PRIOR PRINTER'S NO. 1668 PRINTER'S NO. 1693
No. 1229 Session of 2007
INTRODUCED BY BROWNE, FONTANA, BAKER, ORIE, ARMSTRONG, BOSCOLA, KITCHEN, GORDNER, LAVALLE, WOZNIAK, FOLMER, STACK, WASHINGTON, COSTA, PIPPY, FERLO, WONDERLING, CORMAN, WAUGH, BRUBAKER, PICCOLA, SCARNATI AND O'PAKE, DECEMBER 21, 2007
SENATOR BROWNE, FINANCE, AS AMENDED, JANUARY 16, 2008
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: 13 (1) That the Commonwealth's high tech and manufacturing 14 sectors, which generate 16.1% of the gross State product, 15 employ 670,000 Pennsylvanians and directly add over $75 16 billion in value to the Commonwealth every year, are in a 17 state of crisis that demands immediate attention. 18 (2) Despite certain nonmanufacturing sectors of 19 Pennsylvania's economy keeping pace with national economic 20 growth and generating significant increased revenues for the 21 General Fund budget, Pennsylvania's high tech and
1 manufacturing employers have lost in excess of 200,000 high- 2 paying, high-value manufacturing jobs since 2000, even as 3 competitor states have continued to add manufacturing and 4 high tech jobs. 5 (3) After seeking and receiving the recommendations from 6 an unprecedented coalition of Pennsylvania employers, called 7 CompetePA, representing small and large companies competing 8 in every sector of the State's economy and every geographic 9 region of this Commonwealth, its support for the unified and 10 targeted solution to the manufacturing crisis recommended by 11 Pennsylvania employers that would reverse longstanding, 12 Pennsylvania-specific, job-crushing State economic policies 13 that punish investment and reinvestment in domestic 14 manufacturing facilities. 15 (4) In recognition that Pennsylvania employers, not 16 policymakers, are best positioned to recommend reforms to 17 enhance high tech and manufacturing competitiveness for the 18 Commonwealth, its support for the unified Pennsylvania 19 business community recommendations to all of the following: 20 (i) Eliminate over time the current policy that 21 restricts companies from offsetting current income with 22 prior net operating losses. 23 (ii) Eliminate the "penalty" that increases an 24 employer's tax liability as that employer invests more in 25 its employees and property. 26 (5) Having determined that Pennsylvania's net operating 27 loss tax policy continues to force cyclical, high tech and 28 manufacturing companies to pay a much higher effective tax 29 rate than their counterparts in competing neighboring states 30 over a multiyear period and that its current tax policy to 20070S1229B1693 - 2 -
1 penalize employers based upon their relative investment in 2 payroll and property creates a perverse incentive for 3 manufacturers to reduce such investments in this 4 Commonwealth, that Pennsylvania's current tax policy 5 specifically targets domestic, high tech and manufacturing 6 companies for this unfair treatment and places Pennsylvania 7 in an uncompetitive position in relation to other states 8 competing for manufacturing investments. 9 (6) Having acknowledged that State tax policy should be 10 designed to encourage in-State job creation and capital 11 growth and recognizing that, by adopting changes to the 12 State's corporate net income tax apportionment formula to 13 move toward a single sales factor, that the Commonwealth can 14 create an incentive for companies that have demonstrated a 15 commitment to the State to grow and expand in Pennsylvania. 16 (7) Having previously adopted the multiyear phaseout of 17 the capital stock and franchise tax, that the structural 18 changes to the net operating loss and sales factor 19 apportionment formula should be enacted in a similar fiscally 20 responsible manner. 21 (8) Having determined that the high tech and 22 manufacturing stimulus initiatives contained in this act 23 assist only those companies that are paying significantly 24 more than their fair share of business taxes, that these 25 inherent, anticompetitive deficiencies within Pennsylvania's 26 business tax structure should be reversed immediately. 27 (9) Having determined that the fiscal impact of this act 28 is less than $50 million in the first fiscal year or 0.20 of 29 1% of the General Fund budget and, in light of the 30 significant and unexpected business tax revenues emanating 20070S1229B1693 - 3 -
1 from industry sectors in the current fiscal year, that the 2 modest fiscal impact of this critical high tech and 3 manufacturing stimulus act is readily accommodated in the 4 General Fund budget. 5 The General Assembly of the Commonwealth of Pennsylvania 6 hereby enacts as follows: 7 Section 1. Section 401(3)2(a)(9) and 4(c) of the act of 8 March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 9 1971, amended July 12, 2006 (P.L.1137, No.116), are amended to 10 read: 11 Section 401. Definitions.--The following words, terms, and 12 phrases, when used in this article, shall have the meaning 13 ascribed to them in this section, except where the context 14 clearly indicates a different meaning: 15 * * * 16 (3) "Taxable income." * * * 17 2. In case the entire business of any corporation, other 18 than a corporation engaged in doing business as a regulated 19 investment company as defined by the Internal Revenue Code of 20 1986, is not transacted within this Commonwealth, the tax 21 imposed by this article shall be based upon such portion of the 22 taxable income of such corporation for the fiscal or calendar 23 year, as defined in subclause 1 hereof, and may be determined as 24 follows: 25 (a) Division of Income. 26 * * * 27 (9) (A) Except as provided in subparagraph (B): 28 (i) For taxable years beginning before January 1, 2007, all 29 business income shall be apportioned to this State by 30 multiplying the income by a fraction, the numerator of which is 20070S1229B1693 - 4 -
1 the property factor plus the payroll factor plus three times the 2 sales factor and the denominator of which is five. 3 (ii) For taxable years beginning after December 31, 2006, 4 all business income shall be apportioned to this State by 5 multiplying the income by a fraction, the numerator of which is 6 the sum of fifteen times the property factor, fifteen times the 7 payroll factor and seventy times the sales factor and the 8 denominator of which is one hundred. 9 (iii) For taxable years beginning after December 31, 2007, 10 and before January 1, 2009, all business income shall be 11 apportioned to this State by multiplying the income by a 12 fraction: the numerator of which is the sum of seven and a half 13 times the property factor, seven and a half times the payroll 14 factor and eighty-five times the sales factor; and the 15 denominator of which is one hundred. 16 (iv) For taxable years beginning after December 31, 2008, 17 all business income shall be apportioned by this State by 18 multiplying incomes by the sales factor. 19 (B) For purposes of apportionment of the capital stock - 20 franchise tax as provided in section 602 of Article VI of this 21 act, the apportionment fraction shall be the property factor 22 plus the payroll factor plus the sales factor as the numerator, 23 and the denominator shall be three. 24 * * * 25 4. * * * 26 (c) (1) The net loss deduction shall be the lesser of: 27 (A) (I) For taxable years beginning before January 1, 2007, 28 two million dollars ($2,000,000); 29 (II) For taxable years beginning after December 31, 2006, 30 the greater of twelve and one-half per cent of taxable income as 20070S1229B1693 - 5 -
1 determined under subclause 1 or, if applicable, subclause 2 or 2 three million dollars ($3,000,000); [or] 3 (III) For taxable years beginning after December 31, 2007, 4 the greater of fifty per cent of the taxable income as 5 determined under subclause 1 or, if applicable, subclause 2 or 6 three million dollars ($3,000,000); 7 (IV) For taxable years beginning after December 31, 2008, 8 one hundred per cent of the taxable income as determined under 9 subclause 1 or, if applicable, subclause 2; or 10 (B) The amount of the net loss or losses which may be 11 carried over to the taxable year or taxable income as determined 12 under subclause 1 or, if applicable, subclause 2. 13 (1.1) In no event shall the net loss deduction include more 14 than five hundred thousand dollars ($500,000), in the aggregate, 15 of net losses from taxable years 1988 through 1994. 16 (2) (A) A net loss for a taxable year may only be carried 17 over pursuant to the following schedule: 18 Taxable Year Carryover 19 1981 1 taxable year 20 1982 2 taxable years 21 1983-1987 3 taxable years 22 1988 2 taxable years plus 23 1 taxable year 24 starting with the 25 1995 taxable year 26 1989 1 taxable year plus 27 2 taxable years 28 starting with the 29 1995 taxable year 30 1990-1993 3 taxable years 20070S1229B1693 - 6 -
1 starting with the 2 1995 taxable year 3 1994 1 taxable year 4 1995-1997 10 taxable years 5 1998 and thereafter 20 taxable years 6 (B) The earliest net loss shall be carried over to the 7 earliest taxable year to which it may be carried under this 8 schedule. The total net loss deduction allowed in any taxable 9 year shall not exceed: 10 (I) Two million dollars ($2,000,000) for taxable years 11 beginning before January 1, 2007. 12 (II) The greater of twelve and one-half per cent of the 13 taxable income as determined under subclause 1 or, if 14 applicable, subclause 2 or three million dollars ($3,000,000) 15 for taxable years beginning after December 31, 2006. 16 (III) The greater of fifty per cent of the taxable income as 17 determined under subclause 1 or, if applicable, subclause 2 or 18 three million dollars ($3,000,000) for taxable years beginning 19 after December 31, 2007, and before January 1, 2009. 20 (IV) The greater of one hundred per cent of the taxable 21 income as determined under subclause 1 or, if applicable, 22 subclause 2 or three million dollars ($3,000,000) for taxable <-- 23 years beginning after December 31, 2008. 24 * * * 25 Section 2. The amendment of section 401(3)2(a)(9) and 4(c) 26 of the act shall apply to taxable years beginning after December 27 31, 2007. 28 Section 3. This act shall take effect immediately. L17L72MSP/20070S1229B1693 - 7 -