PRINTER'S NO. 4180
No. 2742 Session of 2006
INTRODUCED BY TURZAI, REED, GERBER, EACHUS, ADOLPH, ALLEN, ARGALL, BAKER, BALDWIN, BASTIAN, BEBKO-JONES, BELARDI, BELFANTI, BENNINGHOFF, BEYER, BIANCUCCI, BIRMELIN, BISHOP, BLACKWELL, BLAUM, BOYD, BUXTON, CALTAGIRONE, CAPPELLI, CAUSER, CAWLEY, CLYMER, COHEN, CORRIGAN, COSTA, CRAHALLA, CREIGHTON, CRUZ, DALEY, DALLY, DeLUCA, DENLINGER, DERMODY, ELLIS, J. EVANS, FABRIZIO, FAIRCHILD, FEESE, FLAHERTY, FLICK, FORCIER, FRANKEL, GABIG, GANNON, GEIST, GEORGE, GERGELY, GILLESPIE, GINGRICH, GODSHALL, GOOD, GOODMAN, GRELL, GRUCELA, HALUSKA, HANNA, HARHAI, HARHART, HENNESSEY, HERMAN, HERSHEY, HICKERNELL, HUTCHINSON, JOSEPHS, KAUFFMAN, M. KELLER, W. KELLER, KENNEY, KILLION, KIRKLAND, KOTIK, LEACH, LEDERER, LESCOVITZ, MACKERETH, MAJOR, MANDERINO, MARKOSEK, MARSICO, McCALL, McILHATTAN, MELIO, METCALFE, MICOZZIE, MILLARD, R. MILLER, MUNDY, MUSTIO, MYERS, NAILOR, NICKOL, OLIVER, PAYNE, PERZEL, PETRARCA, PETRONE, PHILLIPS, PICKETT, PRESTON, PYLE, QUIGLEY, RAMALEY, RAPP, RAYMOND, READSHAW, REICHLEY, ROBERTS, ROEBUCK, ROHRER, ROONEY, ROSS, RUBLEY, SAINATO, SANTONI, SATHER, SCAVELLO, SHANER, SHAPIRO, SIPTROTH, S. H. SMITH, SOLOBAY, SONNEY, STABACK, STEIL, STERN, STETLER, R. STEVENSON, T. STEVENSON, STURLA, SURRA, TANGRETTI, E. Z. TAYLOR, J. TAYLOR, TIGUE, TRUE, WALKO, WANSACZ, WATERS, WILLIAMS, WILT, YEWCIC, YOUNGBLOOD AND YUDICHAK, JUNE 12, 2006
REFERRED TO COMMITTEE ON FINANCE, JUNE 12, 2006
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:
1 (1) That the Commonwealth's high tech and manufacturing 2 sectors, which generate 16.1% of the gross State product, 3 employ 670,000 Pennsylvanians and directly add over $75 4 billion in value to the Commonwealth every year, are in a 5 state of crisis that demands immediate attention. 6 (2) Despite certain nonmanufacturing sectors of 7 Pennsylvania's economy keeping pace with national economic 8 growth and generating significant increased revenues for the 9 General Fund budget, Pennsylvania's high tech and 10 manufacturing employers have lost in excess of 200,000 high- 11 paying, high-value manufacturing jobs since 2000, even as 12 competitor states have continued to add manufacturing and 13 high tech jobs. 14 (3) After seeking and receiving the recommendations from 15 an unprecedented coalition of Pennsylvania employers, called 16 CompetePA, representing small and large companies competing 17 in every sector of the State's economy and every geographic 18 region of this Commonwealth, its support for the unified and 19 targeted solution to the manufacturing crisis recommended by 20 Pennsylvania employers that would reverse longstanding, 21 Pennsylvania-specific, job-crushing State economic policies 22 that punish investment and reinvestment in domestic 23 manufacturing facilities. 24 (4) In recognition that Pennsylvania employers, not 25 policymakers, are best positioned to recommend reforms to 26 enhance high tech and manufacturing competitiveness for the 27 Commonwealth, its support for the unified Pennsylvania 28 business community recommendations to all of the following: 29 (i) Eliminate over time the current policy that 30 restricts companies from offsetting current income with 20060H2742B4180 - 2 -
1 prior net operating losses. 2 (ii) Eliminate the "penalty" that increases an 3 employer's tax liability as that employer invests more in 4 its employees and property. 5 (5) Having determined that Pennsylvania's net operating 6 loss tax policy continues to force cyclical, high tech and 7 manufacturing companies to pay a much higher effective tax 8 rate than their counterparts in competing neighboring states 9 over a multiyear period and that its current tax policy to 10 penalize employers based upon their relative investment in 11 payroll and property creates a perverse incentive for 12 manufacturers to reduce such investments in this 13 Commonwealth, that Pennsylvania's current tax policy 14 specifically targets domestic, high tech and manufacturing 15 companies for this unfair treatment and places Pennsylvania 16 in an uncompetitive position in relation to other states 17 competing for manufacturing investments. 18 (6) Having acknowledged that State tax policy should be 19 designed to encourage in-State job creation and capital 20 growth and recognizing that, by adopting changes to the 21 State's corporate net income tax apportionment formula to 22 move toward a single sales factor, that the Commonwealth can 23 create an incentive for companies that have demonstrated a 24 commitment to the State to grow and expand in Pennsylvania. 25 (7) Having previously adopted the multiyear phaseout of 26 the capital stock and franchise tax, that the structural 27 changes to the net operating loss and sales factor 28 apportionment formula should be enacted in a similar fiscally 29 responsible manner. 30 (8) Having determined that the high tech and 20060H2742B4180 - 3 -
1 manufacturing stimulus initiatives contained in this act 2 assist only those companies that are paying significantly 3 more than their fair share of business taxes, that these 4 inherent, anticompetitive deficiencies within Pennsylvania's 5 business tax structure should be reversed immediately. 6 (9) Having determined that the fiscal impact of this act 7 is less than $50 million in the first fiscal year or 0.20 of 8 1% of the General Fund budget and, in light of the 9 significant and unexpected business tax revenues emanating 10 from industry sectors in the current fiscal year, that the 11 modest fiscal impact of this critical high tech and 12 manufacturing strategy is readily accommodated in the General 13 Fund budget. 14 The General Assembly of the Commonwealth of Pennsylvania 15 hereby enacts as follows: 16 Section 1. Section 401(3)2(a)(9) and 4(c) of the act of 17 March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 18 1971, amended May 12, 1999 (P.L.26, No.4) and June 29, 2002 19 (P.L.559, No.89), are amended to read: 20 Section 401. Definitions.--The following words, terms, and 21 phrases, when used in this article, shall have the meaning 22 ascribed to them in this section, except where the context 23 clearly indicates a different meaning: 24 * * * 25 (3) "Taxable income." * * * 26 2. In case the entire business of any corporation, other 27 than a corporation engaged in doing business as a regulated 28 investment company as defined by the Internal Revenue Code of 29 1986, is not transacted within this Commonwealth, the tax 30 imposed by this article shall be based upon such portion of the 20060H2742B4180 - 4 -
1 taxable income of such corporation for the fiscal or calendar 2 year, as defined in subclause 1 hereof, and may be determined as 3 follows: 4 (a) Division of Income. 5 * * * 6 (9) (A) Except as provided in subparagraph (B)[, all 7 business income shall be apportioned to this State by 8 multiplying the income by a fraction, the numerator of which is 9 the property factor plus the payroll factor plus three times the 10 sales factor, and the denominator of which is five.]: 11 (I) For taxable years beginning before January 1, 2007, all 12 business income shall be apportioned to this State by 13 multiplying the income by a fraction: the numerator of which is 14 the property factor plus the payroll factor plus three times the 15 sales factor; and the denominator of which is five. 16 (II) For taxable years beginning after December 31, 2006, 17 and before January 1, 2008, all business income shall be 18 apportioned to this State by multiplying the income by a 19 fraction: the numerator of which is the sum of fifteen times the 20 property factor, fifteen times the payroll factor and seventy 21 times the sales factor; and the denominator of which is one 22 hundred. 23 (III) For taxable years beginning after December 31, 2007, 24 and before January 1, 2009, all business income shall be 25 apportioned to this State by multiplying the income by a 26 fraction: the numerator of which is the sum of the property 27 factor, the payroll factor and eight times the sales factor; and 28 the denominator of which is ten. 29 (IV) For taxable years beginning after December 31, 2008, 30 and before January 1, 2010, all business income shall be 20060H2742B4180 - 5 -
1 apportioned to this State by multiplying the income by a 2 fraction: the numerator of which is the sum of one-half times 3 the property factor, one-half times the payroll factor and nine 4 times the sales factor; and the denominator of which is ten. 5 (V) For taxable years beginning after December 31, 2009, all 6 business income shall be apportioned by this State by 7 multiplying incomes by the sales factor. 8 (B) For purposes of apportionment of the capital stock - 9 franchise tax as provided in section 602 of Article VI of this 10 act, the apportionment fraction shall be the property factor 11 plus the payroll factor plus the sales factor as the numerator, 12 and the denominator shall be three. 13 * * * 14 4. * * * 15 (c) (1) (A) The net loss deduction shall be the lesser of: 16 (I) two million dollars ($2,000,000) [or] for taxable years 17 ending before January 1, 2007; 18 (II) the greater of fifteen per cent of taxable income or 19 three million dollars ($3,000,000) for taxable years beginning 20 after December 31, 2006, and before January 1, 2008; 21 (III) the greater of thirty per cent of taxable income or 22 four million dollars ($4,000,000) for taxable years beginning 23 after December 31, 2007, and before January 1, 2009; 24 (IV) the greater of fifty per cent of taxable income or five 25 million dollars ($5,000,000) for taxable years beginning after 26 December 31, 2008, and before January 1, 2010; 27 (V) one hundred per cent of taxable income for taxable years 28 beginning after December 31, 2009; or 29 (VI) the amount of the net loss or losses which may be 30 carried over to the taxable year or taxable income as determined 20060H2742B4180 - 6 -
1 under subclause 1 or, if applicable, subclause 2. 2 (B) In no event shall the net loss deduction include more 3 than five hundred thousand dollars ($500,000), in the aggregate, 4 of net losses from taxable years 1988 through 1994. 5 (2) (A) A net loss for a taxable year may only be carried 6 over pursuant to the following schedule: 7 Taxable Year Carryover 8 1981 1 taxable year 9 1982 2 taxable years 10 1983-1987 3 taxable years 11 1988 2 taxable years plus 12 1 taxable year 13 starting with the 14 1995 taxable year 15 1989 1 taxable year plus 16 2 taxable years 17 starting with the 18 1995 taxable year 19 1990-1993 3 taxable years 20 starting with the 21 1995 taxable year 22 1994 1 taxable year 23 1995 24 -1997 10 taxable years 25 1998 and thereafter 20 taxable years 26 (B) The earliest net loss shall be carried over to the 27 earliest taxable year to which it may be carried under this 28 schedule. The total net loss deduction allowed in any taxable 29 year shall not exceed [two]: 30 (I) Two million dollars ($2,000,000)[.] for taxable years 20060H2742B4180 - 7 -
1 ending before January 1, 2007. 2 (II) The greater of fifteen per cent of taxable income or 3 three million dollars ($3,000,000) for taxable years beginning 4 after December 31, 2006, and ending before January 1, 2008. 5 (III) The greater of thirty per cent of taxable income or 6 four million dollars ($4,000,000) for taxable years beginning 7 after December 31, 2007, and ending before January 1, 2009. 8 (IV) The greater of fifty percent of taxable income or five 9 million dollars ($5,000,000) for taxable years beginning after 10 December 31, 2008, and ending before January 1, 2010. 11 (V) One hundred per cent of taxable income for taxable years 12 beginning after December 31, 2009. 13 * * * 14 Section 2. This amendatory act shall be known and may be 15 cited as the High Tech and Manufacturing Stimulus Act. 16 Section 3. This act shall take effect immediately. F7L72VDL/20060H2742B4180 - 8 -