Bill Text: PA HB1972 | 2011-2012 | Regular Session | Amended

---

Bill Title: Providing for a research and development tax credit; and making related repeals.

Spectrum: Slight Partisan Bill (Republican 27-11)

Status: (Introduced - Dead) 2012-10-15 - Laid on the table [HB1972 Detail]

Download: Pennsylvania-2011-HB1972-Amended.html

---

PRIOR PRINTER'S NOS. 2724, 2778 PRINTER'S NO. 2965
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No. 1972 Session of2011
INTRODUCED BY SIMMONS, SAYLOR, BLOOM, BOYD, BRENNAN, CALTAGIRONE, CHRISTIANA, CLYMER, CUTLER, FLECK, GINGRICH, GROVE, HARHART, KAMPF, KAUFFMAN, M. K. KELLER, LAWRENCE, LONGIETTI, MAJOR, MARSICO, PAYTON, PETRARCA, PICKETT, QUINN, READSHAW, REED, ROSS, SCHRODER, K. SMITH, STEVENSON, WAGNER, GIBBONS, KILLION, HORNAMAN, CREIGHTON, MILLER, MURT AND DALEY, NOVEMBER 9, 2011
AS REPORTED FROM COMMITTEE ON FINANCE, HOUSE OF REPRESENTATIVES, AS AMENDED, JANUARY 18, 2012
AN ACT
Amending Title 12 (Commerce and Trade) of the Pennsylvania
Consolidated Statutes, providing for a research and
development tax credit; and making related repeals.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Title 12 of the Pennsylvania Consolidated
Statutes is amended by adding a chapter to read:
CHAPTER 43
RESEARCH AND DEVELOPMENT TAX CREDIT
Sec.
4301. Scope of article.
4302. Definitions.
4303. Credit for research and development expenses.
4304. Carryover, carryback, refund and assignment of credit.
4305. Application of Internal Revenue Code.
4306. Determination of qualified research and development
expenses.
4307. Time limitations.
4308. Transitional rule.
4309. Limitation on credits.
4310. Pass-through entity.
4311. Report to General Assembly.
4312. (Reserved).
4313. Regulations.
§ 4301. Scope of article.
This article relates to research and development tax credits.
§ 4302. Definitions.
The following words and phrases when used in this chapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Department." The Department of Revenue of the Commonwealth.
"Gross receipts." Gross receipts for any taxable year shall
consist only of gross receipts which are effectively connected
with the conduct of a trade or business within this
Commonwealth. The determination of whether gross receipts are
effectively connected with the conduct of a trade or business
within this Commonwealth shall be made by reference to the
standard established in section 401(3)2(a)(16) and (17) of the
Tax Reform Code.
"Internal Revenue Code." The Internal Revenue Code of 1986
(Public Law 99-514, 26 U.S.C. § 1 et seq.).
"Pass-through entity." A partnership as defined in section
301(n.0) of the Tax Reform Code or a Pennsylvania S corporation
as defined in section 301(n.1) of the Tax Reform Code.
"Pennsylvania base amount." Base amount as defined in
20110HB1972PN2965 - 2 -
section 41(c) of the Internal Revenue Code of 1986 (Public Law
99-514, 26 U.S.C. § 41(c)), except that references to "qualified
research expense" shall mean "Pennsylvania qualified research
and development expense" and references to "qualified research"
shall mean "Pennsylvania qualified research and development."
References to "fixed base percentage" shall mean the percentage
which the Pennsylvania qualified research and development
expense for the four taxable years immediately preceding the
taxable year in which the expense is incurred is to the gross
receipts for such years. The fixed base percentage for a
taxpayer who has fewer than four but at least one taxable year
shall be determined in the same manner using the number of
immediately preceding taxable years to arrive at the percentage.
"Pennsylvania qualified research and development." Qualified
research and development as defined in section 41(d) of the
Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §
41(d)) that is conducted in this Commonwealth.
"Pennsylvania qualified research and development expense."
Qualified research expenses as defined in section 41(b) of the
Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §
41(b)) incurred for Pennsylvania qualified research and
development.
"Qualified tax liability." The liability for taxes imposed
under Article III, IV or VI of the Tax Reform Code. The term
shall not include any tax withheld by an employer from an
employee under Article III.
"Research and development tax credit." The credit provided
under this chapter.
"Secretary." The Secretary of Revenue of the Commonwealth.
"Small business." A for-profit corporation, limited
20110HB1972PN2965 - 3 -
liability company, partnership or proprietorship with net book
value of assets totaling, at the beginning or end of the taxable
year for which Pennsylvania qualified research and development
expense is incurred, as reported on the balance sheet, less than
$5,000,000.
"Tax Reform Code." The act of March 4, 1971 (P.L.6, No.2),
known as the Tax Reform Code of 1971.
"Taxpayer." An entity subject to tax under Article III, IV
or VI of the Tax Reform Code. The term shall include the
shareholder of a Pennsylvania S corporation that receives a
research and development tax credit.
§ 4303. Credit for research and development expenses.
(a) Application.--A taxpayer who incurs Pennsylvania
qualified research and development expense in a taxable year may
apply for a research and development tax credit as provided
under this chapter. By September 15, a taxpayer must submit an
application to the department for Pennsylvania qualified
research and development expense incurred in the taxable year
that ended in the prior calendar year.
(b) Amount.--The following apply:
(1) Except as provided under paragraph (2), a taxpayer
that is qualified under subsection (a) shall receive a
research and development tax credit for the taxable year in
the amount of 10% of the excess of the taxpayer's total
Pennsylvania qualified research and development expense for
the taxable year over the taxpayer's Pennsylvania base
amount.
(2) A taxpayer that is a small business and is qualified
under subsection (a) shall receive a research and development
tax credit for the taxable year in the amount of 20% of the
20110HB1972PN2965 - 4 -
excess of the taxpayer's total Pennsylvania qualified
research and development expense for the taxable year over
the taxpayer's Pennsylvania base amount.
(c) Notification.--By December 15 of the calendar year
following the close of the taxable year during which the
Pennsylvania qualified research and development expense was
incurred, the department shall notify the taxpayer of the amount
of the taxpayer's research and development tax credit approved
by the department.
§ 4304. Carryover, carryback, refund and assignment of credit.
(a) Carryover.--If the taxpayer cannot use the entire amount
of the research and development tax credit for the taxable year
in which the research and development tax credit is first
approved, then the excess may be carried over to succeeding
taxable years and used as a credit against the qualified tax
liability of the taxpayer for those taxable years. Each time
that the research and development tax credit is carried over to
a succeeding taxable year, it shall be reduced by the amount
that was used as a credit during the immediately preceding
taxable year. The research and development tax credit may be
carried over and applied to succeeding taxable years for no more
than 15 taxable years following the first taxable year for which
the taxpayer was entitled to claim the credit.
(b) Application.--A research and development tax credit
approved by the department for Pennsylvania qualified research
and development expense in a taxable year first shall be applied
against the taxpayer's qualified tax liability for the current
taxable year as of the date on which the credit was approved
before the research and development tax credit is applied
against any tax liability under subsection (a).
20110HB1972PN2965 - 5 -
(c) Carry back or refund.--A taxpayer is not entitled to
carry back or obtain a refund of an unused research and
development tax credit.
(d) Sale or assignment.--A taxpayer, upon application to and
approval by the Department of Community and Economic
Development, may sell or assign, in whole or in part, a research
and development tax credit granted to the taxpayer under this
chapter. The Department of Community and Economic Development
shall establish guidelines for the approval of applications
under this subsection.
(e) Claim.--The purchaser or assignee of a portion of a
research and development tax credit under subsection (d) shall
immediately claim the credit in the taxable year in which the
purchase or assignment is made. The amount of the research and
development credit that a purchaser or assignee may use against
any one qualified tax liability may not exceed 75% of the
qualified tax liability for the taxable year. The purchaser or
assignee may not carry over, carry back, obtain a refund of or
assign the research and development tax credit. The purchaser or
assignee shall notify the department of the seller or assignor
of the research and development tax credit in compliance with
procedures specified by the department.
§ 4305. Application of Internal Revenue Code.
The provisions of section 41 of the Internal Revenue Code of
1986 (Public Law 99-514, 26 U.S.C. § 41) and the regulations
promulgated regarding those provisions shall apply to the
department's interpretation and administration of the research
and development tax credit. References to the Internal Revenue
Code shall mean the sections of the Internal Revenue Code as
existing on any date of interpretation of this chapter, except
20110HB1972PN2965 - 6 -
that if those sections of the Internal Revenue Code referenced
in this chapter are repealed or terminated, references to the
Internal Revenue Code shall mean those sections last having full
force and effect. If after repeal or termination the Internal
Revenue Code sections are revised or reenacted, references in
this chapter to Internal Revenue Code sections shall mean those
revised or reenacted sections.
§ 4306. Determination of qualified research and development
expenses.
In prescribing standards for determining which qualified
research and development expenses are considered Pennsylvania
qualified research and development expense for purposes of
computing the research and development tax credit, the
department may consider:
(1) The location where the services are performed.
(2) The residence or business location of the person or
persons performing the service.
(3) The location where qualified research and
development supplies are consumed.
(4) Other factors that the department determines are
relevant for the determination.
§ 4307. Time limitations.
The termination date in section 41(h) of the Internal Revenue
Code of 1986 (Public Law 99-514, 26 U.S.C. § 41(h)) shall not
apply to a taxpayer who is eligible for the research and
development tax credit for the taxable year in which the
Pennsylvania qualified research and development expense is
incurred.
§ 4308. Transitional rule.
For the purpose of calculating Pennsylvania qualified
20110HB1972PN2965 - 7 -
research and development expense used in calculating the
Pennsylvania base amount for taxable years ending after 1991 and
before 1997, if the taxpayer has incurred qualified research and
development expense both inside and outside this Commonwealth
and is unable to determine the amount of Pennsylvania qualified
research and development expense, the taxpayer may calculate
Pennsylvania qualified research and development expense by
multiplying qualified research and development expense
everywhere by the average of the payroll and property factors
calculated in accordance with Article IV of the Tax Reform Code
for the corresponding taxable years in question.
§ 4309. Limitation on credits.
(a) Total.--The Except as provided in subsection (a.1), the <--
total amount of credits approved by the department shall not
exceed $55,000,000 in any fiscal year. Of that amount,
$11,000,000 shall be allocated exclusively for small businesses,
except that if the total amounts allocated to either the group
of applicants exclusive of small businesses or the group of
small business applicants is not approved in any fiscal year,
the unused portion shall become available for use by the other
group of qualifying taxpayers.
(a.1) Increase.--For taxable years ending after December 31, <--
2015, the total amount of credits approved by the department
shall not exceed $75,000,000 in any fiscal year. Of that amount,
$15,000,000 shall be allocated exclusively for small businesses,
except that if the total amounts allocated to either the group
of applicants exclusive of small businesses or the group of
small business applicants is not approved in any fiscal year,
the unused portion shall become available for use by the other
group of qualifying taxpayers.
20110HB1972PN2965 - 8 -
(b) Allocation for taxpayers.--If the total amount of
research and development tax credits applied for by all
taxpayers, except for small businesses, exceeds the amount
allocated for those credits, the research and development tax
credit to be received by each applicant shall be the product of
the allocated amount multiplied by the quotient of the research
and development tax credit applied for by the applicant divided
by the total of all research and development credits applied for
by all applicants, the algebraic equivalent of which is:
taxpayer's research and development tax credit = amount
allocated for those credits X (research and development
tax credit applied for by the applicant/total of all
research and development tax credits applied for by all
applicants).
(c) Allocation for small business taxpayers.--If the total
amount of research and development tax credits applied for by
all small business taxpayers exceeds the amount allocated for
those credits, the research and development tax credit to be
received by each small business applicant shall be the product
of the allocated amount multiplied by the quotient of the
research and development tax credit applied for by the small
business applicant divided by the total of all research and
development credits applied for by all small business
applicants, the algebraic equivalent of which is:
taxpayer's research and development tax credit = amount
allocated for those credits X (research and development
tax credit applied for by the small business/total of all
research and development tax credits applied for by all
small business applicants).
§ 4310. Pass-through entity.
20110HB1972PN2965 - 9 -
(a) Election.--If a pass-through entity has any unused tax
credit under section 4304 (relating to carryover, carryback,
refund and assignment of credit), the entity may elect, in
writing, according to the department's procedures, to transfer
all or a portion of the credit to shareholders, members or
partners in proportion to the share of the entity's distributive
income to which the shareholder, member or partner is entitled.
(b) Additional credit.--The credit provided under subsection
(a) shall be in addition to any research and development tax
credit to which a shareholder, member or partner of a pass-
through entity is otherwise entitled under this chapter, except
that a pass-through entity and a shareholder, member or partner
of a pass-through entity may not claim a credit under this
chapter for the same qualified research and development expense.
(c) Claim.--A shareholder, member or partner of a pass-
through entity to whom credit is transferred under subsection
(a) must immediately claim the credit in the taxable year in
which the transfer is made. The shareholder, member or partner
may not carry forward, carry back, obtain a refund of or sell or
assign the credit.
§ 4311. Report to General Assembly.
The secretary shall submit an annual report to the General
Assembly indicating the effectiveness of the credit provided
under this chapter no later than March 15 following the year in
which the credits were approved. The report shall include the
names of all taxpayers utilizing the credit as of the date of
the report and the amount of credits approved and utilized by
each taxpayer. Notwithstanding any law providing for the
confidentiality of tax records, the information contained in the
report shall be public information. The report may also include
20110HB1972PN2965 - 10 -
any recommendations for changes in the calculation or
administration of the credit.
§ 4312. (Reserved).
§ 4313. Regulations.
The secretary shall promulgate regulations necessary for the
implementation and administration of this chapter.
Section 2. Repeals are as follows:
(1) The General Assembly declares that the repeals under
paragraphs (2) and (3) are necessary to effectuate the
addition of 12 Pa.C.S. Ch. 43.
(2) Article XVII-B of the act of March 4, 1971 (P.L.6,
No.2), known as the Tax Reform Code of 1971, is repealed.
(3) Section 1602-H of the act of April 9, 1929 (P.L.343,
No.176), known as The Fiscal Code, is repealed.
Section 3. The addition of 12 Pa.C.S. Ch. 43 is a
continuation of Article XVII-B of the act of March 4, 1971
(P.L.6, No.2), known as the Tax Reform Code of 1971. The
following apply:
(1) Except as otherwise provided in 12 Pa.C.S. Ch. 43,
all activities initiated under Article XVII-B of Tax Reform
Code of 1971 shall continue and remain in full force and
effect and may be completed under 12 Pa.C.S. Ch. 43. Orders,
regulations, rules and decisions which were made under
Article XVII-B of Tax Reform Code of 1971 and which are in
effect on the effective date of section 2(2) of this act
shall remain in full force and effect until revoked, vacated
or modified under 12 Pa.C.S. Ch. 43. Contracts, obligations
and collective bargaining agreements entered into under
Article XVII-B of Tax Reform Code of 1971 are not affected
nor impaired by the repeal of Article XVII-B of Tax Reform
20110HB1972PN2965 - 11 -
Code of 1971.
(2) Except as set forth in paragraph (3), any difference
in language between 12 Pa.C.S. Ch. 43 and Article XVII-B of
Tax Reform Code of 1971 is intended only to conform to the
style of the Pennsylvania Consolidated Statutes and is not
intended to change or affect the legislative intent, judicial
construction or administration and implementation of Article
XVII-B of Tax Reform Code of 1971.
(3) Paragraph (2) does not apply to the addition of 12
Pa.C.S. § 4312 §§ 4309(a.1) and 4312. <--
Section 4. This act shall take effect in 60 days.
20110HB1972PN2965 - 12 -