PRINTER'S NO. 695
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No.656
Session of
2025
INTRODUCED BY TARTAGLIONE, COLLETT, FONTANA, KEARNEY, STREET,
COMITTA, HUGHES, HAYWOOD, COSTA, KANE AND SANTARSIERO,
APRIL 28, 2025
REFERRED TO FINANCE, APRIL 28, 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, further providing
for definitions, for reports and payment of tax and for
consolidated reports; and, in general provisions, further
providing for underpayment of estimated tax.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 401(3)1(a), (b) and (t) and (5) of the
act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code
of 1971, are amended, (3)2(a)(9)(A) is amended by adding a unit,
(3)1 and (3)4 are amended by adding phrases and the section is
amended by adding clauses 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
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23 clearly indicates a different meaning:
* * *
(3) "Taxable income." 1. (a) In case the entire business
of the corporation is transacted within this Commonwealth, for
any taxable year which begins on or after January 1, 1971,
taxable income for the calendar year or fiscal year as returned
to and ascertained by the Federal Government before special
deductions provided for in 26 U.S.C. Ch. 1 Subch. B Pt. VIII
(relating to special deductions for corporations) , or in the
case of a corporation participating in the filing of
consolidated returns to the Federal Government or that is not
required to file a return with the Federal Government , the
taxable income which would have been returned to and ascertained
by the Federal Government before special deductions provided for
in 26 U.S.C. Ch. 1 Subch. B Pt. VIII if separate returns had
been made to the Federal Government for the current and prior
taxable years, subject, however, to any correction thereof, for
fraud, evasion, or error as finally ascertained by the Federal
Government.
(b) Additional deductions shall be allowed from taxable
income on account of any dividends received from any other
corporation but only to the extent that such dividends are
included in taxable income as returned to and ascertained by the
Federal Government. For tax years beginning on or after January
1, 1991, additional deductions shall only be allowed for amounts
included, under section 78 of the Internal Revenue Code of 1986
(Public Law 99-514, 26 U.S.C. § 78), in taxable income returned
to and ascertained by the Federal Government and for the amount
of any dividends received from a foreign corporation included in
taxable income to the extent such dividends would be deductible
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30 in arriving at Federal taxable income if received from a
domestic corporation. For taxable years beginning after December
31, 2025 , the additional deduction with respect to dividends
shall not be allowed for dividends between members of a unitary
group.
* * *
(p.1) For taxable years after December 31, 2025 , in the case
of a corporation that is a member of a unitary business, the
term "taxable income" shall mean the combined unitary income of
the unitary business, as determined on a water's-edge basis.
* * *
(t) (1) Except as provided in paragraph (2), (3) or (4) for
taxable years beginning after December 31, 2014, and in addition
to any authority the department has on the effective date of
this paragraph to deny a deduction related to a fraudulent or
sham transaction, no deduction shall be allowed for an
intangible expense or cost, or an interest expense or cost,
paid, accrued or incurred directly or indirectly in connection
with one or more transactions with an affiliated entity. In
calculating taxable income under this paragraph, when the
taxpayer is engaged in one or more transactions with an
affiliated entity that was subject to tax in this Commonwealth
or another state or possession of the United States on a tax
base that included the intangible expense or cost, or the
interest expense or cost, paid, accrued or incurred by the
taxpayer, the taxpayer shall receive a credit against tax due in
this Commonwealth in an amount equal to the apportionment factor
of the taxpayer in this Commonwealth multiplied by the greater
of the following:
(A) the tax liability of the affiliated entity with respect
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30 to the portion of its income representing the intangible expense
or cost, or the interest expense or cost, paid, accrued or
incurred by the taxpayer; or
(B) the tax liability that would have been paid by the
affiliated entity under subparagraph (A) if that tax liability
had not been offset by a credit.
The credit issued under this paragraph shall not exceed the
taxpayer's liability in this Commonwealth attributable to the
net income taxed as a result of the adjustment required by this
paragraph.
(2) The adjustment required by paragraph (1) shall not apply
to a transaction that did not have as [ the] a principal purpose
the avoidance of tax due under this article and was done at
arm's length rates and terms.
(3) The adjustment required by paragraph (1) shall not apply
to a transaction between a taxpayer and an affiliated entity
domiciled in a foreign nation which has in force a comprehensive
income tax treaty with the United States providing for the
allocation of all categories of income subject to taxation, or
the withholding of tax, on royalties, licenses, fees and
interest for the prevention of double taxation of the respective
nations' residents and the sharing of information.
(4) The adjustment required by paragraph (1) shall not apply
to a transaction where an affiliated entity directly or
indirectly paid, accrued or incurred a payment to a person who
is not an affiliated entity, if the payment is paid, accrued or
incurred on the intangible expense or cost, or interest expense
or cost, and is equal to or less than the taxpayer's
proportional share of the transaction. The taxpayer's
proportional share shall be based on relative sales, assets,
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30 liabilities or another reasonable method.
(5) The adjustment required under paragraph (1) shall not
apply to a transaction between the taxpayer and an affiliated
entity, where the taxpayer and the affiliated entity file a
combined annual report in this State.
2. In case the entire business of any corporation, other
than a corporation engaged in doing business as a regulated
investment company as defined by the Internal Revenue Code of
1986, is not transacted within this Commonwealth, the tax
imposed by this article shall be based upon such portion of the
taxable income of such corporation for the fiscal or calendar
year, as defined in subclause 1 hereof, and may be determined as
follows:
(a) Division of Income.
* * *
(9) (A) Except as provided in subparagraph (B):
* * *
(vi) (a) For taxable years beginning after December 31,
2025 , all business income of a unitary business shall be
apportioned to this State by multiplying the income by the
member's sales factor, the numerator of which shall be the
member's total sales in this State, and the denominator of which
shall be the combined total sales of all members of the unitary
business everywhere. In computing the sales of each member for
purposes of apportionment, the following sales are excluded from
the numerator and denominator:
(I) sales from transactions between or among members of the
unitary business that are deferred under 26 CFR 1.1502-13
(relating to intercompany transactions) for Federal taxable
income purposes; and
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30 (II) the sales of each member that are excluded from the
unitary business pursuant to the definition of water's-edge
basis.
(b) The Pennsylvania sales of each nontaxable member shall
be determined based upon the apportionment rules applicable to
the member and shall be aggregated. Each taxable member of the
group shall include in its sales factor numerator a portion of
the aggregate Pennsylvania sales of nontaxable members based on
a ratio, the numerator of which is the taxable member's
Pennsylvania sales and the denominator of which is the aggregate
Pennsylvania sales of all the taxable members of the group.
(c) Nonbusiness income of each member of a unitary business
shall be allocated as provided in paragraphs (5) through (8) of
phrase (a) of subclause 2 of this definition. A member of the
unitary business is subject to tax on its apportioned share of
all business income of the unitary business, plus its
nonbusiness income or loss allocated to this State, minus the
member's net loss deduction.
(d) The Secretary of Revenue has the authority to
distribute, apportion or allocate gross income, deductions,
credits or allowances between and among two or more
corporations, persons, entities, members or unitary businesses,
whether or not incorporated, whether or not organized in the
United States and whether or not affiliated, if:
(I) the corporations, persons, entities, members or unitary
businesses are owned or controlled directly or indirectly by the
same interests within the meaning of 26 U.S.C. § 482 (relating
to allocation of income and deductions among taxpayers); and
(II) the Secretary of Revenue determines that the
distribution, apportionment or allocation is necessary in order
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30 to reflect an arm's length standard within the meaning of 26 CFR
1.482-1 (relating to allocation of income and deductions among
taxpayers) and to reflect clearly the income of those
corporations, persons, entities, members or unitary businesses.
(e) The Secretary of Revenue shall apply the administrative
and judicial interpretations of 26 U.S.C. § 482 in administering
this section.
(f) For taxable years beginning after December 31, 2025 , any
member of a unitary group that would otherwise apportion its
business income under phrase (b), (c), (d) or (e) of subclause 2
of this definition shall determine its apportionment formula
using a single sales fraction.
* * *
4. * * *
(h) Subject to the limitations of this subclause, any member
of a unitary business that has unused net loss from taxable
years that began prior to January 1, 2026 , or that generates net
losses while a member of a unitary business may only take the
net loss deduction for taxable years beginning after December
31, 2025 , to the extent of the member's share of combined
unitary income after apportionment and the net losses may not be
used by other members of the same unitary business.
(i) Any net loss realized for a taxable year unused by a
corporation which subsequently becomes a member of another
unitary business, may only be used by that corporation.
* * *
(5) "Taxable year." [ The taxable year which the
corporation, or any consolidated group with which the
corporation participates in the filing of consolidated returns,
actually uses in reporting taxable income to the Federal
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30 Government. With regard to the tax imposed by Article IV of this
act (relating to the Corporate Net Income Tax), the terms
"annual year," "fiscal year," "annual or fiscal year," "tax
year" and "tax period" shall be the same as the corporation's
taxable year, as defined in this paragraph. ]
1. Except as set forth in subclause 2, the taxable year
which the corporation, or any consolidated group with which the
corporation participates in the filing of consolidated returns,
actually uses in reporting taxable income to the Federal
Government, or which the corporation would have used in
reporting taxable income to the Federal Government had it been
required to report its taxable income to the Federal Government.
With regard to the tax imposed by Article IV, the terms "annual
year," "fiscal year," "annual or fiscal year," "tax year" and
"tax period" shall be the same as the corporation's taxable
year, as defined in this subclause or subclause 2.
2. All members of a unitary business shall have a common
taxable year for purposes of computing tax due under this
article. The taxable year for such purposes is the common
taxable year adopted, in a manner prescribed by the department,
by all members of the unitary business. The common taxable year
must be used by all members of the unitary business in the year
of adoption and all future years unless otherwise permitted by
the department.
* * *
(12) "Tax haven." Means any of the following:
1. Andorra.
2. Anguilla.
3. Antigua and Barbuda.
4. Aruba.
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30 5. The Bahamas.
6. Bahrain.
7. Barbados.
8. Belize.
9. Bermuda.
10. The British Virgin Islands.
11. The Cayman Islands.
12. The Cook Islands.
13. Cyprus.
14. Dominica.
15. Gibraltar.
16. Grenada.
17. Guernsey-Sark-Alderney.
18. The Isle of Man.
19. Jersey.
20. Liberia.
21. Liechtenstein.
22. Luxembourg.
23. Malta.
24. The Marshall Islands.
25. Mauritius.
26. Monaco.
27. Montserrat.
28. Nauru.
29. Netherlands Antilles.
30. Niue.
31. Panama.
32. Samoa.
33. San Marino.
34. Seychelles.
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30 35. St. Kitts and Nevis.
36. St. Lucia.
37. St. Vincent and the Grenadines.
38. Turks and Caicos Islands.
39. Vanuatu.
40. A jurisdiction that is identified as a tax haven by the
Organization for Economic Co-operation and Development.
(13) "Unitary business." A single economic enterprise that
is made up of separate parts of a single corporation, of a
commonly controlled group of corporations, or both, that are
sufficiently interdependent, integrated and interrelated through
their activities so as to provide a synergy and mutual benefit
that produces a sharing or exchange of value among them and a
flow of value to the separate parts. A unitary business includes
all those parts and corporations that are included in a unitary
business under the Constitution of the United States.
(14) "Water's-edge basis." A system of reporting that
includes the income and apportionment factors of certain members
of a unitary business, described as follows:
1. Any member incorporated in the United States or formed
under the laws of any state of the United States, the District
of Columbia, any territory or possession of the United States or
the Commonwealth of Puerto Rico.
2. Any member, regardless of the place incorporated or
formed, if at least twenty per cent of the member's sales factor
is within the United States, and the following shall apply:
(a) For purposes of determining whether at least twenty per
cent of a member's sales factor is within the United States, the
calculation must be performed on a stand-alone basis. Sales
shall be gross figures without eliminations for transactions
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30 with other members of any unitary business.
(b) Whether sales are within the United States is based on
the sales factor sourcing rules contained in section 401(3).
3. Any member which is one of the following:
(a) A domestic international sales corporation as described
in 26 U.S.C. Ch. 1 Subch. N Pt. IV Subpt. A (relating to
treatment of qualifying corporations).
(b) A foreign sales corporation as described in the former
26 U.S.C. §§ 921, 922, 923, 924, 925, 926 and 927.
(c) An export trade corporation as described in 26 U.S.C.
Ch. 1 Subch. N Pt. III Subpt. G (relating to export trade
corporations).
4. Any member not described in subparagraph (i), (ii) or
(iii) shall include the portion of the member's taxable income
derived from or attributable to sources within the United
States, as determined under 26 U.S.C. (relating to Internal
Revenue Code) without regard to Federal treaties, and its
apportionment factors related thereto.
5. Any member that is a "controlled foreign corporation" as
defined in 26 U.S.C. § 957 (relating to controlled foreign
corporations; United States persons), to the extent the income
of that member is income defined in 26 U.S.C. § 952 (relating to
Subpart F income defined) as Subpart F income, not excluding
lower-tier subsidiaries' distributions of such income which were
previously taxed, determined without regard to Federal treaties,
and the apportionment factors related to that income, any item
of income received by a controlled foreign corporation and the
apportionment factors related to such income shall be excluded
if the corporation establishes to the satisfaction of the
Secretary of Revenue that such income was subject to an
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30 effective rate of income tax imposed by a foreign country
greater than ninety per cent of the maximum rate of tax
specified in 26 U.S.C. § 11 (relating to tax imposed). The
effective rate of income tax determination shall be based upon
the methodology set forth under 26 CFR 1.954-1 (relating to
foreign base company income).
6. Any member that is incorporated in or is doing business
in a tax haven. The income and apportionment factors of a member
doing business in a tax haven shall be excluded if the member
establishes to the satisfaction of the Secretary of Revenue that
the member's income was subject to an effective rate of income
tax imposed by a country greater than ninety per cent of the
maximum rate of tax specified in 26 U.S.C. § 11.
(15) "Commonly controlled group." For a corporation, the
corporation is a member of a group of two or more corporations
and more than fifty per cent of the voting stock or controlling
interest of each member of the group is directly or indirectly
owned by a common owner or by common owners, either corporate or
noncorporate, or by one or more of the member corporations of
the group.
(16) "Combined unitary income." The aggregate taxable
income or loss of all members of a unitary business, subject to
apportionment, except:
1. Income from an intercompany transaction between members
of a unitary business shall be deferred in a manner similar to
26 CFR 1.1502-13 (relating to intercompany transactions) for
Federal taxable income purposes.
2. Dividends paid by one member of a unitary business to
another.
3. Income of the following members is not included in the
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30 determination of combined unitary income:
(a) any member subject to taxation under Article VII, VIII,
IX or XV;
(b) any member specified in the definition of "institution"
in section 701.5 that would be subject to taxation under Article
VII, were it doing business in this State, as defined in section
701.5;
(c) any member commonly known as a title insurance company
that would be subject to taxation under Article VIII, were it
incorporated in this State;
(d) any member specified as an insurance company,
association or exchange in Article IX that would be subject to
taxation under Article IX, were it transacting insurance
business in this State;
(e) any member specified in the definition of "institution"
in section 1501 that would be subject to taxation under Article
XV, were it located, as defined in section 1501, in this State;
or
(f) any member that is a small corporation as defined in
section 301(s.2) except to the extent of such small
corporation's net recognized built-in gain to the extent of and
as determined for Federal income tax purposes under 26 U.S.C. §
1374(d)(2) (relating to tax imposed on certain built-in gains).
(17) "Member." A corporation that is a member of a unitary
business. The term does not include a corporation listed in
clause (16)3.
Section 2. Section 403 of the act is amended by adding
subsections to read:
Section 403. Reports and Payment of Tax.--* * *
(a.1) (1) Each corporation that is a member of a unitary
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30 business that consists of two or more corporations, unless
excluded by the provisions of this article, shall file as part
of a combined annual report. The member of the unitary business
shall designate one member that is subject to tax under this
article to file the combined annual report and to act as agent
on behalf of all other members of the unitary business. Each
corporation that is a member of a unitary business is liable for
its tax liability under this article. The agent is also liable
for the aggregate amount of the unitary business' tax liability
pursuant to this article.
(2) The oath or affirmation of the designated member's
president, vice president, treasurer, assistant treasurer or
other authorized officer shall constitute the oath or
affirmation of each corporation that is a member of that unitary
business.
(3) The designated member shall transmit to the department
upon a form prescribed by the department a combined annual
report under oath or affirmation of the member's president, vice
president, treasurer, assistant treasurer or other authorized
officer.
(4) In addition to the information required in subsection
(a), the combined annual report shall set forth:
(i) All members included in the unitary business.
(ii) All necessary data, both in the aggregate and for each
member of the unitary business, that sets forth the
determination of tax liability for each member of the unitary
business.
(iii) Any other information that the department may require.
(a.2) A member of a unitary business of two or more
corporations must determine the member's income and
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30 apportionment factors on a water's-edge basis.
* * *
Section 3. Section 404 of the act is amended to read:
Section 404. Consolidated Reports.--The department shall not
permit any corporation owning or controlling, directly or
indirectly, any of the voting capital stock of another
corporation or of other corporations, subject to the provisions
of this article, to make a consolidated report[ , showing the
combined net income].
Section 4. Section 3003.3(d) of the act is amended and the
section is amended by adding a subsection to read:
Section 3003.3. Underpayment of Estimated Tax.--* * *
(d) Notwithstanding the provisions of [ the preceding
subsections,] this section, other than as set forth in
subsection (d.1), interest with respect to any underpayment of
any installment of estimated tax shall not be imposed if the
total amount of all payments of estimated tax made on or before
the last date prescribed for the payment of such installment
equals or exceeds the amount which would have been required to
be paid on or before such date if the estimated tax were an
amount equal to the tax computed at the rates applicable to the
taxable year, including any minimum tax imposed, but otherwise
on the basis of the facts shown on the report of the taxpayer
for, and the law applicable to, the safe harbor base year,
adjusted for any changes to sections 401, 601, 602 and 1101
enacted for the taxable year, if a report showing a liability
for tax was filed by the taxpayer for the safe harbor base year.
If the total amount of all payments of estimated tax made on or
before the last date prescribed for the payment of such
installment does not equal or exceed the amount required to be
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30 paid per the preceding sentence, but such amount is paid after
the date the installment was required to be paid, then the
period of underpayment shall run from the date the installment
was required to be paid to the date the amount required to be
paid per the preceding sentence is paid. Provided, that if the
total tax for the safe harbor base year exceeds the tax shown on
such report by ten per cent or more, the total tax adjusted to
reflect the current tax rate shall be used for purposes of this
subsection. In the event that the total tax for the safe harbor
base year exceeds the tax shown on the report by ten per cent or
more, interest resulting from the utilization of such total tax
in the application of the provisions of this subsection shall
not be imposed if, within forty-five days of the mailing date of
each assessment, payments are made such that the total amount of
all payments of estimated tax equals or exceeds the amount which
would have been required to be paid on or before such date if
the estimated tax were an amount equal to the total tax adjusted
to reflect the current tax rate. In any case in which the
taxable year for which an underpayment of estimated tax may
exist is a short taxable year, in determining the tax shown on
the report or the total tax for the safe harbor base year, the
tax will be reduced by multiplying it by the ratio of the number
of installment payments made in the short taxable year to the
number of installment payments required to be made for the full
taxable year.
(d.1) With respect to any underpayment of an installment of
estimated corporate net income tax for any tax year that begins
in taxable year 2025 or 2026 by a corporation required to file a
combined annual report pursuant to section 403(a.1)(1), interest
shall not be imposed if the total amount of all payments of
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30 estimated corporate net income tax made on or before the last
date prescribed for the payment of such installment equals or
exceeds the amount which would have been required to be paid on
or before such date if the estimated tax were an amount equal to
the combined tax shown on the reports of all the members of the
unitary business for the safe harbor base year computed at the
rate applicable to the taxable year.
Section 5. The amendment of sections 401, 403, 404 and
3003.3 of the act shall apply to taxable years beginning after
December 31, 2025.
Section 6. This act shall take effect immediately.
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