Section 18200.512 - Personal income tax(a)General rule.--For tax years that begin on or after January 1 of the tax years following the date an economic development district is designated, a resident or person who owns an interest in a qualified pass-through entity or who owns a qualified business which is a sole proprietorship shall be allowed an exemption for:(1) Net income, except as provided in paragraphs (2) and (3), from the operation of the qualified business received by the person which is attributable to business activity conducted by the qualified business within an economic development district except that any qualified business which operates both within and outside this Commonwealth, before computing its economic development district exemption, shall first determine its Pennsylvania activity over its activity everywhere by applying the three-factor apportionment formula as set forth in Department of Revenue personal income tax regulations applicable to income apportionment in connection with a business, trade or profession carried on both within and outside this Commonwealth.(2) Net gains or income, less net losses, derived from the sale, exchange or other disposition of tangible personal property located within an economic development district, as determined in accordance with accepted accounting principles and practices, received by the person which is attributable to business activity conducted by the qualified business within the economic development district. The exemption provided for in this subparagraph shall not apply to the sale, exchange or other disposition of any stock or goods, merchandise or inventory or any operational assets unless the transfer is in connection with the sale, exchange or other disposition of all of the assets in complete liquidation of a qualified business located in an economic development district. The exemption provided for in this paragraph shall apply to intangible personal property employed in a trade, profession or business within the economic development district by the qualified business but only when transferred in connection with a sale, exchange or other disposition of all of the assets in complete liquidation of the qualified business. The exemption provided for in this paragraph shall be prorated based on the percentage of time, based on calendar days, the property was held by the person during the time period the economic development district was in effect in relation to the total time the property was held.(3) Net gains or income derived from or in the form of rents from the rental of tangible personal property which is allocable to an economic development district received by the person which is attributable to business activity conducted by the qualified business within the economic development district. For purposes of calculating this exemption, all of the following shall apply:(i) Net rents derived from tangible personal property located within the economic development district are allocable to the economic development district.(ii) If the tangible personal property was used both within and outside the economic development district during the taxable year, only the net rents attributable to use within the economic development district is exempt. The net rents shall be multiplied by a fraction, the numerator of which is the number of days the property was used within the economic development district and the denominator of which is the total days of use.(b)Pass-through.--(1) A partner or member of a qualified pass-through entity shall be entitled to the exemptions under this section for the partner's or member's share, whether or not distributed, of the income or gain received by the partnership or association for its taxable year.(2) A shareholder of a qualified pass-through entity shall be entitled to the exemptions under this section for the shareholder's pro rata share, whether or not distributed, of the income or gain received by the Subchapter S corporation for its taxable year ending within or with the shareholder's taxable year.(c)Limitations.--(1) No exemption shall be allowed for activities conducted on the real property prior to designation of the real property as an economic development district.(2) A partnership, association, Subchapter S corporation or person may not carry back or carry forward any exemption under this section from year to year. The credit allowed under this section shall not exceed the tax liability of the person under Article III of the Tax Reform Code of 1971 for the tax year.(d)Section not applicable to certain entities.--Any portion of net income or gain which is attributable to the operation of a railroad, truck, bus or airline company, pipeline or natural gas company, water transportation company or entity which would qualify as a regulated investment company under Article IV of the Tax Reform Code of 1971 or would qualify as a holding company under Article VI of the Tax Reform Code of 1971 shall not be used to calculate an exemption under this section. 2004, Dec. 1, P.L. 1750, No. 226, § 512, imd. effective.