PRIOR PRINTER'S NO. 2966 PRINTER'S NO. 3325
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No. 2226
Session of
2024
INTRODUCED BY FRIEL, BURGOS, HILL-EVANS, MARCELL, SANCHEZ,
VENKAT, NEILSON, SCHLOSSBERG, POWELL, SCHWEYER, KENYATTA,
SIEGEL, KIM, CERRATO, CEPEDA-FREYTIZ AND McANDREW,
APRIL 17, 2024
AS REPORTED FROM COMMITTEE ON FINANCE, HOUSE OF REPRESENTATIVES,
AS AMENDED, JUNE 12, 2024
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," in corporate net income tax, establishing the Net
11 Operating Loss Transfer Program; imposing a penalty; and
12 making editorial changes.
13 The General Assembly of the Commonwealth of Pennsylvania
14 hereby enacts as follows:
15 Section 1. Sections 410, 411 and 412 of the act of March 4,
16 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971, are
17 renumbered to read:
18 Section [410] 480. Penalties.--(a) Any person violating any
19 of the provisions of section 409 shall be guilty of a
20 misdemeanor, and shall, upon conviction thereof, be sentenced to
21 pay a fine not exceeding one thousand dollars ($1,000) and costs
 1 of prosecution, or to undergo imprisonment for not more than six
2 months, or both.
3 (b) Any person who shall wilfully make a false and
4 fraudulent return of taxable income made taxable by this
5 article, shall be guilty of wilful and corrupt perjury, and,
6 upon conviction thereof, shall be subject to punishment as
7 provided by law. Such penalty shall be in addition to any other
8 penalties imposed by this article.
9 (c) Any person, who wilfully fails, neglects, or refuses to
10 make a report or to pay the tax as herein prescribed, or who
11 shall refuse to permit the department to examine the books,
12 papers, and records of any corporation liable to pay tax under
13 this article, shall be guilty of a misdemeanor, and, upon
14 conviction thereof, shall be sentenced to pay a fine not
15 exceeding one thousand dollars ($1,000) and costs of
16 prosecution, or to undergo imprisonment not exceeding six
17 months, or both. Such penalty shall be in addition to any other
18 penalties imposed by this article.
19 Section [411] 498. Repeal.--The act of May 16, 1935
20 (P.L.208), known as the "Corporate Net Income Tax Act," is
21 repealed.
22 Section [412] 499. Effective Date.--This article shall take
23 effect immediately, and the tax imposed shall apply to taxable
24 years beginning January 1, 1971 and thereafter.
25 Section 2. Article IV of the act is amended by adding a part
26 to read:
27 PART VI-A
28 NET OPERATING LOSS TRANSFER PROGRAM
29 Section 421. Definitions.
30 The following words and phrases when used in this part shall
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 1 have the meanings given to them in this section unless the
2 context clearly indicates otherwise:
3 "Allowable expenditures." Costs incurred in connection with
4 the operation of the new or expanding biotechnology business or
5 technology business located in this Commonwealth, including the
6 expenses of fixed assets, such as the construction, acquisition
7 and development of real estate, materials, start-up, tenant fit-
8 out, working capital, salaries and research and development
9 expenditures.
10 "Biotechnology." The continually expanding body of
11 fundamental knowledge about the functioning of biological
12 systems from the macro level to the molecular and subatomic
13 levels, including novel products, services, technologies and
14 subtechnologies developed as a result of insights gained from
15 research advances, which add to that body of fundamental
16 knowledge.
17 "Biotechnology business." Any of the following:
18 (1) A person, whose headquarters or base of operations
19 is located in this Commonwealth, engaged in the research,
20 development, production or provision of biotechnology for the
21 purpose of developing or providing products or processes for
22 specific commercial or public purposes, including medical,
23 pharmaceutical, nutritional and other health-related
24 purposes, agricultural purposes and environmental purposes.
25 (2) A person, whose headquarters or base of operations
26 is located in this Commonwealth, engaged in providing
27 services or products necessary for research, development,
28 production or provision of a technology/biotechnology
29 business.
30 "Cost." The expenses incurred in connection with the
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 1 operation of a new or expanding biotechnology business or
2 technology business in this Commonwealth, including the expenses
3 of fixed assets, such as the construction, acquisition and
4 development of real estate, materials, start-up, tenant fit-out,
5 working capital and any other expenses determined by the
6 department to be necessary to carry out the purposes of this
7 article.
8 "Financial institution." An individual or organization
9 deemed eligible by the department for participation in the
10 program, including State-chartered or federally chartered banks,
11 savings banks or savings and loan associations, banks organized
12 under the laws of a foreign government, private individuals,
13 insurance companies, landlords, finance companies and venture
14 capitalists.
15 "Fixed assets." Real property, interests in real property,
16 plants, equipment and any other assets commonly accepted as
17 fixed assets.
18 "Full-time employee." The following apply:
19 (1) Any of the following:
20 (i) a person employed by a new or expanding
21 biotechnology business or technology business for
22 consideration for at least 35 hours a week;
23 (ii) a person who renders any other standard of
24 service generally accepted by custom or practice as full-
25 time employment and whose wages are subject to
26 withholding as provided under 26 U.S.C. § 1400Z-2(c)
27 (relating to special rules for capital gains invested in
28 opportunity zones), as amended; or
29 (iii) a person who renders any other standard of
30 service generally accepted by custom or practice as full-
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 1 time employment, and whose distributive share of income,
2 gain, loss or deduction, or whose guaranteed payments, or
3 any combination thereof, is subject to tax under this
4 article.
5 (2) The term does not include a person who works as an
6 independent contractor or on a consulting basis for the new
7 or expanding biotechnology business or technology business.
8 "Net operating loss carryover." The amount of the deduction <--
9 from taxable income of net losses allowable for taxpayers under
10 section 401(3).
11 "New or expanding biotechnology business or technology
12 business." A biotechnology business or technology business
13 that, as of June 30 of the year in which the business files an
14 application for the program:
15 (1) has been in operation in this Commonwealth for no
16 more than five years; and
17 (2) has at least 15% of its total United States
18 employees working in this Commonwealth.
19 "Program." The Net Operating Loss Transfer Program
20 established under section 422.
21 "Purchasing taxpayer." A taxpayer who purchases tax benefits
22 under this part.
23 "Selling taxpayer." A taxpayer who is a new or expanding
24 biotechnology business or technology business that sells tax
25 benefits under this part.
26 "Tax benefit." The amount of an unused but otherwise <--
27 allowable net operating loss carryover accrued by a selling
28 taxpayer.
29 "Technology business." A business that:
30 (1) has its headquarters or base of operations in this
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 1 Commonwealth;
2 (2) owns, has filed for or has a valid license to use
3 protected, proprietary intellectual property; and
4 (3) employs a combination of highly educated or trained
5 managers and workers, or both, employed in this Commonwealth
6 who use sophisticated scientific research service or
7 production equipment, processes or knowledge to discover,
8 develop, test, transfer or manufacture a product or service.
9 "TAX BENEFIT." THE AMOUNT OF NET LOSS ACCRUED BY A SELLING <--
10 TAXPAYER THAT WOULD OTHERWISE BE ALLOWABLE AS A DEDUCTION FROM
11 TAXABLE INCOME UNDER SECTION 401(3).
12 "TAX BENEFIT VALUE." THE VALUE OF THE TAX BENEFIT BEING SOLD
13 UNDER THIS PART, CALCULATED BY MULTIPLYING THE AMOUNT OF THE TAX
14 BENEFIT BY THE CORPORATE NET INCOME TAX RATE UNDER SECTION 401
15 THAT IS IN EFFECT DURING THE TAXABLE YEAR IN WHICH THE TAX
16 BENEFIT IS BEING SOLD.
17 "TECHNOLOGY BUSINESS." A BUSINESS THAT HAS ITS HEADQUARTERS
18 OR BASE OF OPERATIONS IN THIS COMMONWEALTH AND EITHER:
19 (1) MEETS ALL OF THE FOLLOWING:
20 (I) OWNS, HAS FILED FOR OR HAS A VALID LICENSE TO
21 USE PROTECTED, PROPRIETARY INTELLECTUAL PROPERTY; AND
22 (II) EMPLOYS A COMBINATION OF HIGHLY EDUCATED OR
23 TRAINED MANAGERS AND WORKERS, OR BOTH, EMPLOYED IN THIS
24 COMMONWEALTH WHO USE SOPHISTICATED SCIENTIFIC RESEARCH
25 SERVICE OR PRODUCTION EQUIPMENT, PROCESSES OR KNOWLEDGE
26 TO DISCOVER, DEVELOP, TEST, TRANSFER OR MANUFACTURE A
27 PRODUCT OR SERVICE.
28 (2) MEETS ALL OF THE FOLLOWING:
29 (I) IS MAJORITY-OWNED BY A PENNSYLVANIA RESIDENT WHO
30 RESIDES IN A GEOGRAPHIC AREA IN WHICH THERE ARE TRIGGER
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 1 PROJECTS WITH PERMITS, AUTHORIZATIONS OR APPROVALS
2 ANALYZED BY THE DEPARTMENT OF ENVIRONMENTAL PROTECTION;
3 (II) IS AFFILIATED WITH ANY PUBLIC, STATE-RELATED
4 INSTITUTION OR OTHER ENTITY THAT HAS RECEIVED STATE
5 FUNDING WITHIN THE PRIOR TWO FISCAL YEARS THAT PROVIDES
6 TECHNOLOGY-RELATED PROGRAMMING OR INITIATIVES; AND
7 (III) HAS ACCRUED NET LOSSES THAT WOULD OTHERWISE BE
8 ALLOWABLE AS A DEDUCTION FROM TAXABLE INCOME UNDER
9 SECTION 401(3) THAT ARE RELATED TO ENVIRONMENTAL
10 REMEDIATION, ENVIRONMENTAL RESILIENCY, ENERGY EFFICIENCY,
11 ENERGY CONSERVATION OR SOLAR, WIND OR GEOTHERMAL ENERGY
12 PRODUCTION.
13 "Working capital." Liquid capital assets other than fixed
14 assets.
15 Section 422. Transferable Net Operating Loss Program.
16 (a) Establishment.--
17 (1) The Transferable Net Operating Loss Program is
18 established to allow a new or expanding biotechnology
19 business or technology business in this Commonwealth with
20 amounts of unused net operating loss carryover to sell the
21 tax benefits for use by other taxpayers under this article.
22 (2) The tax benefits may be used by the purchasing
23 taxpayer in accordance with the program. The purchasing
24 taxpayer may apply the tax benefits to the purchasing
25 taxpayer's tax liability for the taxable year during which
26 the tax benefits were purchased, except that any tax benefits
27 received by the purchasing taxpayer plus any other net loss
28 deduction allowable under this article shall not cause the
29 purchasing taxpayer's total net loss deduction to exceed the
30 limits established under section 401(3).
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 1 (b) Approval of sale of tax benefits.--
2 (1) The department, in consultation with the Department
3 of Community and Economic Development, shall review and
4 approve applications by new or expanding biotechnology
5 businesses or technology businesses in this Commonwealth with
6 unused but otherwise allowable net operating loss carryover
7 to sell those tax benefits in exchange for private financial
8 assistance to be contributed by a purchasing taxpayer in an
9 amount equal to AT LEAST 80% of the amount of the tax benefit <--
10 being sold VALUE. <--
11 (2) A selling taxpayer's transferable tax benefits shall
12 be limited to net operating losses that the selling taxpayer
13 requests to transfer in its application to the department and
14 shall not, in total, exceed the maximum amount of tax
15 benefits that the selling taxpayer is eligible to transfer.
16 (3) The department shall establish rules for the
17 repayment of all, or a portion of, an amount equal to the
18 selling price of the tax benefit under section 427.
19 (c) Approval of purchase of tax benefits.--
20 (1) The department shall review and approve applications
21 for the purchase of tax benefits in exchange for private
22 financial assistance to be made by the purchasing taxpayer in
23 an amount equal to AT LEAST 80% of the amount of the tax <--
24 benefit being sold VALUE. <--
25 (2) The department shall not approve an application
26 unless the selling taxpayer certifies that as of the date of
27 the application that the selling taxpayer is operating as a
28 new or expanding biotechnology business or technology
29 business and has no current intention to cease operating as a
30 new or expanding biotechnology business or technology
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 1 business.
2 (d) Private financial assistance.--The private financial
3 assistance shall assist in funding expenses incurred in
4 connection with the operation of the new or expanding
5 biotechnology business or technology business in this
6 Commonwealth, including the expenses of fixed assets, such as
7 the construction and acquisition and development of real estate,
8 materials, start-up, tenant fit-out, working capital, salaries,
9 research and development expenditures and any other expenses
10 determined by the department to be necessary to carry out the
11 purposes of the program.
12 (e) Distribution of tax benefits and private financial
13 assistance.--The department shall equally distribute tax
14 benefits based on the amount of tax benefits approved for sale
15 and the amount of private financial assistance committed by
16 purchasing taxpayers during the taxable year.
17 Section 423. Authorization to approve certain transfers of tax
18 benefits.
19 (a) Approval of sale of tax benefits.--The department shall
20 approve the sale of tax benefits. A selling taxpayer shall be
21 subject to a lifetime cap of $20,000,000 IN TAX BENEFITS. During <--
22 each taxable year, a selling taxpayer that meets all eligibility
23 requirements shall be permitted to sell an amount of tax
24 benefits that shall not exceed the lifetime cap over a period of
25 five taxable years, except that the amount of tax benefits sold
26 by a selling taxpayer per taxable year shall not exceed
27 $5,000,000.
28 (b) Approval of purchase of tax benefits.--The department
29 shall approve the transfer of tax benefits to a purchasing
30 taxpayer. A purchasing taxpayer shall be permitted to purchase
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 1 no more than $100,000,000 in tax benefits per taxable year. If
2 the demand from more than one purchasing taxpayer exceeds
3 $100,000,000, the department shall distribute the annual tax
4 benefits on a pro rata basis.
5 Section 424. Eligibility.
6 A new or expanding biotechnology business or technology
7 business shall be eligible to apply to the program if the
8 department, in consultation with the Department of Community and
9 Economic Development, finds that the business:
10 (1) Meets the definition of a "new or expanding
11 biotechnology business or technology business."
12 (2) Meets any of the following:
13 (i) has protected and proprietary intellectual
14 property that is exclusive to the applicant;
15 (ii) has use/license technology or patents developed
16 in this Commonwealth;
17 (iii) provides technology to the agriculture
18 industry; or
19 (iv) generates at least 50% of its revenue in this
20 Commonwealth.
21 (3) Has unused net operating loss carryover.
22 (4) Has no positive net operating income for the past
23 two years.
24 (5) Is subject to tax under this article and files all