An Act amending the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971, in research and development tax credit, further providing for definitions, for credit for research and development expenses and for limitation on credits.

PRIOR PRINTER'S NO. 903 PRINTER'S NO. 1803
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No. 792
Session of
2025
INTRODUCED BY FARRY, SANTARSIERO, HAYWOOD, HUGHES, COSTA,
PENNYCUICK, PISCIOTTANO, MILLER, COLLETT, LAUGHLIN AND
ROBINSON, JUNE 6, 2025
SENATOR FARRY, INSTITUTIONAL SUSTAINABILITY AND INNOVATION, AS
AMENDED, JUNE 9, 2026
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 research and development tax credit, further
providing FOR DEFINITIONS, FOR CREDIT FOR RESEARCH AND
DEVELOPMENT EXPENSES AND for limitation on credits.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 1709-B(a) of the act of March 4, 1971
(P.L.6, No.2), known as the Tax Reform Code of 1971, is amended
to read:
SECTION 1. THE DEFINITIONS OF "PENNSYLVANIA BASE AMOUNT" AND
"SMALL BUSINESS" IN SECTION 1702-B OF THE ACT OF MARCH 4, 1971
(P.L.6, NO.2), KNOWN AS THE TAX REFORM CODE OF 1971, ARE AMENDED
TO READ:
SECTION 1702-B. DEFINITIONS.--THE FOLLOWING WORDS AND
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PHRASES, WHEN USED IN THIS ARTICLE, SHALL HAVE THE MEANINGS
GIVEN TO THEM IN THIS SECTION, EXCEPT WHERE THE CONTEXT CLEARLY
INDICATES A DIFFERENT MEANING:
* * *
"PENNSYLVANIA BASE AMOUNT." [BASE AMOUNT AS DEFINED IN
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.] THE TERM SHALL MEAN FIFTY PER CENT OF THE AVERAGE
PENNSYLVANIA QUALIFIED RESEARCH AND DEVELOPMENT EXPENSES FOR THE
THREE TAXABLE YEARS PRECEDING THE TAXABLE YEAR FOR WHICH THE
CREDIT IS BEING DETERMINED.
* * *
"SMALL BUSINESS." A FOR-PROFIT CORPORATION, LIMITED
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
[FIVE MILLION DOLLARS ($5,000,000)] TEN MILLION DOLLARS
($10,000,000).
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* * *
SECTION 2. SECTIONS 1703-B(B) AND (C) AND 1709-B(A) OF THE
ACT ARE AMENDED TO READ:
SECTION 1703-B. CREDIT FOR RESEARCH AND DEVELOPMENT
EXPENSES.--* * *
(B) THE FOLLOWING APPLY:
(1) EXCEPT AS PROVIDED IN 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
[TEN] FOURTEEN PER CENT 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 [TWENTY]
TWENTY-FIVE PER CENT 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.
(C) [BY MAY 1 OF THE SECOND 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.] IF THE TAXPAYER HAS NO PENNSYLVANIA QUALIFIED
RESEARCH AND DEVELOPMENT EXPENSES IN ANY ONE OF THE THREE
TAXABLE YEARS PRECEDING THE TAXABLE YEAR FOR WHICH THE CREDIT IS
BEING DETERMINED, THE CREDIT SHALL BE SIX PER CENT OF THE
PENNSYLVANIA QUALIFIED RESEARCH AND DEVELOPMENT EXPENSES FOR THE
TAXABLE YEAR FOR WHICH THE CREDIT IS BEING DETERMINED.
Section 1709-B. Limitation on Credits.--(a) The total
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amount of credits approved by the department shall not exceed
[sixty] one hundred twenty million dollars [($60,000,000)]
($120,000,000) in any fiscal year. Of that amount, [twelve]
twenty-four million dollars [($12,000,000)] ($24,000,000) shall
be allocated exclusively for small businesses. However, 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 will become available for use by the other group of
qualifying taxpayers.
* * *
Section 2 3. This act shall take effect in 60 days.
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