Bill Text: PA SB227 | 2009-2010 | Regular Session | Introduced

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Bill Title: Further providing, in corporate net income tax, for the definition and determination of "taxable income."

Spectrum: Partisan Bill (Democrat 4-0)

Status: (Introduced - Dead) 2009-02-19 - Referred to FINANCE [SB227 Detail]

Download: Pennsylvania-2009-SB227-Introduced.html

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PRINTER'S NO. 232
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No. 227 Session of2009
INTRODUCED BY TARTAGLIONE AND STACK, FEBRUARY 19, 2009
REFERRED TO FINANCE, FEBRUARY 19, 2009
AN ACT
Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
act relating to tax reform and State taxation by codifying
and enumerating certain subjects of taxation and imposing
taxes thereon; providing procedures for the payment,
collection, administration and enforcement thereof; providing
for tax credits in certain cases; conferring powers and
imposing duties upon the Department of Revenue, certain
employers, fiduciaries, individuals, persons, corporations
and other entities; prescribing crimes, offenses and
penalties," further providing, in corporate net income tax,
for the definition and determination of "taxable income."
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 401(3)1 and 4 of the act of March 4, 1971
(P.L.6, No.2), known as the Tax Reform Code of 1971, are amended
by adding phrases to read:
Section 401. Definitions.--The following words, terms, and
phrases, when used in this article, shall have the meaning
ascribed to them in this section, except where the context
clearly indicates a different meaning:
* * *
(3) "Taxable income." 1. * * *
(t) (1) Notwithstanding phrase (a), taxable income shall
include the amount of the deduction for interest expenses and
costs and intangible expenses and costs paid, accrued or
incurred to, or in connection with one or more transactions
unless the corporation proves by a preponderance of the evidence
that the transaction or transactions giving rise to the expenses
and costs did not have as a principal purpose the avoidance of
any tax due under this article. There shall be a presumption
that a transaction between a corporation and a person that is
not a related member as defined in this phrase (t) did not have
as a principal purpose the avoidance of any tax due under this
article.
(2) Proof that the principal purpose of the transaction was
not tax avoidance may be required with the tax report for the
applicable taxable year and shall consist of:
(A) proof that the transaction had a substantial business
purpose and economic substance and that the transaction involved
was based upon terms and conditions that are arm's length in
nature; and
(B) proof that the other party to the transaction reported
the corresponding income item on a corporate tax report filed in
this Commonwealth or any other state and that the reported tax
was imposed on or measured by net income. This requirement is
not met when the corresponding income item is offset or
eliminated in a combined or consolidated return or report that
includes the corporation.
(3) For the purposes of this phrase (t) the following words,
terms and phrases shall have the meanings given to them in this
paragraph unless the context clearly indicates otherwise:
(A) "Intangible expenses and costs" includes all of the
following:
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(i) Expenses and costs for, related to or in connection with
the acquisition, use, maintenance or management, ownership,
sale, exchange or any other disposition of intangible property
to the extent such amounts are allowed as deductions or costs in
determining taxable income before the operating loss deduction
and special deductions for the taxable year under the Internal
Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.).
(ii) Royalty, patent, technical and copyright fees.
(iii) Licensing fees.
(iv) Other similar expenses and costs.
(B) "Intangible property" means patents, patent
applications, trade names, trademarks, service marks,
copyrights, mask works, trade secrets and similar types of
intangible assets.
(C) "Interest expenses and costs" means amounts allowed as
deductions under section 163 of the Internal Revenue Code of
1986 (Public Law 99-514, 26 U.S.C. § 163) for purposes of
determining taxable income under the Internal Revenue Code of
1986 except the term shall not include interest expenses and
costs paid, accrued or incurred in connection with an arm's
length loan from an institution as defined in section 701.5. The
term does not include interest expenses and costs paid, accrued
or incurred in connection with payments to bondholders of
transition bonds issued pursuant to 66 Pa.C.S. § 2812 (relating
to approval of transition bonds).
(D) "Related entity" means any of the following:
(i) A stockholder who is an individual or a member of the
stockholder's family enumerated in section 318 of the Internal
Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 318), if
the stockholder and the members of the stockholder's family own,
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directly, indirectly, beneficially or constructively, in the
aggregate, at least fifty per cent of the value of the
corporation's outstanding stock.
(ii) A stockholder or a stockholder's partnership, limited
liability company, estate, trust or corporation, if the
stockholder and the stockholder's partnerships, limited
liability companies, estates, trusts and corporations own
directly, indirectly, beneficially or constructively, in the
aggregate, at least fifty per cent of the value of the
corporation's outstanding stock.
(iii) A corporation or a party related to the corporation in
a manner that would require an attribution of stock from the
corporation to the party or from the party to the corporation
under the attribution rules contained in section 318 of the
Internal Revenue Code of 1986, if the corporation owns,
directly, indirectly, beneficially or constructively, at least
fifty per cent of the value of the corporation's outstanding
stock. The attribution rules contained in section 318 of the
Internal Revenue Code of 1986 shall apply for purposes of
determining whether the ownership requirements of this
definition have been met.
(E) "Related member" means a person that, with respect to
the corporation during all or any portion of the taxable year is
any of the following:
(i) A related entity as defined in subclause (D) of this
phrase (t).
(ii) A component member as defined in section 1563(b) of the
Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §
1563(b)).
(iii) A person to or from whom there is the attribution of
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stock ownership in accordance with section 1563(e) of the
Internal Revenue Code of 1986.
(iv) A person that, notwithstanding its form of
organization, bears the same relationship to the taxpayer as a
person described in (i) through (iii) of this definition.
(u) If the department determines that a corporation conducts
its business or enters into transactions that distort its
taxable income, the department, pursuant to section 407, may
adjust items of income or deductions so as to make a fair and
equitable determination of taxable income.
(v) The secretary shall submit an annual report to the
Governor indicating the amount of tax in excess of one hundred
million dollars ($100,000,000) settled and collected pursuant to
clause (3)1(t) and (u) of this section. The report shall be made
on or before December 15 following the year in which the tax was
settled and collected. The first report shall be due December
15, 2004. If the tax reported by the secretary exceeds one
hundred million dollars ($100,000,000), the Governor shall
recommend to the General Assembly a reduction in the tax rate
imposed under this article.
* * *
4. * * *
(h) Notwithstanding any other phrase of this subclause, no
portion of a net loss deduction that is attributable to a
transaction that would require an add back of intangible
expenses and costs or interest expenses and costs as set forth
in subclause 1 shall be allowed as a deduction for the purpose
of computing taxable income for the taxable year beginning in
2003 and each taxable year thereafter.
Section 2. The addition of section 401(3)1(t), (u) and (v)
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and 4(h) of the act shall apply to taxable years beginning after
December 31, 2008.
Section 3. This act shall take effect immediately.
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