PRINTER'S NO. 3157
No. 2347 Session of 1998
INTRODUCED BY C. WILLIAMS, THOMAS, BATTISTO, BOSCOLA, BROWNE,
COY, DeWEESE, GEORGE, MICHLOVIC, ORIE, PISTELLA, READSHAW,
TRELLO, VAN HORNE, WAUGH AND YOUNGBLOOD, MARCH 12, 1998
REFERRED TO COMMITTEE ON FINANCE, MARCH 12, 1998
AN ACT
1 Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
2 act relating to tax reform and State taxation by codifying
3 and enumerating certain subjects of taxation and imposing
4 taxes thereon; providing procedures for the payment,
5 collection, administration and enforcement thereof; providing
6 for tax credits in certain cases; conferring powers and
7 imposing duties upon the Department of Revenue, certain
8 employers, fiduciaries, individuals, persons, corporations
9 and other entities; prescribing crimes, offenses and
10 penalties," further providing for the imposition of the
11 corporate net income tax and the capital stock and franchise
12 tax and for a new business tax credit relating to the capital
13 stock and franchise tax.
14 The General Assembly of the Commonwealth of Pennsylvania
15 hereby enacts as follows:
16 Section 1. Section 402 of the act of March 4, 1971 (P.L.6,
17 No.2), known as the Tax Reform Code of 1971, amended June 30,
18 1995 (P.L.139, No.21), is amended to read:
19 Section 402. Imposition of Tax.--[Every] (a) Subject to the
20 provisions of subsection (b), every corporation shall be subject
21 to, and shall pay for the privilege of (i) doing business in
22 this Commonwealth; or (ii) carrying on activities in this
23 Commonwealth; (iii) having capital or property employed or used
1 in this Commonwealth; or (iv) owning property in this
2 Commonwealth, by or in the name of itself, or any person,
3 partnership, association, limited partnership, joint-stock
4 association, or corporation, a State excise tax at the rate of
5 twelve per cent per annum upon each dollar of taxable income of
6 such corporation received by, and accruing to, such corporation
7 during the calendar year 1971 and the first six months of 1972
8 and at the rate of eleven per cent per annum upon each dollar of
9 taxable income of such corporation received by, and accruing to,
10 such corporation during the second six months of calendar year
11 1972 through the calendar year 1973 and at the rate of nine and
12 one-half per cent per annum upon each dollar of taxable income
13 of such corporation received by, and accruing to, such
14 corporation during the calendar years 1974, 1975 and 1976 and at
15 the rate of ten and one-half per cent per annum upon each dollar
16 of taxable income of such corporation received by, and accruing
17 to, such corporation during the calendar year 1977 through the
18 calendar year 1984 and at the rate of nine and one-half per cent
19 per annum upon each dollar of taxable income of such corporation
20 received by and accruing to such corporation during the calendar
21 year 1985 through calendar year 1986 and at the rate of eight
22 and one-half per cent per annum upon each dollar of taxable
23 income of such corporation received by and accruing to such
24 corporation during the calendar year 1987 through the calendar
25 year 1990 and at the rate of ten and one-half per cent per annum
26 upon each dollar of taxable income of such corporation received
27 by and accruing to such corporation during calendar year 1991
28 through the calendar year 1994 and at the rate of nine and
29 ninety-nine hundredths per cent per annum upon each dollar of
30 taxable income of such corporation received by and accruing to
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1 such corporation during the calendar year 1995 and during each
2 calendar year thereafter, with an additional surtax equal to one
3 and seventy-five hundredths per cent per annum upon each dollar
4 of taxable income of such corporation received by and accruing
5 to such corporation during calendar year 1991 and through
6 calendar year 1993 and with an additional surtax equal to one
7 and forty-nine hundredths per cent per annum upon each dollar of
8 taxable income of such corporation received by and accruing to
9 such corporation during calendar year 1994 and with no surtax
10 during calendar year 1995 and each calendar year thereafter,
11 except where a corporation reports to the Federal Government on
12 the basis of a fiscal year, and has certified such fact to the
13 department as required by section 403 of this article, in which
14 case, such tax, at the rate of twelve per cent, shall be levied,
15 collected, and paid upon all taxable income received by, and
16 accruing to, such corporation during the first six months of the
17 fiscal year commencing in the calendar year 1972 and at the rate
18 of eleven per cent, shall be levied, collected, and paid upon
19 all taxable income received by, and accruing to, such
20 corporation during the second six months of the fiscal year
21 commencing in the calendar year 1972 and during the fiscal year
22 commencing in the calendar year 1973 and at the rate of nine and
23 one-half per cent, shall be levied, collected, and paid upon all
24 taxable income received by, and accruing to, such corporation
25 during the fiscal year commencing in the calendar years 1974,
26 1975 and 1976 and at the rate of ten and one-half per cent,
27 shall be levied, collected, and paid upon all taxable income
28 received by, and accruing to, such corporation during the fiscal
29 year commencing in the calendar year 1977 through the fiscal
30 year commencing in 1984 and at the rate of nine and one-half per
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1 cent, shall be levied, collected, and paid upon all taxable
2 income received by and accruing to such corporation during the
3 fiscal year commencing in 1985 through the fiscal year
4 commencing in 1986 and at the rate of eight and one-half per
5 cent per annum upon each dollar of taxable income of such
6 corporation received by and accruing to such corporation during
7 the fiscal year commencing in 1987 through the fiscal year
8 commencing in 1990 and at the rate of ten and one-half per cent
9 per annum upon each dollar of taxable income of such corporation
10 received by and accruing to such corporation during the fiscal
11 year commencing in 1991 through the fiscal year commencing in
12 1994 and at the rate of nine and ninety-nine hundredths per cent
13 per annum upon each dollar of taxable income of such corporation
14 received by and accruing to such corporation during the fiscal
15 year commencing in 1995 and during each fiscal year thereafter,
16 with an additional surtax equal to one and seventy-five
17 hundredths per cent per annum upon each dollar of taxable income
18 of such corporation received by and accruing to such corporation
19 during the fiscal year commencing in 1991 and through fiscal
20 year 1993 and with an additional surtax equal to one and forty-
21 nine hundredths per cent per annum upon each dollar of taxable
22 income of such corporation received by and accruing to such
23 corporation during fiscal year 1994 and with no surtax during
24 the fiscal year commencing in 1995 and each fiscal year
25 thereafter. No penalty prescribed by subsection (e) of section
26 3003 shall be assessed against a corporation for the additional
27 tax which may be due as a result of the increase in tax rate
28 from nine and one-half per cent to ten and one-half per cent
29 imposed retroactively by this section for the calendar year 1977
30 or for the fiscal year commencing in 1977.
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1 (b) Notwithstanding any other provisions of this article or
2 Article VI to the contrary, beginning calendar year 1998 or the
3 fiscal year beginning in 1998 and each calendar or fiscal year
4 thereafter, any taxpayer who is liable for taxes under this
5 article and Article VI shall only be required to pay one tax
6 which shall be the higher of the tax liabilities under this
7 article or Article VI.
8 Section 2. Section 602 of the act, amended August 4, 1991
9 (P.L.97, No.22), is amended to read:
10 Section 602. Imposition of Tax.--(a) [That] Subject to the
11 provisions of subsection (h), every domestic entity from which a
12 report is required under section 601 hereof, shall be subject
13 to, and pay to the department annually, a tax which is the
14 greater of (i) three hundred dollars ($300) or (ii) the amount
15 computed at the rate of ten mills upon each dollar of the
16 capital stock value as defined in section 601(a) for the
17 calendar year 1971 and the fiscal year beginning in 1971 through
18 calendar year 1986 and fiscal years beginning in 1986, at the
19 rate of nine mills upon each dollar of the capital stock value
20 as defined in section 601(a) for the calendar year 1987 and
21 fiscal years beginning in 1987, at the rate of nine and one-half
22 mills upon each dollar of the capital stock value as defined in
23 section 601(a) for the calendar year 1988 and fiscal years
24 beginning in 1988 through calendar year 1990 and fiscal years
25 beginning in 1990 and at the rate of eleven mills upon each
26 dollar of the capital stock value as defined in section 601(a)
27 for the calendar year 1991 and fiscal years beginning in 1991
28 and each year thereafter, with an additional surtax equal to two
29 mills upon each dollar of the capital stock value as defined in
30 section 601(a) for the calendar year 1991 and fiscal years
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1 beginning in 1991 and with an additional surtax equal to one and
2 three-quarters mills upon each dollar of the capital stock value
3 as defined in section 601(a) for the calendar year 1992 and
4 fiscal years beginning in 1992 and each year thereafter, except
5 that any domestic entity or company subject to the tax
6 prescribed herein may elect to compute and pay its tax under and
7 in accordance with the provisions of subsection (b) of this
8 section 602: Provided, That, except for the imposition of the
9 three hundred dollar ($300) minimum tax, the provisions of this
10 section shall not apply to the taxation of the capital stock of
11 entities organized for manufacturing, processing, research or
12 development purposes, which is invested in and actually and
13 exclusively employed in carrying on manufacturing, processing,
14 research or development within the State, except such entities
15 as enjoy and exercise the right of eminent domain, but every
16 entity organized for the purpose of manufacturing, processing,
17 research or development except such entities as enjoy and
18 exercise the right of eminent domain shall pay the State tax of
19 the greater of (i) three hundred dollars ($300) or (ii) the
20 amount computed at the rate of ten mills upon each dollar of the
21 capital stock value as defined in section 601(a) for the
22 calendar year 1971 and the fiscal year beginning in 1971 through
23 calendar year 1986 and fiscal years beginning in 1986, at the
24 rate of nine mills upon each dollar of the capital stock value
25 as defined in section 601(a) for the calendar year 1987 and
26 fiscal years beginning in 1987 and at the rate of nine and one-
27 half mills upon each dollar of the capital stock value as
28 defined in section 601(a) for the calendar year 1988 and fiscal
29 years beginning in 1988 through calendar year 1990 and fiscal
30 years beginning in 1990 and at the rate of eleven mills upon
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1 each dollar of the capital stock value as defined in section
2 601(a) for the calendar year 1991 and each year thereafter, with
3 an additional surtax equal to two mills upon each dollar of the
4 capital stock value as defined in section 601(a) for the
5 calendar year 1991 and fiscal years beginning in 1991 and with
6 an additional surtax equal to one and three-quarters mills upon
7 each dollar of the capital stock value as defined in section
8 601(a) for the calendar year 1992 and fiscal years beginning in
9 1992 and each year thereafter, upon such proportion of its
10 capital stock, if any, as may be invested in any property or
11 business not strictly incident or appurtenant to the
12 manufacturing, processing, research or development business, in
13 addition to the local taxes assessed upon its property in the
14 district where located, it being the object of this provision to
15 relieve from State taxation, except for imposition of the three
16 hundred dollar ($300) minimum tax under this section, only so
17 much of the capital stock as is invested purely in the
18 manufacturing, processing, research or development plant and
19 business.
20 (b) (1) [Every] Subject to the provisions of subsection
21 (h), every foreign entity from which a report is required under
22 section 601 hereof, shall be subject to and pay to the
23 department annually, a franchise tax which is the greater of (i)
24 three hundred dollars ($300) or (ii) the amount computed at the
25 rate of ten mills for the calendar year 1971 and the fiscal
26 years beginning in 1971 through calendar year 1986 and fiscal
27 years beginning in 1986, at the rate of nine mills for the
28 calendar year 1987 and for fiscal years beginning in 1987, at
29 the rate of nine and one-half mills for calendar year 1988 and
30 fiscal years beginning in 1988 through calendar year 1990 and
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1 fiscal years beginning in 1990 and at the rate of eleven mills
2 upon each dollar of the capital stock value as defined in
3 section 601(a) for the calendar year 1991 and fiscal years
4 beginning in 1991 and each year thereafter, with an additional
5 surtax equal to two mills upon each dollar of the capital stock
6 value as defined in section 601(a) for the calendar year 1991
7 and fiscal years beginning in 1991 and with an additional surtax
8 equal to one and three-quarters mills upon each dollar of the
9 capital stock value as defined in section 601(a) for the
10 calendar year 1992 and fiscal years beginning in 1992 and each
11 year thereafter, upon a taxable value to be determined in the
12 following manner. The capital stock value shall be ascertained
13 in the manner prescribed in section 601(a) of this article. The
14 taxable value shall then be determined by employing the relevant
15 apportionment factors set forth in Article IV: Provided, That
16 the manufacturing, processing, research and development
17 exemptions contained under section 602(a) shall also apply to
18 foreign corporations and in determining the relevant
19 apportionment factors the numerator of the property, payroll, or
20 sales factors shall not include any property, payroll or sales
21 attributable to manufacturing, processing, research or
22 development activities in the Commonwealth. Any foreign
23 corporation, joint-stock association, limited partnership or
24 company subject to the tax prescribed herein may elect to
25 compute and pay its tax under section 602(a): Provided, That any
26 foreign corporation, joint-stock association, limited
27 partnership or company electing to compute and pay its tax under
28 section 602(a) shall be treated as if it were a domestic
29 corporation for the purpose of determining which of its assets
30 are exempt from taxation and for the purpose of determining the
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1 proportion of the value of its capital stock which is subject to
2 taxation.
3 (2) The provisions of this article shall apply to the
4 taxation of entities organized for manufacturing, processing,
5 research or development purposes, but shall not apply to such
6 entities as enjoy and exercise the right of eminent domain.
7 (d) [It] Subject to the provisions of subsection (h), it
8 shall be the duty of the treasurer or other officers having
9 charge of any domestic or foreign entity, upon which a tax is
10 imposed by this section, to transmit the amount of tax to the
11 department within the time prescribed by law: Provided, That for
12 the purposes of this act interest in limited partnerships or
13 joint-stock associations shall be deemed to be capital stock,
14 and taxable accordingly: Provided, further, That entities liable
15 to a tax under this section, shall not be required to pay any
16 further tax on the mortgages, bonds, and other securities owned
17 by them and in which the whole body of stockholders or members,
18 as such, have the entire equitable interest in remainder; but
19 entities owning or holding such securities as trustees,
20 executors, administrators, guardians, or in any other manner
21 than for the whole body of stockholders or members thereof as
22 sole equitable owners in remainder, shall return and pay the tax
23 imposed by this act upon all securities so owned or held by
24 them, as in the case of individuals.
25 (e) [Any] Subject to the provisions of subsection (h), any
26 holding company subject to the capital stock tax or the
27 franchise tax imposed by this section may elect to compute the
28 capital stock or franchise tax by applying the rate of tax of
29 ten mills for the calendar year 1971 and the fiscal year
30 beginning in 1971 through the calendar year 1986 and fiscal
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1 years beginning in 1986, at the rate of nine mills for the
2 calendar year 1987 and fiscal years beginning in 1987, at the
3 rate of nine and one-half mills for calendar year 1988 and
4 fiscal years beginning in 1988 through calendar year 1990 and
5 fiscal years beginning in 1990 and at the rate of eleven mills
6 for calendar year 1991 and fiscal years beginning in 1991 and
7 each year thereafter, with an additional surtax equal to two
8 mills for calendar year 1991 and fiscal years beginning in 1991
9 and with an additional surtax equal to one and three-quarters
10 mills upon each dollar of the capital stock value as defined in
11 section 601(a) for the calendar year 1992 and fiscal years
12 beginning in 1992 and each year thereafter, upon each dollar to
13 ten per cent of the capital stock value, but in no case shall
14 the tax so computed be less than three hundred dollars ($300).
15 If exercised, this election shall be in lieu of any other
16 apportionment or allocation to which such company would
17 otherwise be entitled.
18 (f) [Every] Subject to the provisions of subsection (h),
19 every domestic corporation and every foreign corporation (i)
20 registered to do business in Pennsylvania; (ii) which maintains
21 an office in Pennsylvania; (iii) which has filed a timely
22 election to be taxed as a regulated investment company with the
23 Federal Government; and (iv) which duly qualifies to be taxed as
24 a regulated investment company under the provisions of the
25 Internal Revenue Code of 1954 as amended, shall be taxed as a
26 regulated investment company and shall be subject to the capital
27 stock or franchise tax imposed by section 602, in either case
28 for the privilege of having an office in Pennsylvania, which tax
29 shall be computed pursuant to the provisions of this subsection
30 in lieu of all other provisions of this section 602. The tax
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1 shall be in an amount which is the greater of three hundred
2 dollars ($300) or the sum of the amounts determined pursuant to
3 clauses (1) and (2):
4 (1) The amount determined pursuant to this clause shall be
5 seventy-five dollars ($75) times that number which is the result
6 of dividing the net asset value of the regulated investment
7 company by one million, rounded to the nearest multiple of
8 seventy-five dollars ($75). Net asset value shall be determined
9 by adding the monthly net asset values as of the last day of
10 each month during the taxable period and dividing the total sum
11 by the number of months involved. Each such monthly net asset
12 value shall be the actual market value of all assets owned
13 without any exemptions or exclusions, less all liabilities,
14 debts and other obligations.
15 (2) The amount determined pursuant to this clause shall be
16 the amount which is the result of multiplying the rate of
17 taxation applicable for purposes of the personal income tax
18 during the same taxable year times the apportioned undistributed
19 personal income tax income of the regulated investment company.
20 For the purposes of this clause:
21 (A) Personal income tax income shall mean income to the
22 extent enumerated and classified in section 303.
23 (B) Undistributed personal income tax income shall mean all
24 personal income tax income other than personal income tax income
25 undistributed on account of the capital stock or foreign
26 franchise tax, less all personal income tax income distributed
27 to shareholders. At the election of the company, income
28 distributed after the close of a taxable year, but deemed
29 distributed during the taxable year for Federal income tax
30 purposes, shall be deemed distributed during that year for
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1 purposes of this clause. If a company in a taxable year has both
2 current income and income accumulated from a prior year,
3 distributions during the year shall be deemed to have been made
4 first from current income.
5 (C) Undistributed personal income tax income shall be
6 apportioned to Pennsylvania by a fraction, the numerator of
7 which is all income distributed during the taxable period to
8 shareholders who are resident individuals, estates or trusts and
9 the denominator of which is all income distributed during the
10 taxable period. Resident trusts shall not include charitable,
11 pension or profit-sharing, or retirement trusts.
12 (D) Personal income tax income and other income of a company
13 shall each be deemed to be either distributed to shareholders or
14 undistributed in the proportion each category bears to all
15 income received by the company during the taxable year.
16 (g) [In] Subject to the provisions of subsection (h), in the
17 event that a domestic or foreign entity is required to file a
18 report pursuant to section 601(b) on other than an annual basis,
19 the tax imposed by this section, including the three hundred
20 dollar ($300) minimum tax, shall be prorated to reflect the
21 portion of a taxable year for which the report is filed by
22 multiplying the tax liability by a fraction equal to the number
23 of days in the taxable year divided by three hundred sixty-five
24 days.
25 (h) Notwithstanding any other provision of Article IV or
26 this article to the contrary, beginning calendar year 1998 or
27 the fiscal year beginning in 1998 and each calendar or fiscal
28 year thereafter, any taxpayer who is liable for taxes under
29 Article IV and this article shall only be required to pay one
30 tax which shall be the higher of the tax liabilities under
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1 Article IV or this article.
2 Section 3. The amendments of sections 402 and 602 of the act
3 shall apply to the tax years beginning on or after January 1,
4 1998, and to each tax year thereafter.
5 Section 4. This act shall take effect immediately.
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