An Act amending the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971, in corporate net income tax, repealing provisions relating to penalties and to repealer and effective date; establishing the Net Operating Loss Transfer Program; and imposing penalties.

PRINTER'S NO. 1196
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No. 1031
Session of
2025
INTRODUCED BY BOSCOLA, FARRY, COSTA AND VOGEL, OCTOBER 3, 2025
REFERRED TO FINANCE, OCTOBER 3, 2025
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," in corporate net income tax, repealing provisions
relating to penalties and to repealer and effective date;
establishing the Net Operating Loss Transfer Program; and
imposing penalties.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Parts VII and VIII of Article IV of the act of
March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of
1971, are repealed:
[PART VII
PENALTIES
Section 410. Penalties.--(a) Any person violating any of
the provisions of section 409 shall be guilty of a misdemeanor,
and shall, upon conviction thereof, be sentenced to pay a fine
not exceeding one thousand dollars ($1,000) and costs of
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prosecution, or to undergo imprisonment for not more than six
months, or both.
(b) Any person who shall wilfully make a false and
fraudulent return of taxable income made taxable by this
article, shall be guilty of wilful and corrupt perjury, and,
upon conviction thereof, shall be subject to punishment as
provided by law. Such penalty shall be in addition to any other
penalties imposed by this article.
(c) Any person, who wilfully fails, neglects, or refuses to
make a report or to pay the tax as herein prescribed, or who
shall refuse to permit the department to examine the books,
papers, and records of any corporation liable to pay tax under
this article, shall be guilty of a misdemeanor, and, upon
conviction thereof, shall be sentenced to pay a fine not
exceeding one thousand dollars ($1,000) and costs of
prosecution, or to undergo imprisonment not exceeding six
months, or both. Such penalty shall be in addition to any other
penalties imposed by this article.
PART VIII
REPEALER; EFFECTIVE DATE
Section 411. Repeal.--The act of May 16, 1935 (P.L.208),
known as the "Corporate Net Income Tax Act," is repealed.
Section 412. Effective Date.--This article shall take effect
immediately, and the tax imposed shall apply to taxable years
beginning January 1, 1971 and thereafter.]
Section 2. Article IV of the act is amended by adding parts
to read:
PART IX
NET OPERATING LOSS TRANSFER PROGRAM
Section 421. Definitions.
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The following words and phrases when used in this part shall
have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Allowable expenditures." Costs incurred in connection with
the operation of an eligible business, including the expenses of
fixed assets, such as the construction, acquisition and
development of real estate, materials, start-up, tenant fit-out,
working capital, salaries and research and development
expenditures.
"Biotechnology." The continually expanding body of
fundamental knowledge about the functioning of biological
systems from the macro level to the molecular and subatomic
levels, including novel products, services, technologies and
subtechnologies developed as a result of insights gained from
research advances, which add to that body of fundamental
knowledge.
"Biotechnology business." A person that:
(1) does business in this Commonwealth and files a
corporate net income tax return under this article; and
(2) is engaged in either of the following:
(i) the research, development, production or
provision of biotechnology for the purpose of developing
or providing products or processes for specific
commercial or public purposes, including medical,
pharmaceutical, nutritional and other health-related
purposes, agricultural purposes and environmental
purposes; or
(ii) the provision of services or products necessar y
for research, development, production or the provision of
a technology or biotechnology business.
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"Department." The Department of Community and Economic
Development of the Commonwealth.
"Eligible business." A biotechnology business or technology
business that, as of June 30 of the year in which the
biotechnology business or technology business files an
application for the program:
(1) has been in operation in this Commonwealth for no
more than seven years; and
(2) has at least 30% of its total United States full-
time employees working in this Commonwealth.
"Eligible net loss." The amount of net loss accrued by a
selling taxpayer that would otherwise be allowable as a
deduction from taxable income under section 401(3), which the
selling taxpayer is eligible to transfer under this part.
"Exchange funds." Funds received by an eligible business
through the program in exchange for the sale of eligible net
losses, which funds must be spent by the eligible business on
allowable expenditures. The term shall not include a loan.
"Fixed assets." The construction, acquisition and
development of real estate, materials, start-up, tenant fit-out,
working capital, salaries, research and development expenditures
and any other expenses determined by the department to be
necessary to carry out the purposes of the program.
"Full-time employee." As follows:
(1) An individual who:
(i) is employed by an eligible business for
consideration for at least 35 hours a week;
(ii) renders any other standard of service generally
accepted by custom or practice as full-time employment
and whose wages are subject to withholding as provided
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under 26 U.S.C. § 1400Z-2(c) (relating to special rules
for capital gains invested in opportunity zones); or
(iii) renders any other standard of service
generally accepted by custom or practice as full-time
employment and whose distributive share of income, gain,
loss or deduction, or whose guaranteed payments, or any
combination thereof, is subject to tax under this
article.
(2) The term does not include a person who works as an
independent contractor or on a consulting basis for an
eligible business.
"Program." The Net Operating Loss Transfer Program
established under section 422.
"Purchasing taxpayer." A taxpayer that purchases tax
benefits under this part.
"Selling taxpayer." A taxpayer that is an eligible business
and sells eligible net losses under this part.
"Tax benefit." The amount of eligible net loss multiplied by
the corporate net income tax rate under section 402 that is in
effect during the taxable year in which the tax benefit is being
sold.
"Technology business." A business that:
(1) does business in this Commonwealth and files a
corporate net income tax return under this article;
(2) owns, has filed for or has a valid license to use
protected, proprietary intellectual property; and
(3) employs a combination of highly educated or trained
managers and workers, or both, employed in this Commonwealth
who use sophisticated scientific research service or
production equipment, processes or knowledge to discover,
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develop, test, transfer or manufacture a product or service.
"Working capital." Liquid capital assets other than fixed
assets.
Section 422. Net Operating Loss Transfer Program.
(a) Establishment.--
(1) The Net Operating Loss Transfer Program is
established in the department under which a selling taxpayer
may sell eligible net losses and a purchasing taxpayer may
receive tax benefits.
(2) Tax benefits may be used by a purchasing taxpayer in
accordance with the program. A purchasing taxpayer may apply
the tax benefits to the purchasing taxpayer's tax liability
for the taxable year during which the tax benefits were
purchased, except that any tax benefits received by the
purchasing taxpayer plus any other net loss deduction
allowable under this article may not cause the purchasing
taxpayer's total net loss deduction to exceed the limits
established under section 401(3).
(b) Approval of sale of eligible net losses .--
(1) The department, in consultation with the Department
of Revenue, shall review and approve applications by eligible
businesses to sell eligible net losses .
(2) A selling taxpayer's eligible net losses shall be
limited to those which the selling taxpayer requests to
transfer in its application to the department and may not, in
total, exceed the maximum amount of eligible net losses that
the selling taxpayer may transfer under section 427(a) .
(c) Approval of purchase of tax benefits.--The department,
in consultation with the Department of Revenue, shall review and
approve applications for the purchase of tax benefits in an
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amount equal to at least 80% of the amount of the tax benefit
that the purchasing taxpayer requests to receive.
(d) Distribution of tax benefits and exchange funds.--The
department shall ratably distribute tax benefits and exchange
funds based on the amount of eligible net losses approved for
sale and the amount committed by purchasing taxpayers during a
taxable year.
Section 423. Authorization to approve sale of eligible net
losses .
The department, in consultation with the Department of
Revenue, shall approve the sale of eligible net losses , subject
to section 427.
Section 424. Eligibility.
The department shall approve an eligible business as a
selling taxpayer, if the eligible business submits an
application to the department and the department, in
consultation with the Department of Revenue, finds that the
eligible business:
(1) Meets any of the following:
(i) has protected and proprietary intellectual
property that is exclusive to the applicant;
(ii) has use/license technology or patents developed
in this Commonwealth;
(iii) provides technology to the agriculture
industry; or
(iv) generates at least 50% of its revenue in this
Commonwealth.
(2) Has eligible net losses .
(3) Has no positive net operating income for the past
two years.
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(4) Is subject to tax under this article and files all
required tax returns under this article.
(5) Certifies that, as of the date of the application,
the applicant is operating as an eligible business and has no
current intention to cease operating as an eligible business.
Section 425. Application to program.
(a) Fee.--An application submitted by a selling taxpayer or
a purchasing taxpayer shall be accompanied by a nonrefundable
$3,500 application fee. An application must be received by the
department by June 30 of each fiscal year.
(b) Selling taxpayer application.--An application submitted
to the department by a selling taxpayer must include all of the
following:
(1) If the selling taxpayer was authorized to sell and
sold eligible net losses during the previous taxable year, a
spending certification form attesting to having spent the
exchange funds on allowable expenditures.
(2) An eligible net loss identification form summarizing
the amount of eligible net losses to be sold and the years
that the eligible net losses were accrued.
(3) A form specifying how the selling taxpayer will
expend the exchange funds for allowable expenditures for the
operations of the eligible business.
(4) A description of and business plan or presentation
for the selling taxpayer's eligible business, demonstrating
that the eligible business is the primary business of the
selling taxpayer and that the applicant meets the definition
of an eligible business. If applicable, documentation of
protected proprietary intellectual property must be provided.
(5) Financial statements for the two most recent full
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years of operation or, if the selling taxpayer has been in
operation for less than two years, the selling taxpayer's
most recent financial statement, if any.
(6) A list of all affiliates and subsidiaries of the
selling taxpayer. A corporation is considered to be an
affiliate or subsidiary of the selling taxpayer if the
corporation is subject to tax under this article and one or
more of the following applies:
(i) the taxpayer is an entity or an affiliated group
of corporations that directly or indirectly owns or
controls 50% or greater of the selling taxpayer;
(ii) the taxpayer and the selling taxpayer are both
members of the same consolidated group of affiliated
corporations, as filed for Federal income tax purposes;
or
(iii) other test of affiliation as required by the
department.
(7) Any other information required by the department.
(c) Purchasing taxpayer application.--An application
submitted by a purchasing taxpayer must include all of the
following:
(1) The name, address and telephone number of the
purchasing taxpayer.
(2) A statement of the amount of tax benefits that the
purchasing taxpayer requests to receive.
(3) An attestation that includes the following:
(i) a statement that the purchasing taxpayer has
committed to the purchase of tax benefits ;
(ii) the dollar amount the purchasing taxpayer will
contribute, which shall be equal to at least 80% of the
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amount of the tax benefit the purchasing taxpayer
requests to receive; and
(iii) a statement that the purchasing taxpayer has
the financial ability to contribute the amount specified
under subparagraph (ii).
(4) A statement of the total amount of unused net
operating loss carryover, if any, that the purchasing
taxpayer has accrued.
(5) A list of all affiliates and subsidiaries of the
purchasing taxpayer. A corporation is considered to be an
affiliate or subsidiary of the purchasing taxpayer if the
corporation is subject to tax under this article and one or
more of the following applies:
(i) the corporation is an entity or an affiliated
group of corporations that directly or indirectly owns or
controls 50% or greater of the purchasing taxpayer;
(ii) the corporation and the purchasing taxpayer are
both members of the same consolidated group of affiliated
corporations, as filed for Federal income tax purposes;
or
(iii) any other test of affiliation as determined by
the department.
(6) Other information required by the department.
Section 426. Review of applications.
(a) Review of application.--The department, in consultation
with the Department of Revenue, shall review a program
application received by the department to determine whether the
application meets all of the requirements of this part.
(b) Approval.--The department shall approve an application
and shall notify a selling taxpayer or a purchasing taxpayer of
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the approval if:
(1) The application was received on or before the June
30 deadline.
(2) The applicant meets all of the requirements of this
part.
(c) Denial.--The department shall deny an application if one
or more of the following applies:
(1) The application was received after the June 30
deadline.
(2) The applicant does not meet all of the requirements
of this part.
(3) The selling taxpayer has demonstrated positive net
operating income in any of the two previous full years of
ongoing operations as determined on its financial statements
issued in a manner as determined by the department.
Section 427. Limitations.
(a) On selling taxpayer.--
(1) A selling taxpayer shall be subject to a lifetime
cap of $20,000,000 in eligible net losses that the selling
taxpayer may transfer .
(2) During each taxable year, a selling taxpayer that
meets all eligibility requirements shall be permitted to sell
an amount of eligible net losses that may not exceed the
lifetime cap over a period of five taxable years.
(3) The amount of eligible net losses sold by a selling
taxpayer per taxable year may not exceed $5,000,000, except
if all selling taxpayers have sold their annual eligible net
losses and there remains additional purchasing taxpayer
demand under subsection (c) , the department shall allow
selling taxpayers to exceed the individual selling taxpayer
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annual cap and shall award the additional cap demand on a pro
rata basis.
(b) On purchasing taxpayer.--Tax benefits awarded to a
purchasing taxpayer shall be reduced by the percentage of
available tax benefits sold by selling taxpayers that are
affiliates or subsidiaries of the purchasing taxpayer, pursuant
to the information provided on the application materials
required under section 425.
(c) Annual program limitation on transferable net losses.--A
maximum of $200,000,000 in transferable net losses shall be
available for sale per taxable year.
Section 428. Repayment of exchange funds .
(a) Forfeiture.--If a selling taxpayer fails to use the
exchange funds received for the sale of eligible net losses in a
manner prescribed under this part, or fails to continue doing
business in this Commonwealth during the five years following
receipt of the exchange funds , the selling taxpayer shall
forfeit and remit the exchange funds to the department in
accordance with subsections (c) and (d).
(b) Exception.--The forfeiture requirement in subsection (a)
pertaining to the failure to continue doing business in this
Commonwealth shall not apply if the failure is due to the
liquidation of the eligible business.
(c) Prorated certificate.--If a selling taxpayer fails to
continue doing business in this Commonwealth during the five
years following the receipt of the private financial assistance,
the Department of Revenue shall allow the selling taxpayer to
retain 20% of the exchange funds for each full year the selling
taxpayer conducted business in this Commonwealth, except that
the selling taxpayer forfeits and remits to the department the
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remaining amount of the exchange funds .
(d) Failure to use benefits.--If a selling taxpayer uses the
exchange funds for expenditures that are not allowable
expenditures, the department shall require the selling taxpayer
to remit 100% of the amount of the expenditures that are not
allowable expenditures.
Section 429. Fraudulent application information.
A selling taxpayer or purchasing taxpayer that, with intent
to defraud the Commonwealth, willfully submits or causes to be
submitted, a program application under section 425 which
contains false information commits a misdemeanor and, upon
conviction, shall be sentenced to pay a fine not exceeding
$2,000 or undergo imprisonment not exceeding three years, or
both.
Section 430. Report.
(a) Duty.--Not later than one year following the effective
date of this section, and not later than March 1 of each year
thereafter, the department, in consultation with the Department
of Revenue, shall prepare a report on the program.
(b) Contents.--The report shall include:
(1) A description of the demand for the program.
(2) The efforts made by the department to promote the
program.
(3) The total amount of eligible net losses approved for
sale and the total amount of tax benefits purchased under the
program.
(4) An assessment of the effectiveness of the program in
meeting the goals of this part.
(c) Submission.--The department shall submit the report to
the Governor and the General Assembly, including recommendations
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for legislation to improve the effectiveness of the program.
Section 431. Guidelines.
The department, in consultation with the Department of
Revenue, shall develop written guidelines for the implementation
of this part.
PART X
PENALTIES
Section 481. Penalties.
A person that:
(1) Violates section 409 shall be guilty of a
misdemeanor and shall, upon conviction, be sentenced to pay a
fine not exceeding $1,000 and costs of prosecution, or to
imprisonment for not more than six months, or both.
(2) Willfully makes a false and fraudulent return of
taxable income made taxable by this article, shall be guilty
of willful and corrupt perjury and, upon conviction, be
subject to punishment as provided by law.
(3) Willfully fails, neglects or refuses to make a
report or to pay the tax as prescribed or refuses to permit
the department to examine the books, papers and records of
any corporation liable to pay tax under this article, shall
be guilty of a misdemeanor and, upon conviction, be sentenced
to pay a fine of not more than $1,000 and costs of
prosecution, or to imprisonment for not more than six months,
or both.
The penalties under this section shall be in addition to any
other penalties imposed by this article.
Section 3. This act shall take effect in 60 days.
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