was received after the June 30

deadline.

(3) The selling taxpayer has demonstrated positive net

operating income in any of the two previous full years of

ongoing operations as determined on its financial statements

issued in a manner as determined by the department.

Section 427. Allocation of tax benefits.

(a) Limitation on selling taxpayer.--A selling taxpayer

shall be subject to a lifetime cap of $20,000,000 in tax

benefits . During each taxable year, a selling taxpayer that

meets all eligibility requirements shall be permitted to sell an

amount of tax benefits that shall not exceed the lifetime cap

over a period of five taxable years. The amount of tax benefits

sold by a selling taxpayer per taxable year shall not exceed

$5,000,000, except if all selling taxpayers have sold their

annual tax benefits and there remains additional purchasing

taxpayer demand under the annual purchasing taxpayer cap, the

department shall allow sellers of tax benefits to exceed the

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individual seller annual cap and shall award the additional cap

demand on a pro rata basis.

(b) Limitation on purchasing taxpayer.--A purchasing

taxpayer may purchase no more than $100,000,000 in tax benefits

per taxable year. Tax benefits awarded to a purchasing taxpayer

shall be reduced by the percentage of available tax benefits

sold by selling taxpayers who are affiliates or subsidiaries of

the purchasing taxpayer, pursuant to the information provided on

the application materials required under section 425.

Section 428. Repayment of tax benefits.

(a) Forfeiture.--If a selling taxpayer fails to use the

private financial assistance received for the sale of tax

benefits in a manner prescribed under this part, or fails to

maintain a headquarters or a base of operation in this

Commonwealth during the five years following receipt of the

private financial assistance, the selling taxpayer shall forfeit

and remit the face value of the sold tax benefits to the

department in accordance with subsections (c) and (d). The face

value of the sold tax benefits shall be the amount of unused net

operating loss carryover the department approved for sale by the

selling taxpayer.

(b) Exception.--The forfeiture requirement in subsection (a)

pertaining to the failure to maintain a headquarters or a base

of operation in this Commonwealth shall not apply if the failure

is due to the liquidation of the new or expanding biotechnology

business or technology business.

maintain a headquarters or base of operation in this

Commonwealth during the five years following the receipt of the

private financial assistance, the department shall allow the

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selling taxpayer to retain 20% of the face value of the sold tax

benefit for each full year the selling taxpayer remained in this

Commonwealth, except that the selling taxpayer forfeits and

remits to the department the remaining amount of the face value

of the sold tax benefit.

(d) Failure to use benefits.--If a selling taxpayer uses the

private financial assistance received in exchange for the sale

of tax benefits for expenditures that are not allowable

expenditures, the department shall require the selling taxpayer

to remit to the department 100% of the amount of the

expenditures that are not allowable expenditures.

Section 429. Fraudulent application information.

A selling taxpayer or purchasing taxpayer who with intent to

defraud the Commonwealth willfully submits, or causes to be

submitted, a program application under section 425 which

contains false information commits a misdemeanor and, upon

conviction, shall be sentenced to pay a fine not exceeding

$2,000 or undergo imprisonment not exceeding three years, or

both.

Section 430. Report.

(a) Duty.--Not later than one year following the effective

date of this subsection, and not later than March 1 of each year

thereafter, the department shall prepare a report on the

program.

(b) Contents.--The report shall include:

(1) A description of the demand for the program from new

or expanding biotechnology businesses or technology

businesses and financial institutions.

(2) The efforts made by the department to promote the

program.

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(3) The total amount of tax benefits approved for

transfer by the department under the program.

(4) An assessment of the effectiveness of the program in

meeting the goals of this part.

under this section to the Governor and the General Assembly,

including recommendations for legislation to improve the

effectiveness of the program.

Section 431. Regulations and guidelines.

(a) Promulgation.--The department shall promulgate

regulations to implement this part.

(b) Guidelines.--The department shall develop written

guidelines for the implementation of this part. The guidelines

shall be in effect until the department promulgates regulations

for the implementation of this part.

Section 3. This act shall take effect in 60 days.

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