PRINTER'S NO. 1839
No. 1406 Session of 2000
INTRODUCED BY GERLACH, CONTI, SALVATORE, TOMLINSON, THOMPSON AND
KITCHEN, APRIL 6, 2000
REFERRED TO FINANCE, APRIL 6, 2000
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," adding provisions relating to a biotechnology tax
11 credit.
12 The General Assembly of the Commonwealth of Pennsylvania
13 hereby enacts as follows:
14 Section 1. The act of March 4, 1971 (P.L.6, No.2), known as
15 the Tax Reform Code of 1971, is amended by adding an article to
16 read:
17 ARTICLE XVII-C
18 BIOTECHNOLOGY TAX CREDIT
19 Section 1701-C. Short Title.--This article shall be known
20 and may be cited as the Biotechnology Tax Credit Law.
21 Section 1702-C. Definitions.--The following words and
22 phrases, when used in this article, shall have the meanings
1 given to them in this section, except where the context clearly
2 indicates a different meaning:
3 "Biotechnology." Applied biological science relating to
4 medical therapies and that involves the performance of clinical
5 trials where the trials consist of products either approved by
6 the United States Food and Drug Administration or that are in
7 development with the intent to secure United States Food and
8 Drug Administration approval as new indications.
9 "Biotechnology tax credit." The credit provided under this
10 article.
11 "Department." The Department of Revenue of the Commonwealth.
12 "Gross receipts." Gross receipts for any taxable year shall
13 consist only of gross receipts which are effectively connected
14 with the conduct of a trade or business within this
15 Commonwealth. The determination of whether gross receipts are
16 effectively connected with the conduct of a trade or business
17 within this Commonwealth shall be made by reference to the
18 standard established in section 401(3)2(a)(16) and (17) of this
19 act.
20 "Internal Revenue Code." The Internal Revenue Code of 1986
21 (Public Law 99-514, 26 U.S.C. § 1 et seq.).
22 "Pennsylvania base amount." Base amount as defined in
23 section 41(c) of the Internal Revenue Code of 1986 (Public Law
24 99-514, 26 U.S.C. § 41(c)), except that references to "qualified
25 research expense" shall mean "qualified biotechnology research
26 and development expense" and references to "qualified research"
27 shall mean "qualified biotechnology research and development."
28 References to "fixed base percentage" shall mean the percentage
29 which the qualified biotechnology research and development
30 expense for the four taxable years immediately preceding the
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1 taxable year in which the expense is incurred is to the gross
2 receipts for such years. The fixed base percentage for a
3 taxpayer who has fewer than four but at least one taxable year
4 shall be determined in the same manner using the number of
5 immediately preceding taxable years to arrive at the percentage.
6 "Qualified biotechnology research and development."
7 Qualified research and development as defined in section 41(d)
8 of the Internal Revenue Code of 1986 (Public Law 99-514, 26
9 U.S.C. § 41(d)) that is conducted in biotechnology in this
10 Commonwealth.
11 "Qualified biotechnology research and development expense."
12 Qualified research expense as defined in section 41(b) of the
13 Internal Revenue Code of 1986 (Public Law 99-514, 26 U.C.S. §
14 41(b)) incurred for biotechnology qualified research and
15 development.
16 "Qualified tax liability." The liability for taxes imposed
17 under Article III, IV or VI of this act. The term shall include
18 the liability for taxes imposed under Article III on a
19 shareholder of a Pennsylvania S corporation.
20 "Secretary." The Secretary of Revenue of the Commonwealth.
21 "Small biotechnology business." A for-profit corporation,
22 limited liability company, partnership or proprietorship with
23 net book value of assets totaling, at the beginning or end of
24 the taxable year for which qualified biotechnology research and
25 development expense is incurred, as reported on the balance
26 sheet, less than five million dollars ($5,000,000).
27 "Taxpayer." An entity subject to tax under Article III, IV
28 or VI of this act. The term shall include the shareholder of a
29 Pennsylvania S corporation that receives a biotechnology tax
30 credit.
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1 Section 1703-C. Credit for Biotechnology Research and
2 Development Expenses.--(a) A taxpayer who incurs qualified
3 biotechnology research and development expense in a taxable year
4 may apply for a biotechnology tax credit as provided in this
5 article. By September 15, a taxpayer must submit an application
6 to the department for qualified biotechnology research and
7 development expense incurred in the taxable year that ended in
8 the prior calendar year.
9 (b) A taxpayer that is qualified under subsection (a) shall
10 receive a biotechnology tax credit for the taxable year in the
11 amount of ten per cent of the excess of the taxpayer's total
12 qualified biotechnology research and development expense for the
13 taxable year over the taxpayer's Pennsylvania base amount.
14 (c) By December 15 of the calendar year following the close
15 of the taxable year during which the qualified biotechnology
16 research and development expense was incurred, the department
17 shall notify the taxpayer of the amount of the taxpayer's
18 biotechnology tax credit approved by the department.
19 Section 1704-C. Carryover, Carryback, Refund and Assignment
20 of Credit.--(a) The amount of the biotechnology tax credit that
21 a taxpayer may use against any one qualified tax liability
22 during any year may not exceed fifty per cent of such qualified
23 tax liability for that taxable year. If the taxpayer cannot use
24 the entire amount of the biotechnology tax credit for the
25 taxable year in which the biotechnology tax credit is first
26 approved, then the excess may be carried over to succeeding
27 taxable years and used as a credit against the qualified tax
28 liability of the taxpayer for those taxable years. Each time
29 that the biotechnology tax credit is carried over to a
30 succeeding taxable year, it is to be reduced by the amount that
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1 was used as a credit during the immediately preceding taxable
2 year. The biotechnology tax credit provided by this article may
3 be carried over and applied to succeeding taxable years for no
4 more than fifteen taxable years following the first taxable year
5 for which the taxpayer was entitled to claim the credit.
6 (b) A biotechnology tax credit approved by the department
7 for qualified biotechnology research and development expense in
8 a taxable year first shall be applied against the taxpayer's
9 qualified tax liability for the current taxable year as of the
10 date on which the credit was approved before the biotechnology
11 tax credit is applied against any tax liability under subsection
12 (a).
13 (c) Except as authorized by subsection (d), a taxpayer is
14 not entitled to carry back or obtain a refund of an unused
15 biotechnology tax credit.
16 (d) A taxpayer may assign an unused biotechnology tax credit
17 to another business at a discount not to exceed twenty-five per
18 cent, subject to regulations of the department. A taxpayer also
19 may elect to assign an unused biotechnology tax credit to the
20 Commonwealth at a discount of twenty-five per cent subject to
21 the regulations of the department.
22 Section 1705-C. Application of Internal Revenue Code.--The
23 provisions of section 41 of the Internal Revenue Code and the
24 regulations promulgated regarding those provisions shall apply
25 to the department's interpretation and administration of the
26 biotechnology tax credit provided by this article. References to
27 the Internal Revenue Code shall mean the sections of the
28 Internal Revenue Code as existing on any date of interpretation
29 of this article. However, if those sections of the Internal
30 Revenue Code referenced in this article are repealed or
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1 terminated, references to the Internal Revenue Code shall mean
2 those sections last having full force and effect. If after
3 repeal or termination the Internal Revenue Code sections are
4 revised or reenacted, references herein to Internal Revenue Code
5 sections shall mean those revised or reenacted sections.
6 Section 1706-C. Determination of Qualified Research and
7 Development Expenses.--In prescribing standards for determining
8 which qualified research and development expense are considered
9 qualified biotechnology research and development expense for
10 purposes of computing the biotechnology tax credit provided by
11 this article, the department may consider:
12 (1) The location where the services are performed.
13 (2) The residence or business location of the person or
14 persons performing the service.
15 (3) The location where qualified research and development
16 supplies are consumed.
17 (4) Other factors that the department determines are
18 relevant for the determination.
19 Section 1707-C. Time Limitations.--A taxpayer is not
20 entitled to a biotechnology tax credit for qualified
21 biotechnology research and development expenses incurred in
22 taxable years ending after December 31, 2007. The termination
23 date in section 41(h) of the Internal Revenue Code does not
24 apply to a taxpayer who is eligible for the biotechnology tax
25 credit under this article for the taxable year in which the
26 qualified biotechnology research and development expense is
27 incurred.
28 Section 1708-C. Transitional Rule.--For the purpose of
29 calculating qualified biotechnology research and development
30 expense used in calculating the Pennsylvania base amount for
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1 taxable years ending after 1994 and before 2000, if the taxpayer
2 has incurred qualified biotechnology research and development
3 expense both inside and outside this Commonwealth and is unable
4 to determine the amount of qualified biotechnology research and
5 development expense, the taxpayer may calculate qualified
6 biotechnology research and development expense by multiplying
7 qualified research and development expense everywhere by the
8 average of the payroll and property factors calculated in
9 accordance with Article IV of this act for the corresponding
10 taxable years in question.
11 Section 1709-C. Limitation on Credits.--(a) The total
12 amount of credits approved by the department shall not exceed
13 fifteen million dollars ($15,000,000) in any fiscal year. Of
14 that amount, three million dollars ($3,000,000) shall be
15 allocated exclusively for small biotechnology businesses.
16 However, if the total amounts allocated to either the group of
17 applicants exclusive of small biotechnology businesses or the
18 group of small biotechnology business applicants is not approved
19 in any fiscal year, the unused portion will become available for
20 use by the other group of qualifying taxpayers.
21 (b) If the total amount of biotechnology tax credits applied
22 for by all taxpayers, exclusive of small biotechnology
23 businesses, exceeds the amount allocated for those credits, then
24 the biotechnology tax credit to be received by each applicant
25 shall be the product of the allocated amount multiplied by the
26 quotient of the biotechnology tax credit applied for by the
27 applicant divided by the total of all biotechnology credits
28 applied for by all applicants, the algebraic equivalent of which
29 is:
30 taxpayer's biotechnology tax credit=amount allocated for
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1 those credits X (biotechnology tax credit applied for by
2 the applicant/total of all biotechnology tax credits
3 applied for by all applicants).
4 (c) If the total amount of biotechnology tax credits applied
5 for by all small biotechnology business taxpayers exceeds the
6 amount allocated for those credits, then the biotechnology tax
7 credit to be received by each small biotechnology business
8 applicant shall be the product of the allocated amount
9 multiplied by the quotient of the biotechnology tax credit
10 applied for by the small biotechnology business applicant
11 divided by the total of all biotechnology tax credits applied
12 for by all small biotechnology business applicants, the
13 algebraic equivalent of which is:
14 taxpayer's biotechnology tax credit=amount allocated for
15 those credits X (biotechnology tax credit applied for by
16 the small biotechnology business/total of all
17 biotechnology tax credits applied for by all small
18 biotechnology business applicants).
19 Section 1710-C. Pennsylvania S Corporation Shareholder Pass-
20 Through.--(a) If a Pennsylvania S corporation does not have an
21 eligible tax liability against which the biotechnology tax
22 credit may be applied, a shareholder of the Pennsylvania S
23 corporation is entitled to a biotechnology tax credit equal to
24 the biotechnology tax credit determined for the Pennsylvania S
25 corporation for the taxable year multiplied by the percentage of
26 the Pennsylvania S corporation's distributive income to which
27 the shareholder is entitled.
28 (b) The credit provided under subsection (a) is in addition
29 to any biotechnology tax credit to which a shareholder of a
30 Pennsylvania S corporation is otherwise entitled under this
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1 article. However, a Pennsylvania S corporation and a shareholder
2 of a Pennsylvania S corporation may not claim a credit under
3 this article for the same qualified research and development
4 expense.
5 Section 1711-C. Ineligibility for Research and Development
6 Tax Credit.--A taxpayer that applies for and receives a
7 biotechnology tax credit pursuant to this article is not
8 eligible to receive a research and development tax credit
9 pursuant to Article XVII-B for the same taxable year. The
10 department shall eliminate from consideration for a research and
11 development tax credit any business for which a biotechnology
12 tax credit is approved for the same taxable year.
13 Section 1712-C. Report to General Assembly.--The secretary
14 shall submit an annual report to the General Assembly indicating
15 the effectiveness of the biotechnology tax credit provided by
16 this article no later than March 15 following the year in which
17 the biotechnology tax credits were approved. The report shall
18 include the number of taxpayers utilizing the biotechnology tax
19 credit as of the date of the report and the amount of
20 biotechnology tax credits approved and utilized. The report may
21 also include any recommendations for changes in the calculation
22 or administration of the biotechnology tax credit.
23 Section 1713-C. Termination.--The department shall not
24 approve a biotechnology tax credit under this article for
25 taxable years ending after December 31, 2007.
26 Section 1714-C. Regulations.--The secretary shall promulgate
27 regulations necessary for the implementation and administration
28 of this article.
29 Section 2. This act shall take effect in 60 days.
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