PRINTER'S NO. 1412
No. 1132 Session of 2001
INTRODUCED BY GREENLEAF, BOSCOLA, COSTA, KITCHEN AND MOWERY,
OCTOBER 11, 2001
REFERRED TO FINANCE, OCTOBER 11, 2001
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 classes of income.
11 The General Assembly of the Commonwealth of Pennsylvania
12 hereby enacts as follows:
13 Section 1. Section 303(a)(3) of the act of March 4, 1971
14 (P.L.6, No.2), known as the Tax Reform Code of 1971, amended May
15 7, 1997 (P.L.85, No.7) and April 23, 1998 (P.L.239, No.45), is
16 amended to read:
17 Section 303. Classes of Income.--(a) The classes of income
18 referred to above are as follows:
19 * * *
20 (3) Net gains or income or losses from disposition of
21 property. Net gains or net income, less net losses, derived from
1 the sale, exchange or other disposition of property, including
2 real property, tangible personal property, intangible personal
3 property or obligations issued on or after the effective date of
4 this amendatory act by the Commonwealth; any public authority,
5 commission, board or other agency created by the Commonwealth;
6 any political subdivision of the Commonwealth or any public
7 authority created by any such political subdivision; or by the
8 Federal Government as determined in accordance with accepted
9 accounting principles and practices. If the disposition of
10 property resulted in an overall net loss, the taxpayer shall be
11 credited for the net loss against other classes of income
12 received during the tax year. For the purpose of this article:
13 (i) For the determination of the basis of any property, real
14 and personal, if acquired prior to June 1, 1971, the date of
15 acquisition shall be adjusted to June 1, 1971, as if the
16 property had been acquired on that date. If the property was
17 acquired after June 1, 1971, the actual date of acquisition
18 shall be used in determination of the basis.
19 (iii) The term "net gains or income" and "net losses" shall
20 not include gains or income or loss derived from obligations
21 which are statutorily free from State or local taxation under
22 the act of August 31, 1971 (P.L.395, No.94), entitled "An act
23 exempting from taxation for State and local purposes within the
24 Commonwealth certain obligations, their transfer and the income
25 therefrom (including any profits made on the sale thereof),
26 issued by the Commonwealth, any public authority, commission,
27 board or other agency created by the Commonwealth, any political
28 subdivision of the Commonwealth or any public authority created
29 by any such political subdivision," or under the laws of the
30 United States.
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1 (iv) The term "sale, exchange or other disposition" shall
2 not include the exchange of stock or securities in a corporation
3 a party to a reorganization in pursuance of a plan of
4 reorganization, solely for stock or securities in such
5 corporation or in another corporation a party to the
6 reorganization and the transfer of property to a corporation by
7 one or more persons solely in exchange for stock or securities
8 in such corporation if immediately after the exchange such
9 person or persons are in control of the corporation. The
10 following shall apply:
11 (A) For purposes of this subparagraph (iv), stock or
12 securities issued for services shall not be considered as issued
13 in return for property.
14 (B) For purposes of this subparagraph (iv), the term
15 "reorganization" means any of the following:
16 (I) A statutory merger or consolidation.
17 (II) The acquisition by one corporation, in exchange solely
18 for all or a part of its voting stock (or in exchange solely for
19 all or a part of the voting stock of a corporation which is in
20 control of the acquiring corporation) of stock of another
21 corporation if, immediately after the acquisition, the acquiring
22 corporation has control of such other corporation (whether or
23 not such acquiring corporation had control immediately before
24 the acquisition).
25 (III) The acquisition by one corporation, in exchange solely
26 for all or a part of its voting stock (or in exchange solely for
27 all or a part of the voting stock of a corporation which is in
28 control of the acquiring corporation), of substantially all of
29 the properties of another corporation, but in determining
30 whether the exchange is solely for stock the assumption by the
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1 acquiring corporation of a liability of the other, or the fact
2 that property acquired is subject to a liability, shall be
3 disregarded.
4 (IV) A transfer by a corporation of all or a part of its
5 assets to another corporation if immediately after the transfer
6 the transferor, or one or more of its shareholders (including
7 persons who were shareholders immediately before the transfer),
8 or any combination thereof, is in control of the corporation to
9 which the assets are transferred.
10 (V) A recapitalization.
11 (VI) A mere change in identity, form, or place of
12 organization however effected.
13 (C) The acquisition by one corporation, in exchange for
14 stock of a corporation (referred to in this clause (C) as
15 "controlling corporation") which is in control of the acquiring
16 corporation, of substantially all of the properties of another
17 corporation which in the transaction is merged into the
18 acquiring corporation shall not disqualify a transaction under
19 clause (B)(I) if such transaction would have qualified under
20 clause(B)(I) if the merger had been into the controlling
21 corporation, and no stock of the acquiring corporation is used
22 in the transaction.
23 (D) A transaction otherwise qualifying under clause (B)(I)
24 shall not be disqualified by reason of the fact that stock of a
25 corporation (referred to in this clause (D) as the "controlling
26 corporation") which before the merger was in control of the
27 merged corporation is used in the transaction, if after the
28 transaction, the corporation surviving the merger holds
29 substantially all of its properties and of the properties of the
30 merged corporation (other than stock of the controlling
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1 corporation distributed in the transaction); and in the
2 transaction, former shareholders of the surviving corporation
3 exchanged, for an amount of voting stock of the controlling
4 corporation, an amount of stock in the surviving corporation
5 which constitutes control of such corporation.
6 (E) For purposes of this subparagraph (iv):
7 (I) The term "control" means the ownership of stock
8 possessing at least eighty per cent of the total combined voting
9 power of all classes of stock entitled to vote and at least
10 eighty per cent of the total number of shares of all other
11 classes of stock of the corporation.
12 (II) The term "a party to a reorganization" includes a
13 corporation resulting from a reorganization, and both
14 corporations, in the case of a reorganization resulting from the
15 acquisition by one corporation of stock or properties of
16 another. In the case of a reorganization qualifying under clause
17 (B)(I) by reason of clause (C) the term "a party to a
18 reorganization" includes the controlling corporation referred to
19 in clause (C).
20 (F) Notwithstanding any provisions hereof, upon every such
21 exchange or conversion, the taxpayer's base for the stock or
22 securities received shall be the same as the taxpayer's actual
23 or attributed base for the stock, securities or property
24 surrendered in exchange therefor.
25 (v) The term "sale, exchange or other disposition" shall not
26 include a transfer by a common trust fund described in section
27 584 of the Internal Revenue Code of 1986 (Public Law 99-514, 26
28 U.S.C. § 584) of all or substantially all of its assets to one
29 or more companies described in section 851 of the Internal
30 Revenue Code of 1986 (26 U.S.C. § 851) in exchange for stock or
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1 units of beneficial interest in the company or companies to
2 which such assets are transferred and the distribution of such
3 stock or units by the fund to its participants in exchange for
4 their interest in the fund, if no gain or loss is recognized on
5 the transfer or distribution for Federal income tax purposes.
6 Upon every such exchange, the taxpayer's base for the stock or
7 units or assets received shall be the same as the taxpayer's
8 actual or attributed base for the assets, stock, units or
9 interest surrendered in exchange therefor.
10 (vi) The term "sale, exchange or other disposition" shall
11 not include a transfer of an interest in an enterprise treated
12 as a partnership for purposes of this article in exchange for an
13 interest in any other enterprise treated as a partnership for
14 purposes of this article, a liquidation made in connection
15 therewith or an exchange made pursuant to a statutory merger,
16 consolidation or division of enterprises so treated unless
17 taxable income or gain is recognized for Federal income tax
18 purposes. Upon every such exchange, the taxpayer's base for the
19 interest received shall be the same as the taxpayer's actual or
20 attributed base for the interest surrendered in exchange
21 therefor.
22 (vii) The term "net gains or net income, less net losses,"
23 shall not include any gain or loss from the sale, exchange or
24 other disposition of the taxpayer's principal residence.
25 (A) For purposes of this subparagraph, the term "principal
26 residence" shall mean the property that has been owned and used
27 by the taxpayer as the taxpayer's principal residence for
28 periods aggregating two years or more during the five-year
29 period ending on the date of the sale, exchange or disposition:
30 Provided, however, That the following shall apply:
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1 (I) In the case of property only a portion of which, during
2 the five-year period ending on the date of the sale, exchange or
3 disposition, has been owned or used by the taxpayer as the
4 taxpayer's principal residence for periods aggregating two years
5 or more, this subparagraph shall apply with respect to so much
6 of the gain from the sale, exchange or disposition of such
7 property as is determined under regulations prescribed by the
8 department to be attributable to that portion.
9 (II) In the case of a principal residence only a portion of
10 which has never been subject to the allowance for depreciation,
11 this subparagraph shall apply with respect to so much of the
12 gain from the sale, exchange or disposition of such property as
13 is determined under regulations prescribed by the department to
14 be attributable to that portion.
15 (B) The provisions of this subparagraph shall not apply to a
16 sale, exchange or disposition if, during the two-year period
17 ending upon the date of the sale, exchange or disposition, there
18 was a prior sale, exchange or disposition by the taxpayer of a
19 principal residence unless the sale, exchange or disposition is
20 by reason of a change in employment, health or, to the extent
21 provided in regulations, unforeseen circumstances.
22 (C) The provisions of this subparagraph shall not apply to
23 any sale, exchange or disposition made prior to January 1, 1998.
24 * * *
25 Section 2. This act shall apply to tax years beginning on or
26 after January 1, 2002.
27 Section 3. This act shall take effect immediately.
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