PRINTER'S NO. 3157
No. 2347 Session of 1998
INTRODUCED BY C. WILLIAMS, THOMAS, BATTISTO, BOSCOLA, BROWNE, COY, DeWEESE, GEORGE, MICHLOVIC, ORIE, PISTELLA, READSHAW, TRELLO, VAN HORNE, WAUGH AND YOUNGBLOOD, MARCH 12, 1998
REFERRED TO COMMITTEE ON FINANCE, MARCH 12, 1998
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 imposition of the 11 corporate net income tax and the capital stock and franchise 12 tax and for a new business tax credit relating to the capital 13 stock and franchise tax. 14 The General Assembly of the Commonwealth of Pennsylvania 15 hereby enacts as follows: 16 Section 1. Section 402 of the act of March 4, 1971 (P.L.6, 17 No.2), known as the Tax Reform Code of 1971, amended June 30, 18 1995 (P.L.139, No.21), is amended to read: 19 Section 402. Imposition of Tax.--[Every] (a) Subject to the 20 provisions of subsection (b), every corporation shall be subject 21 to, and shall pay for the privilege of (i) doing business in 22 this Commonwealth; or (ii) carrying on activities in this 23 Commonwealth; (iii) having capital or property employed or used
1 in this Commonwealth; or (iv) owning property in this 2 Commonwealth, by or in the name of itself, or any person, 3 partnership, association, limited partnership, joint-stock 4 association, or corporation, a State excise tax at the rate of 5 twelve per cent per annum upon each dollar of taxable income of 6 such corporation received by, and accruing to, such corporation 7 during the calendar year 1971 and the first six months of 1972 8 and at the rate of eleven per cent per annum upon each dollar of 9 taxable income of such corporation received by, and accruing to, 10 such corporation during the second six months of calendar year 11 1972 through the calendar year 1973 and at the rate of nine and 12 one-half per cent per annum upon each dollar of taxable income 13 of such corporation received by, and accruing to, such 14 corporation during the calendar years 1974, 1975 and 1976 and at 15 the rate of ten and one-half per cent per annum upon each dollar 16 of taxable income of such corporation received by, and accruing 17 to, such corporation during the calendar year 1977 through the 18 calendar year 1984 and at the rate of nine and one-half per cent 19 per annum upon each dollar of taxable income of such corporation 20 received by and accruing to such corporation during the calendar 21 year 1985 through calendar year 1986 and at the rate of eight 22 and one-half per cent per annum upon each dollar of taxable 23 income of such corporation received by and accruing to such 24 corporation during the calendar year 1987 through the calendar 25 year 1990 and at the rate of ten and one-half per cent per annum 26 upon each dollar of taxable income of such corporation received 27 by and accruing to such corporation during calendar year 1991 28 through the calendar year 1994 and at the rate of nine and 29 ninety-nine hundredths per cent per annum upon each dollar of 30 taxable income of such corporation received by and accruing to 19980H2347B3157 - 2 -
1 such corporation during the calendar year 1995 and during each 2 calendar year thereafter, with an additional surtax equal to one 3 and seventy-five hundredths per cent per annum upon each dollar 4 of taxable income of such corporation received by and accruing 5 to such corporation during calendar year 1991 and through 6 calendar year 1993 and with an additional surtax equal to one 7 and forty-nine hundredths per cent per annum upon each dollar of 8 taxable income of such corporation received by and accruing to 9 such corporation during calendar year 1994 and with no surtax 10 during calendar year 1995 and each calendar year thereafter, 11 except where a corporation reports to the Federal Government on 12 the basis of a fiscal year, and has certified such fact to the 13 department as required by section 403 of this article, in which 14 case, such tax, at the rate of twelve per cent, shall be levied, 15 collected, and paid upon all taxable income received by, and 16 accruing to, such corporation during the first six months of the 17 fiscal year commencing in the calendar year 1972 and at the rate 18 of eleven per cent, shall be levied, collected, and paid upon 19 all taxable income received by, and accruing to, such 20 corporation during the second six months of the fiscal year 21 commencing in the calendar year 1972 and during the fiscal year 22 commencing in the calendar year 1973 and at the rate of nine and 23 one-half per cent, shall be levied, collected, and paid upon all 24 taxable income received by, and accruing to, such corporation 25 during the fiscal year commencing in the calendar years 1974, 26 1975 and 1976 and at the rate of ten and one-half per cent, 27 shall be levied, collected, and paid upon all taxable income 28 received by, and accruing to, such corporation during the fiscal 29 year commencing in the calendar year 1977 through the fiscal 30 year commencing in 1984 and at the rate of nine and one-half per 19980H2347B3157 - 3 -
1 cent, shall be levied, collected, and paid upon all taxable 2 income received by and accruing to such corporation during the 3 fiscal year commencing in 1985 through the fiscal year 4 commencing in 1986 and at the rate of eight and one-half per 5 cent per annum upon each dollar of taxable income of such 6 corporation received by and accruing to such corporation during 7 the fiscal year commencing in 1987 through the fiscal year 8 commencing in 1990 and at the rate of ten and one-half per cent 9 per annum upon each dollar of taxable income of such corporation 10 received by and accruing to such corporation during the fiscal 11 year commencing in 1991 through the fiscal year commencing in 12 1994 and at the rate of nine and ninety-nine hundredths per cent 13 per annum upon each dollar of taxable income of such corporation 14 received by and accruing to such corporation during the fiscal 15 year commencing in 1995 and during each fiscal year thereafter, 16 with an additional surtax equal to one and seventy-five 17 hundredths per cent per annum upon each dollar of taxable income 18 of such corporation received by and accruing to such corporation 19 during the fiscal year commencing in 1991 and through fiscal 20 year 1993 and with an additional surtax equal to one and forty- 21 nine hundredths per cent per annum upon each dollar of taxable 22 income of such corporation received by and accruing to such 23 corporation during fiscal year 1994 and with no surtax during 24 the fiscal year commencing in 1995 and each fiscal year 25 thereafter. No penalty prescribed by subsection (e) of section 26 3003 shall be assessed against a corporation for the additional 27 tax which may be due as a result of the increase in tax rate 28 from nine and one-half per cent to ten and one-half per cent 29 imposed retroactively by this section for the calendar year 1977 30 or for the fiscal year commencing in 1977. 19980H2347B3157 - 4 -
1 (b) Notwithstanding any other provisions of this article or 2 Article VI to the contrary, beginning calendar year 1998 or the 3 fiscal year beginning in 1998 and each calendar or fiscal year 4 thereafter, any taxpayer who is liable for taxes under this 5 article and Article VI shall only be required to pay one tax 6 which shall be the higher of the tax liabilities under this 7 article or Article VI. 8 Section 2. Section 602 of the act, amended August 4, 1991 9 (P.L.97, No.22), is amended to read: 10 Section 602. Imposition of Tax.--(a) [That] Subject to the 11 provisions of subsection (h), every domestic entity from which a 12 report is required under section 601 hereof, shall be subject 13 to, and pay to the department annually, a tax which is the 14 greater of (i) three hundred dollars ($300) or (ii) the amount 15 computed at the rate of ten mills upon each dollar of the 16 capital stock value as defined in section 601(a) for the 17 calendar year 1971 and the fiscal year beginning in 1971 through 18 calendar year 1986 and fiscal years beginning in 1986, at the 19 rate of nine mills upon each dollar of the capital stock value 20 as defined in section 601(a) for the calendar year 1987 and 21 fiscal years beginning in 1987, at the rate of nine and one-half 22 mills upon each dollar of the capital stock value as defined in 23 section 601(a) for the calendar year 1988 and fiscal years 24 beginning in 1988 through calendar year 1990 and fiscal years 25 beginning in 1990 and at the rate of eleven mills upon each 26 dollar of the capital stock value as defined in section 601(a) 27 for the calendar year 1991 and fiscal years beginning in 1991 28 and each year thereafter, with an additional surtax equal to two 29 mills upon each dollar of the capital stock value as defined in 30 section 601(a) for the calendar year 1991 and fiscal years 19980H2347B3157 - 5 -
1 beginning in 1991 and with an additional surtax equal to one and 2 three-quarters mills upon each dollar of the capital stock value 3 as defined in section 601(a) for the calendar year 1992 and 4 fiscal years beginning in 1992 and each year thereafter, except 5 that any domestic entity or company subject to the tax 6 prescribed herein may elect to compute and pay its tax under and 7 in accordance with the provisions of subsection (b) of this 8 section 602: Provided, That, except for the imposition of the 9 three hundred dollar ($300) minimum tax, the provisions of this 10 section shall not apply to the taxation of the capital stock of 11 entities organized for manufacturing, processing, research or 12 development purposes, which is invested in and actually and 13 exclusively employed in carrying on manufacturing, processing, 14 research or development within the State, except such entities 15 as enjoy and exercise the right of eminent domain, but every 16 entity organized for the purpose of manufacturing, processing, 17 research or development except such entities as enjoy and 18 exercise the right of eminent domain shall pay the State tax of 19 the greater of (i) three hundred dollars ($300) or (ii) the 20 amount computed at the rate of ten mills upon each dollar of the 21 capital stock value as defined in section 601(a) for the 22 calendar year 1971 and the fiscal year beginning in 1971 through 23 calendar year 1986 and fiscal years beginning in 1986, at the 24 rate of nine mills upon each dollar of the capital stock value 25 as defined in section 601(a) for the calendar year 1987 and 26 fiscal years beginning in 1987 and at the rate of nine and one- 27 half mills upon each dollar of the capital stock value as 28 defined in section 601(a) for the calendar year 1988 and fiscal 29 years beginning in 1988 through calendar year 1990 and fiscal 30 years beginning in 1990 and at the rate of eleven mills upon 19980H2347B3157 - 6 -
1 each dollar of the capital stock value as defined in section 2 601(a) for the calendar year 1991 and each year thereafter, with 3 an additional surtax equal to two mills upon each dollar of the 4 capital stock value as defined in section 601(a) for the 5 calendar year 1991 and fiscal years beginning in 1991 and with 6 an additional surtax equal to one and three-quarters mills upon 7 each dollar of the capital stock value as defined in section 8 601(a) for the calendar year 1992 and fiscal years beginning in 9 1992 and each year thereafter, upon such proportion of its 10 capital stock, if any, as may be invested in any property or 11 business not strictly incident or appurtenant to the 12 manufacturing, processing, research or development business, in 13 addition to the local taxes assessed upon its property in the 14 district where located, it being the object of this provision to 15 relieve from State taxation, except for imposition of the three 16 hundred dollar ($300) minimum tax under this section, only so 17 much of the capital stock as is invested purely in the 18 manufacturing, processing, research or development plant and 19 business. 20 (b) (1) [Every] Subject to the provisions of subsection 21 (h), every foreign entity from which a report is required under 22 section 601 hereof, shall be subject to and pay to the 23 department annually, a franchise tax which is the greater of (i) 24 three hundred dollars ($300) or (ii) the amount computed at the 25 rate of ten mills for the calendar year 1971 and the fiscal 26 years beginning in 1971 through calendar year 1986 and fiscal 27 years beginning in 1986, at the rate of nine mills for the 28 calendar year 1987 and for fiscal years beginning in 1987, at 29 the rate of nine and one-half mills for calendar year 1988 and 30 fiscal years beginning in 1988 through calendar year 1990 and 19980H2347B3157 - 7 -
1 fiscal years beginning in 1990 and at the rate of eleven mills 2 upon each dollar of the capital stock value as defined in 3 section 601(a) for the calendar year 1991 and fiscal years 4 beginning in 1991 and each year thereafter, with an additional 5 surtax equal to two mills upon each dollar of the capital stock 6 value as defined in section 601(a) for the calendar year 1991 7 and fiscal years beginning in 1991 and with an additional surtax 8 equal to one and three-quarters mills upon each dollar of the 9 capital stock value as defined in section 601(a) for the 10 calendar year 1992 and fiscal years beginning in 1992 and each 11 year thereafter, upon a taxable value to be determined in the 12 following manner. The capital stock value shall be ascertained 13 in the manner prescribed in section 601(a) of this article. The 14 taxable value shall then be determined by employing the relevant 15 apportionment factors set forth in Article IV: Provided, That 16 the manufacturing, processing, research and development 17 exemptions contained under section 602(a) shall also apply to 18 foreign corporations and in determining the relevant 19 apportionment factors the numerator of the property, payroll, or 20 sales factors shall not include any property, payroll or sales 21 attributable to manufacturing, processing, research or 22 development activities in the Commonwealth. Any foreign 23 corporation, joint-stock association, limited partnership or 24 company subject to the tax prescribed herein may elect to 25 compute and pay its tax under section 602(a): Provided, That any 26 foreign corporation, joint-stock association, limited 27 partnership or company electing to compute and pay its tax under 28 section 602(a) shall be treated as if it were a domestic 29 corporation for the purpose of determining which of its assets 30 are exempt from taxation and for the purpose of determining the 19980H2347B3157 - 8 -
1 proportion of the value of its capital stock which is subject to 2 taxation. 3 (2) The provisions of this article shall apply to the 4 taxation of entities organized for manufacturing, processing, 5 research or development purposes, but shall not apply to such 6 entities as enjoy and exercise the right of eminent domain. 7 (d) [It] Subject to the provisions of subsection (h), it 8 shall be the duty of the treasurer or other officers having 9 charge of any domestic or foreign entity, upon which a tax is 10 imposed by this section, to transmit the amount of tax to the 11 department within the time prescribed by law: Provided, That for 12 the purposes of this act interest in limited partnerships or 13 joint-stock associations shall be deemed to be capital stock, 14 and taxable accordingly: Provided, further, That entities liable 15 to a tax under this section, shall not be required to pay any 16 further tax on the mortgages, bonds, and other securities owned 17 by them and in which the whole body of stockholders or members, 18 as such, have the entire equitable interest in remainder; but 19 entities owning or holding such securities as trustees, 20 executors, administrators, guardians, or in any other manner 21 than for the whole body of stockholders or members thereof as 22 sole equitable owners in remainder, shall return and pay the tax 23 imposed by this act upon all securities so owned or held by 24 them, as in the case of individuals. 25 (e) [Any] Subject to the provisions of subsection (h), any 26 holding company subject to the capital stock tax or the 27 franchise tax imposed by this section may elect to compute the 28 capital stock or franchise tax by applying the rate of tax of 29 ten mills for the calendar year 1971 and the fiscal year 30 beginning in 1971 through the calendar year 1986 and fiscal 19980H2347B3157 - 9 -
1 years beginning in 1986, at the rate of nine mills for the 2 calendar year 1987 and fiscal years beginning in 1987, at the 3 rate of nine and one-half mills for calendar year 1988 and 4 fiscal years beginning in 1988 through calendar year 1990 and 5 fiscal years beginning in 1990 and at the rate of eleven mills 6 for calendar year 1991 and fiscal years beginning in 1991 and 7 each year thereafter, with an additional surtax equal to two 8 mills for calendar year 1991 and fiscal years beginning in 1991 9 and with an additional surtax equal to one and three-quarters 10 mills upon each dollar of the capital stock value as defined in 11 section 601(a) for the calendar year 1992 and fiscal years 12 beginning in 1992 and each year thereafter, upon each dollar to 13 ten per cent of the capital stock value, but in no case shall 14 the tax so computed be less than three hundred dollars ($300). 15 If exercised, this election shall be in lieu of any other 16 apportionment or allocation to which such company would 17 otherwise be entitled. 18 (f) [Every] Subject to the provisions of subsection (h), 19 every domestic corporation and every foreign corporation (i) 20 registered to do business in Pennsylvania; (ii) which maintains 21 an office in Pennsylvania; (iii) which has filed a timely 22 election to be taxed as a regulated investment company with the 23 Federal Government; and (iv) which duly qualifies to be taxed as 24 a regulated investment company under the provisions of the 25 Internal Revenue Code of 1954 as amended, shall be taxed as a 26 regulated investment company and shall be subject to the capital 27 stock or franchise tax imposed by section 602, in either case 28 for the privilege of having an office in Pennsylvania, which tax 29 shall be computed pursuant to the provisions of this subsection 30 in lieu of all other provisions of this section 602. The tax 19980H2347B3157 - 10 -
1 shall be in an amount which is the greater of three hundred 2 dollars ($300) or the sum of the amounts determined pursuant to 3 clauses (1) and (2): 4 (1) The amount determined pursuant to this clause shall be 5 seventy-five dollars ($75) times that number which is the result 6 of dividing the net asset value of the regulated investment 7 company by one million, rounded to the nearest multiple of 8 seventy-five dollars ($75). Net asset value shall be determined 9 by adding the monthly net asset values as of the last day of 10 each month during the taxable period and dividing the total sum 11 by the number of months involved. Each such monthly net asset 12 value shall be the actual market value of all assets owned 13 without any exemptions or exclusions, less all liabilities, 14 debts and other obligations. 15 (2) The amount determined pursuant to this clause shall be 16 the amount which is the result of multiplying the rate of 17 taxation applicable for purposes of the personal income tax 18 during the same taxable year times the apportioned undistributed 19 personal income tax income of the regulated investment company. 20 For the purposes of this clause: 21 (A) Personal income tax income shall mean income to the 22 extent enumerated and classified in section 303. 23 (B) Undistributed personal income tax income shall mean all 24 personal income tax income other than personal income tax income 25 undistributed on account of the capital stock or foreign 26 franchise tax, less all personal income tax income distributed 27 to shareholders. At the election of the company, income 28 distributed after the close of a taxable year, but deemed 29 distributed during the taxable year for Federal income tax 30 purposes, shall be deemed distributed during that year for 19980H2347B3157 - 11 -
1 purposes of this clause. If a company in a taxable year has both 2 current income and income accumulated from a prior year, 3 distributions during the year shall be deemed to have been made 4 first from current income. 5 (C) Undistributed personal income tax income shall be 6 apportioned to Pennsylvania by a fraction, the numerator of 7 which is all income distributed during the taxable period to 8 shareholders who are resident individuals, estates or trusts and 9 the denominator of which is all income distributed during the 10 taxable period. Resident trusts shall not include charitable, 11 pension or profit-sharing, or retirement trusts. 12 (D) Personal income tax income and other income of a company 13 shall each be deemed to be either distributed to shareholders or 14 undistributed in the proportion each category bears to all 15 income received by the company during the taxable year. 16 (g) [In] Subject to the provisions of subsection (h), in the 17 event that a domestic or foreign entity is required to file a 18 report pursuant to section 601(b) on other than an annual basis, 19 the tax imposed by this section, including the three hundred 20 dollar ($300) minimum tax, shall be prorated to reflect the 21 portion of a taxable year for which the report is filed by 22 multiplying the tax liability by a fraction equal to the number 23 of days in the taxable year divided by three hundred sixty-five 24 days. 25 (h) Notwithstanding any other provision of Article IV or 26 this article to the contrary, beginning calendar year 1998 or 27 the fiscal year beginning in 1998 and each calendar or fiscal 28 year thereafter, any taxpayer who is liable for taxes under 29 Article IV and this article shall only be required to pay one 30 tax which shall be the higher of the tax liabilities under 19980H2347B3157 - 12 -
1 Article IV or this article.
2 Section 3. The amendments of sections 402 and 602 of the act
3 shall apply to the tax years beginning on or after January 1,
4 1998, and to each tax year thereafter.
5 Section 4. This act shall take effect immediately.
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