PRINTER'S NO. 4180
No. 2742 Session of 2006
INTRODUCED BY TURZAI, REED, GERBER, EACHUS, ADOLPH, ALLEN,
ARGALL, BAKER, BALDWIN, BASTIAN, BEBKO-JONES, BELARDI,
BELFANTI, BENNINGHOFF, BEYER, BIANCUCCI, BIRMELIN, BISHOP,
BLACKWELL, BLAUM, BOYD, BUXTON, CALTAGIRONE, CAPPELLI,
CAUSER, CAWLEY, CLYMER, COHEN, CORRIGAN, COSTA, CRAHALLA,
CREIGHTON, CRUZ, DALEY, DALLY, DeLUCA, DENLINGER, DERMODY,
ELLIS, J. EVANS, FABRIZIO, FAIRCHILD, FEESE, FLAHERTY, FLICK,
FORCIER, FRANKEL, GABIG, GANNON, GEIST, GEORGE, GERGELY,
GILLESPIE, GINGRICH, GODSHALL, GOOD, GOODMAN, GRELL, GRUCELA,
HALUSKA, HANNA, HARHAI, HARHART, HENNESSEY, HERMAN, HERSHEY,
HICKERNELL, HUTCHINSON, JOSEPHS, KAUFFMAN, M. KELLER,
W. KELLER, KENNEY, KILLION, KIRKLAND, KOTIK, LEACH, LEDERER,
LESCOVITZ, MACKERETH, MAJOR, MANDERINO, MARKOSEK, MARSICO,
McCALL, McILHATTAN, MELIO, METCALFE, MICOZZIE, MILLARD,
R. MILLER, MUNDY, MUSTIO, MYERS, NAILOR, NICKOL, OLIVER,
PAYNE, PERZEL, PETRARCA, PETRONE, PHILLIPS, PICKETT, PRESTON,
PYLE, QUIGLEY, RAMALEY, RAPP, RAYMOND, READSHAW, REICHLEY,
ROBERTS, ROEBUCK, ROHRER, ROONEY, ROSS, RUBLEY, SAINATO,
SANTONI, SATHER, SCAVELLO, SHANER, SHAPIRO, SIPTROTH,
S. H. SMITH, SOLOBAY, SONNEY, STABACK, STEIL, STERN, STETLER,
R. STEVENSON, T. STEVENSON, STURLA, SURRA, TANGRETTI,
E. Z. TAYLOR, J. TAYLOR, TIGUE, TRUE, WALKO, WANSACZ, WATERS,
WILLIAMS, WILT, YEWCIC, YOUNGBLOOD AND YUDICHAK,
JUNE 12, 2006
REFERRED TO COMMITTEE ON FINANCE, JUNE 12, 2006
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, in corporate net income, for
11 the definition of "taxable income."
12 The General Assembly finds and declares as follows:
1 (1) That the Commonwealth's high tech and manufacturing
2 sectors, which generate 16.1% of the gross State product,
3 employ 670,000 Pennsylvanians and directly add over $75
4 billion in value to the Commonwealth every year, are in a
5 state of crisis that demands immediate attention.
6 (2) Despite certain nonmanufacturing sectors of
7 Pennsylvania's economy keeping pace with national economic
8 growth and generating significant increased revenues for the
9 General Fund budget, Pennsylvania's high tech and
10 manufacturing employers have lost in excess of 200,000 high-
11 paying, high-value manufacturing jobs since 2000, even as
12 competitor states have continued to add manufacturing and
13 high tech jobs.
14 (3) After seeking and receiving the recommendations from
15 an unprecedented coalition of Pennsylvania employers, called
16 CompetePA, representing small and large companies competing
17 in every sector of the State's economy and every geographic
18 region of this Commonwealth, its support for the unified and
19 targeted solution to the manufacturing crisis recommended by
20 Pennsylvania employers that would reverse longstanding,
21 Pennsylvania-specific, job-crushing State economic policies
22 that punish investment and reinvestment in domestic
23 manufacturing facilities.
24 (4) In recognition that Pennsylvania employers, not
25 policymakers, are best positioned to recommend reforms to
26 enhance high tech and manufacturing competitiveness for the
27 Commonwealth, its support for the unified Pennsylvania
28 business community recommendations to all of the following:
29 (i) Eliminate over time the current policy that
30 restricts companies from offsetting current income with
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1 prior net operating losses.
2 (ii) Eliminate the "penalty" that increases an
3 employer's tax liability as that employer invests more in
4 its employees and property.
5 (5) Having determined that Pennsylvania's net operating
6 loss tax policy continues to force cyclical, high tech and
7 manufacturing companies to pay a much higher effective tax
8 rate than their counterparts in competing neighboring states
9 over a multiyear period and that its current tax policy to
10 penalize employers based upon their relative investment in
11 payroll and property creates a perverse incentive for
12 manufacturers to reduce such investments in this
13 Commonwealth, that Pennsylvania's current tax policy
14 specifically targets domestic, high tech and manufacturing
15 companies for this unfair treatment and places Pennsylvania
16 in an uncompetitive position in relation to other states
17 competing for manufacturing investments.
18 (6) Having acknowledged that State tax policy should be
19 designed to encourage in-State job creation and capital
20 growth and recognizing that, by adopting changes to the
21 State's corporate net income tax apportionment formula to
22 move toward a single sales factor, that the Commonwealth can
23 create an incentive for companies that have demonstrated a
24 commitment to the State to grow and expand in Pennsylvania.
25 (7) Having previously adopted the multiyear phaseout of
26 the capital stock and franchise tax, that the structural
27 changes to the net operating loss and sales factor
28 apportionment formula should be enacted in a similar fiscally
29 responsible manner.
30 (8) Having determined that the high tech and
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1 manufacturing stimulus initiatives contained in this act
2 assist only those companies that are paying significantly
3 more than their fair share of business taxes, that these
4 inherent, anticompetitive deficiencies within Pennsylvania's
5 business tax structure should be reversed immediately.
6 (9) Having determined that the fiscal impact of this act
7 is less than $50 million in the first fiscal year or 0.20 of
8 1% of the General Fund budget and, in light of the
9 significant and unexpected business tax revenues emanating
10 from industry sectors in the current fiscal year, that the
11 modest fiscal impact of this critical high tech and
12 manufacturing strategy is readily accommodated in the General
13 Fund budget.
14 The General Assembly of the Commonwealth of Pennsylvania
15 hereby enacts as follows:
16 Section 1. Section 401(3)2(a)(9) and 4(c) of the act of
17 March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of
18 1971, amended May 12, 1999 (P.L.26, No.4) and June 29, 2002
19 (P.L.559, No.89), are amended to read:
20 Section 401. Definitions.--The following words, terms, and
21 phrases, when used in this article, shall have the meaning
22 ascribed to them in this section, except where the context
23 clearly indicates a different meaning:
24 * * *
25 (3) "Taxable income." * * *
26 2. In case the entire business of any corporation, other
27 than a corporation engaged in doing business as a regulated
28 investment company as defined by the Internal Revenue Code of
29 1986, is not transacted within this Commonwealth, the tax
30 imposed by this article shall be based upon such portion of the
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1 taxable income of such corporation for the fiscal or calendar
2 year, as defined in subclause 1 hereof, and may be determined as
3 follows:
4 (a) Division of Income.
5 * * *
6 (9) (A) Except as provided in subparagraph (B)[, all
7 business income shall be apportioned to this State by
8 multiplying the income by a fraction, the numerator of which is
9 the property factor plus the payroll factor plus three times the
10 sales factor, and the denominator of which is five.]:
11 (I) For taxable years beginning before January 1, 2007, all
12 business income shall be apportioned to this State by
13 multiplying the income by a fraction: the numerator of which is
14 the property factor plus the payroll factor plus three times the
15 sales factor; and the denominator of which is five.
16 (II) For taxable years beginning after December 31, 2006,
17 and before January 1, 2008, all business income shall be
18 apportioned to this State by multiplying the income by a
19 fraction: the numerator of which is the sum of fifteen times the
20 property factor, fifteen times the payroll factor and seventy
21 times the sales factor; and the denominator of which is one
22 hundred.
23 (III) For taxable years beginning after December 31, 2007,
24 and before January 1, 2009, all business income shall be
25 apportioned to this State by multiplying the income by a
26 fraction: the numerator of which is the sum of the property
27 factor, the payroll factor and eight times the sales factor; and
28 the denominator of which is ten.
29 (IV) For taxable years beginning after December 31, 2008,
30 and before January 1, 2010, all business income shall be
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1 apportioned to this State by multiplying the income by a
2 fraction: the numerator of which is the sum of one-half times
3 the property factor, one-half times the payroll factor and nine
4 times the sales factor; and the denominator of which is ten.
5 (V) For taxable years beginning after December 31, 2009, all
6 business income shall be apportioned by this State by
7 multiplying incomes by the sales factor.
8 (B) For purposes of apportionment of the capital stock -
9 franchise tax as provided in section 602 of Article VI of this
10 act, the apportionment fraction shall be the property factor
11 plus the payroll factor plus the sales factor as the numerator,
12 and the denominator shall be three.
13 * * *
14 4. * * *
15 (c) (1) (A) The net loss deduction shall be the lesser of:
16 (I) two million dollars ($2,000,000) [or] for taxable years
17 ending before January 1, 2007;
18 (II) the greater of fifteen per cent of taxable income or
19 three million dollars ($3,000,000) for taxable years beginning
20 after December 31, 2006, and before January 1, 2008;
21 (III) the greater of thirty per cent of taxable income or
22 four million dollars ($4,000,000) for taxable years beginning
23 after December 31, 2007, and before January 1, 2009;
24 (IV) the greater of fifty per cent of taxable income or five
25 million dollars ($5,000,000) for taxable years beginning after
26 December 31, 2008, and before January 1, 2010;
27 (V) one hundred per cent of taxable income for taxable years
28 beginning after December 31, 2009; or
29 (VI) the amount of the net loss or losses which may be
30 carried over to the taxable year or taxable income as determined
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1 under subclause 1 or, if applicable, subclause 2.
2 (B) In no event shall the net loss deduction include more
3 than five hundred thousand dollars ($500,000), in the aggregate,
4 of net losses from taxable years 1988 through 1994.
5 (2) (A) A net loss for a taxable year may only be carried
6 over pursuant to the following schedule:
7 Taxable Year Carryover
8 1981 1 taxable year
9 1982 2 taxable years
10 1983-1987 3 taxable years
11 1988 2 taxable years plus
12 1 taxable year
13 starting with the
14 1995 taxable year
15 1989 1 taxable year plus
16 2 taxable years
17 starting with the
18 1995 taxable year
19 1990-1993 3 taxable years
20 starting with the
21 1995 taxable year
22 1994 1 taxable year
23 1995
24 -1997 10 taxable years
25 1998 and thereafter 20 taxable years
26 (B) The earliest net loss shall be carried over to the
27 earliest taxable year to which it may be carried under this
28 schedule. The total net loss deduction allowed in any taxable
29 year shall not exceed [two]:
30 (I) Two million dollars ($2,000,000)[.] for taxable years
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1 ending before January 1, 2007.
2 (II) The greater of fifteen per cent of taxable income or
3 three million dollars ($3,000,000) for taxable years beginning
4 after December 31, 2006, and ending before January 1, 2008.
5 (III) The greater of thirty per cent of taxable income or
6 four million dollars ($4,000,000) for taxable years beginning
7 after December 31, 2007, and ending before January 1, 2009.
8 (IV) The greater of fifty percent of taxable income or five
9 million dollars ($5,000,000) for taxable years beginning after
10 December 31, 2008, and ending before January 1, 2010.
11 (V) One hundred per cent of taxable income for taxable years
12 beginning after December 31, 2009.
13 * * *
14 Section 2. This amendatory act shall be known and may be
15 cited as the High Tech and Manufacturing Stimulus Act.
16 Section 3. This act shall take effect immediately.
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