PRINTER'S NO. 572
No. 548 Session of 1999
INTRODUCED BY FARGO, SAYLOR, THOMAS, MAHER, BROWNE, ADOLPH,
BOYES, DeWEESE, SNYDER, ALLEN, ARGALL, BAKER, BARD, BARRAR,
BASTIAN, BATTISTO, BELFANTI, BENNINGHOFF, BIRMELIN, BUNT,
CAWLEY, CHADWICK, CLARK, CLYMER, L. I. COHEN, M. COHEN,
CORNELL, COY, DeLUCA, DEMPSEY, EACHUS, FAIRCHILD, FEESE,
FICHTER, FLEAGLE, FLICK, FORCIER, GANNON, GODSHALL, GORDNER,
GRUITZA, HARHAI, HERMAN, HERSHEY, HESS, HUTCHINSON,
JADLOWIEC, JOSEPHS, KAISER, KENNEY, LEH, LESCOVITZ, LYNCH,
MAITLAND, MAJOR, MARKOSEK, MARSICO, MASLAND, McCALL,
McILHATTAN, McNAUGHTON, MELIO, METCALFE, R. MILLER, MUNDY,
NAILOR, NICKOL, PESCI, PETRARCA, PHILLIPS, PIPPY, PISTELLA,
PRESTON, RAMOS, RAYMOND, READSHAW, ROHRER, ROSS, RUBLEY,
SAINATO, SANTONI, SATHER, SCHRODER, SEMMEL, SERAFINI,
SEYFERT, SHANER, S. H. SMITH, STEELMAN, STEIL, STERN,
STETLER, STEVENSON, STURLA, E. Z. TAYLOR, TRELLO, TRUE,
TULLI, VAN HORNE, VANCE, WILLIAMS, WILT, WOGAN AND ZUG,
FEBRUARY 10, 1999
REFERRED TO COMMITTEE ON FINANCE, FEBRUARY 10, 1999
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 definition of "small
11 corporation" for income tax purposes.
12 The General Assembly of the Commonwealth of Pennsylvania
13 hereby enacts as follows:
14 Section 1. Sections 301(s.2) and 307.6 of the act of March
15 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971,
1 amended May 7, 1997 (P.L.85, No.7), are amended to read:
2 Section 301. Definitions.--The following words, terms and
3 phrases when used in this article shall have the meaning
4 ascribed to them in this section except where the context
5 clearly indicates a different meaning. Unless specifically
6 provided otherwise, any reference in this article to the
7 Internal Revenue Code shall include the Internal Revenue Code of
8 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.), as amended to
9 January 1, 1997:
10 * * *
11 (s.2) "Small corporation" means any corporation which has a
12 valid election in effect under subchapter S of Chapter 1 of the
13 Internal Revenue Code of 1986, as amended to January 1, 1997[,
14 and which does not have passive investment income in excess of
15 twenty-five per cent of its gross receipts. For purposes of this
16 clause, "passive investment income" means gross receipts derived
17 from royalties, rents, dividends, interest, annuities and sales
18 or exchanges of stock or securities (gross receipts from such
19 sales or exchanges being taken into account only to the extent
20 of gains therefrom). For purposes of determining whether a
21 corporation qualifies as a small corporation for purposes of
22 this article, (i) a qualified Subchapter S subsidiary owned by a
23 small corporation shall not be treated as a separate
24 corporation, and all gross receipts and passive investment
25 income of such qualified Subchapter S subsidiary shall be
26 treated as earned by the parent corporation; and (ii) all
27 intercorporate payments or distributions between the parent
28 corporation and any qualified Subchapter S subsidiary owned by
29 such corporation shall be eliminated].
30 * * *
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1 Section 307.6. Election after Revocation or Termination.--
2 [If] (a) Except as provided for in subsection (b), if a
3 corporation has made an election under section 307 and if such
4 election has been revoked pursuant to section 307.3 or
5 terminated for exceeding the passive investment income
6 limitation in section 301(s.2), such corporation, and any
7 successor corporation, shall not be eligible to make an election
8 under section 307 for any taxable year prior to its fifth
9 taxable year which begins after the first taxable year for which
10 such revocation or termination is effective.
11 (b) In the event the corporation had an inadvertent
12 termination of its S corporation status caused by excess passive
13 income or by the failure to satisfy the requirements of a small
14 corporation, the five-year waiting period prior to a new
15 election shall be waived.
16 Section 2. This act shall take effect in 60 days.
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