PRINTER'S NO. 356
No. 347 Session of 1997
INTRODUCED BY GERLACH, ARMSTRONG, BRIGHTBILL, SALVATORE,
HELFRICK, HECKLER, DELP, PUNT, SCHWARTZ, MOWERY, O'PAKE,
STAPLETON, CORMAN, WENGER, GREENLEAF, BELAN AND KASUNIC,
FEBRUARY 5, 1997
REFERRED TO FINANCE, FEBRUARY 5, 1997
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 net gains or income from
11 the disposition of property.
12 The General Assembly of the Commonwealth of Pennsylvania
13 hereby enacts as follows:
14 Section 1. Section 303(a)(3) of the act of March 4, 1971
15 (P.L.6, No.2), known as the Tax Reform Code of 1971, amended
16 July 13, 1987 (P.L.325, No.59) and December 3, 1993 (P.L.473,
17 No.68), is amended to read:
18 Section 303. Classes of Income.--(a) The classes of income
19 referred to above are as follows:
20 * * *
21 (3) Net gains or income from disposition of property. Net
1 gains or net income, less net losses, derived from the sale,
2 exchange or other disposition of property, including real
3 property, tangible personal property, intangible personal
4 property or obligations issued on or after the effective date of
5 this amendatory act by the Commonwealth; any public authority,
6 commission, board or other agency created by the Commonwealth;
7 any political subdivision of the Commonwealth or any public
8 authority created by any such political subdivision; or by the
9 Federal Government as determined in accordance with accepted
10 accounting principles and practices. For the purpose of this
11 act, for the determination of the basis of any property, real
12 and personal, if acquired prior to June 1, 1971, the date of
13 acquisition shall be adjusted to June 1, 1971, as if the
14 property had been acquired on that date. If the property was
15 acquired after June 1, 1971, the actual date of acquisition
16 shall be used in determination of the basis.
17 At the election of the taxpayer, the term "net gains or
18 income" shall not include net gain in an amount not to exceed
19 [one hundred thousand dollars ($100,000)] one hundred twenty-
20 five thousand dollars ($125,000), or a pro rata part of [one
21 hundred thousand dollars ($100,000)] one hundred twenty-five
22 thousand dollars ($125,000) if the property is owned by more
23 than one taxpayer, from the sale or exchange of the taxpayer's
24 principal residence if the taxpayer has attained fifty-five
25 years of age before the date of the sale or exchange. If the
26 property is held by a husband and wife and they make a joint
27 return for the taxable year of the sale or exchange and one
28 spouse satisfies the age, ownership and use requirements of this
29 clause with respect to the property, then both husband and wife
30 shall be treated as satisfying the age, ownership and use
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1 requirements of this clause. For purposes of this clause, in the
2 case of an unremarried individual whose spouse is deceased on
3 the date of sale or exchange of the property, if the deceased
4 spouse, during the five-year period ending on the date of sale
5 or exchange satisfied the holding and use requirements with
6 respect to such property, then such individual shall be treated
7 as satisfying holding and use requirements with respect to such
8 property. For the purposes of this clause, the term "sale or
9 exchange" shall include involuntary conversions such as the
10 destruction, theft, seizure, requisition or condemnation of the
11 property. For the purposes of this clause, the term "principal
12 residence" shall mean the property that has been owned and used
13 by the taxpayer as his principal residence for periods
14 aggregating three years or more during the five-year period
15 ending on the date of the sale or exchange. In the case of
16 property only a portion of which, during the five-year period
17 ending on the date of the sale or exchange, has been owned or
18 used by the taxpayer as the taxpayer's principal residence for
19 periods aggregating three years or more, this section shall
20 apply with respect to so much of the gain from the sale or
21 exchange of such property as is determined under regulations
22 prescribed by the department to be attributable to the portion
23 of the property so owned and used by the taxpayer. The term
24 "used" shall include time the property was not used for rental
25 purposes and was unoccupied by the taxpayer due to the taxpayer
26 being in a hospital, nursing home or personal care facility, or
27 for a period of less than ninety consecutive days. The
28 provisions of this clause shall not apply to any sale or
29 exchange made prior to July 1, 1987. An election under this
30 clause may be made or revoked at any time before the expiration
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1 of the period for making a claim for a refund of the tax imposed
2 by this article for the taxable year in which the sale or
3 exchange occurred. The provisions of this clause shall be used
4 only once during the lifetime of the taxpayer.
5 The term "net gains or income" shall not include net gain
6 from the sale or exchange of the principal residence of a
7 taxpayer if the taxpayer purchases another principal residence
8 within two years from the sale or exchange of his former
9 principal residence for a purchase price in excess of the net
10 gain from the sale or exchange.
11 The term "net gains or income" and "net losses" shall not
12 include gains or income or loss derived from obligations which
13 are statutorily free from State or local taxation under the act
14 of August 31, 1971 (P.L.395, No.94), entitled "An act exempting
15 from taxation for State and local purposes within the
16 Commonwealth certain obligations, their transfer and the income
17 therefrom (including any profits made on the sale thereof),
18 issued by the Commonwealth, any public authority, commission,
19 board or other agency created by the Commonwealth, any political
20 subdivision of the Commonwealth or any public authority created
21 by any such political subdivision," or under the laws of the
22 United States. The term "sale, exchange or other disposition"
23 shall not include the exchange of stock or securities in a
24 corporation a party to a reorganization in pursuance of a plan
25 of reorganization, solely for stock or securities in such
26 corporation or in another corporation a party to the
27 reorganization and the transfer of property to a corporation by
28 one or more persons solely in exchange for stock or securities
29 in such corporation if immediately after the exchange such
30 person or persons are in control of the corporation. For
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1 purposes of this clause, stock or securities issued for services
2 shall not be considered as issued in return for property.
3 For purposes of this clause, the term "reorganization"
4 means--
5 (i) a statutory merger or consolidation;
6 (ii) the acquisition by one corporation, in exchange solely
7 for all or a part of its voting stock (or in exchange solely for
8 all or a part of the voting stock of a corporation which is in
9 control of the acquiring corporation) of stock of another
10 corporation if, immediately after the acquisition, the acquiring
11 corporation has control of such other corporation (whether or
12 not such acquiring corporation had control immediately before
13 the acquisition);
14 (iii) the acquisition by one corporation, in exchange solely
15 for all or a part of its voting stock (or in exchange solely for
16 all or a part of the voting stock of a corporation which is in
17 control of the acquiring corporation), of substantially all of
18 the properties of another corporation, but in determining
19 whether the exchange is solely for stock the assumption by the
20 acquiring corporation of a liability of the other, or the fact
21 that property acquired is subject to a liability, shall be
22 disregarded;
23 (iv) a transfer by a corporation of all or a part of its
24 assets to another corporation if immediately after the transfer
25 the transferor, or one or more of its shareholders (including
26 persons who were shareholders immediately before the transfer),
27 or any combination thereof, is in control of the corporation to
28 which the assets are transferred;
29 (v) a recapitalization;
30 (vi) a mere change in identity, form, or place of
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1 organization however effected; or
2 (vii) the acquisition by one corporation, in exchange for
3 stock of a corporation (referred to in this subclause as
4 "controlling corporation") which is in control of the acquiring
5 corporation, of substantially all of the properties of another
6 corporation which in the transaction is merged into the
7 acquiring corporation shall not disqualify a transaction under
8 subclause (i) if such transaction would have qualified under
9 subclause (i) if the merger had been into the controlling
10 corporation, and no stock of the acquiring corporation is used
11 in the transaction;
12 (viii) a transaction otherwise qualifying under subclause
13 (i) shall not be disqualified by reason of the fact that stock
14 of a corporation (referred to in this subclause as the
15 "controlling corporation") which before the merger was in
16 control of the merged corporation is used in the transaction, if
17 after the transaction, the corporation surviving the merger
18 holds substantially all of its properties and of the properties
19 of the merged corporation (other than stock of the controlling
20 corporation distributed in the transaction); and in the
21 transaction, former shareholders of the surviving corporation
22 exchanged, for an amount of voting stock of the controlling
23 corporation, an amount of stock in the surviving corporation
24 which constitutes control of such corporation.
25 For purposes of this clause, the term "control" means the
26 ownership of stock possessing at least eighty per cent of the
27 total combined voting power of all classes of stock entitled to
28 vote and at least eighty per cent of the total number of shares
29 of all other classes of stock of the corporation.
30 For purposes of this clause, the term "a party to a
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1 reorganization" includes a corporation resulting from a
2 reorganization, and both corporations, in the case of a
3 reorganization resulting from the acquisition by one corporation
4 of stock or properties of another. In the case of a
5 reorganization qualifying under subclause (i) by reason of
6 subclause (vii) the term "a party to a reorganization" includes
7 the controlling corporation referred to in such subclause (vii).
8 Notwithstanding any provisions hereof, upon every such
9 exchange or conversion, the taxpayer's base for the stock or
10 securities received shall be the same as the taxpayer's actual
11 or attributed base for the stock, securities or property
12 surrendered in exchange therefor.
13 * * *
14 Section 2. This act shall apply to taxable years beginning
15 on or after January 1, 1998.
16 Section 3. This act shall take effect immediately.
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