72 Pa. Stat. § 7601

Current through Pa Acts 2024-53, 2024-56 through 2024-92
Section 7601 - Definitions and reports
(a) The following words, terms and phrases when used in this Article VI shall have the meaning ascribed to them in this section, except where the context clearly indicates a different meaning:

"Average net income." The sum of the net income or loss for each of the current and immediately preceding four years, divided by five. If the entity has not been in existence for a period of five years, the average net income shall be the average net income for the number of years that the entity has actually been in existence. In computing average net income, losses shall be entered as computed, but in no case shall average net income be less than zero. The net income or loss of the entity for any taxable year shall be the amount set forth as income per books on the income tax return filed by the entity with the Federal Government for such taxable year, or if no such return is made, as would have been set forth had such a return been made, subject, however, in either case to any correction thereof, for fraud, evasion or error. In the case of any entity which has an investment in another corporation, the net income or loss shall be computed on an unconsolidated basis exclusive of the net income or loss of such other corporation without regard to how the corporation is treated for Federal income tax purposes. In the case of a limited liability company or business trust that is not taxable as a corporation for Federal income tax purposes, the net income or loss of the limited liability company or business trust for any given year shall be reduced by the amount of distributions made by such limited liability company or business trust to any member of such limited liability company or business trust who is deemed to be materially participating in the activities conducted by such limited liability company or business trust for purposes of section 469 of the Internal Revenue Code of 1986 ( Public Law 99-514, 26 U.S.C. § 469 ). In the case of a limited liability company or business trust that for Federal income tax purposes is a disregarded entity of a natural person, the net income or loss of the limited liability company or business trust for any given year shall be reduced by the amount of distributions made by the limited liability company or business trust to a natural person. For this purpose, distributions which are made to a member of a limited liability company or business trust within thirty (30) days of the end of a given year may be treated as having been made in the preceding year and not in the year in which such distribution is actually made.

"Capital stock." The capital stock, certificates, memberships and all other interests in a domestic or foreign entity.

"Capital stock value." The amount computed pursuant to the following formula: the product of one-half times the sum of the average net income capitalized at the rate of nine and one-half per cent plus seventy-five per cent of net worth, from which product shall be subtracted one hundred sixty thousand dollars ($160,000), the algebraic equivalent of which is

(.5 X (average net income/.095 + (.75) (net worth))) -- $160,000

"Corporation."

(A) Any of the following entities:
(1) A corporation.
(2) A joint-stock association.
(3) A business trust.
(4) A limited liability company. This clause excludes a restricted professional company which is subject to 15 Pa.C.S. Ch. 89 Subch. L (relating to restricted professional companies).
(5) An entity which for Federal income tax purposes is classified as a corporation.
(6) A business trust which is a real estate investment trust as defined in section 856 of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 856 ) more than fifty per cent of the voting power or value of the beneficial interests or shares of which are owned or controlled, directly or indirectly, by a single corporation that is not:
(i) a real estate investment trust as defined in section 856 of the Internal Revenue Code of 1986;
(ii) a qualified real estate investment trust subsidiary under section 856(i) of the Internal Revenue Code of 1986;
(iii) a regulated financial institution as defined by section 401(6) of Article IV; or
(iv) formed as a holding company, subsidiary or affiliate of a regulated financial institution prior to December 1, 2003.
(7) A business trust which is a qualified real estate investment trust subsidiary under section 856(i) of the Internal Revenue Code of 1986 owned, directly or indirectly, by a real estate investment trust as defined in section 856 of the Internal Revenue Code of 1986 more than fifty per cent of the voting power or value of the beneficial interests or shares of which are owned or controlled, directly or indirectly, by a single corporation that is not:
(i) a real estate investment trust as defined in section 856 of the Internal Revenue Code of 1986;
(ii) a qualified real estate investment trust subsidiary under section 856(i) of the Internal Revenue Code of 1986;
(iii) a regulated financial institution as defined by section 401(6) of Article IV; or
(iv) formed as a holding company, subsidiary or affiliate of a regulated financial institution prior to December 1, 2003.
(b) The term does not include any of the following:
(1) A business trust which qualifies as a real estate investment trust under section 856 of the Internal Revenue Code of 1986 ( 26 U.S.C. § 856 ) or which is a qualified real estate investment trust subsidiary under section 856(i) of the Internal Revenue Code of 1986 ( 26 U.S.C. § 856(i) ).
(2) A business trust which qualifies as a regulated investment company under section 851 of the Internal Revenue Code of 1986 ( 26 U.S.C. § 851 ) and which is registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940 (54 Stat. 789, 15 U.S.C. § 80a-1 et seq.) or a related business trust which confines its activities in this Commonwealth to the maintenance, administration and management of intangible investments and activities of regulated investment companies.
(3) A corporation, trust or other entity which is an exempt organization as defined by section 501 of the Internal Revenue Code of 1986 ( 26 U.S.C. § 501 ).
(4) A corporation, trust or other entity organized as a not-for-profit organization under the laws of this Commonwealth or the laws of any other state which:
(i) would qualify as an exempt organization as defined by section 501 of the Internal Revenue Code of 1986 ( 26 U.S.C. § 501 );
(ii) would qualify as a homeowners association as defined by section 528(c) of the Internal Revenue Code of 1986 ( 26 U.S.C. § 528(c) );
(iii) is a membership organization subject to the Federal limitations on deductions from taxable income under section 277 of the Internal Revenue Code of 1986 ( 26 U.S.C. § 277 ) but only if no pecuniary gain or profit inures to any member or related entity from the membership organization; or
(iv) is a nonstock commodity or a nonstock stock exchange.
(5) A cooperative agricultural association subject to 15 Pa.C.S. Ch. 75 (relating to cooperative agricultural associations).
(6) A business trust if the trust is all of the following:
(i) Created or managed by an entity which is subject to the tax imposed by Article VII or XV or which is an affiliate of the entity which shares at least eighty per cent common ownership.
(ii) Created and managed for the purpose of facilitating the securitization of intangible assets.
(iii) Classified as a partnership or a disregarded entity for Federal income tax purposes.

"Department." The Department of Revenue.

"Domestic entity." A corporation organized under the laws of the Commonwealth.

"Foreign entity." A corporation organized by or under the laws of any jurisdiction other than the Commonwealth which exercises, whether in its own name or through any individual, association, business trust, corporation, joint venture, limited liability company, limited partnership, partnership or other entity, any of the following privileges:

(1) Doing business in this Commonwealth.
(2) Carrying on activities in this Commonwealth, including solicitation.
(3) Having capital or property employed or used in this Commonwealth.
(4) Owning property in this Commonwealth.

"Holding company." Any corporation (i) at least ninety per cent of the gross income of which for the taxable year is derived from dividends, interest, gains from the sale, exchange or other disposition of stock or securities and the rendition of management and administrative services to subsidiary corporations, and (ii) at least sixty per cent of the actual value of the total assets of which consists of stock securities or indebtedness of subsidiary corporations.

"Net worth."

(1) Net worth shall be the sum of the entity's issued and outstanding capital stock, surplus and undivided profits as per books set forth for the close of such tax year on the income tax return filed by the entity with the Federal Government, or if no such return is made, as would have been set forth had such return been made, subject, however, in either case to any correction thereof for fraud, evasion or error. In the case of any entity which has investments in other corporations, the net worth shall be the consolidated net worth of such entity computed in accordance with generally accepted accounting principles. In the case of a limited liability company or a business trust, net worth for any tax year shall be the entity's assets minus its liabilities as of the close of such tax year. Net worth shall in no case be less than zero.
(2) If net worth as arrived at under clause (1) for the current tax year is greater than twice or less than one-half of the net worth which would have been calculated under clause (1) as of the first day of the current tax year, then net worth for the current tax year shall be the average of these two amounts.

"Processing." The following activities when engaged in as a business enterprise:

(1) The filtering or heating of honey, the cooking or freezing of fruits, vegetables, mushrooms, fish, seafood, meats or poultry, when the person engaged in such business packages such property in sealed containers for wholesale distribution.
(1.1) The processing of fruits or vegetables by cleaning, cutting, coring, peeling or chopping and treating to preserve, sterilize or purify and substantially extend the useful shelf life of the fruits or vegetables, when the person engaged in such activity packages such property in sealed containers for wholesale distribution.
(2) The scouring, carbonizing, cording, combing, throwing, twisting or winding of natural or synthetic fibers, or the spinning, bleaching, dyeing, printing or finishing of yarns or fabrics, when such activities are performed prior to sale to the ultimate consumer.
(3) The electroplating, galvanizing, enameling, anodizing, coloring, finishing, impregnating or heat treating of metals or plastics for sale or in the process of manufacturing.
(3.1) The blanking, shearing, leveling, slitting or burning of metals for sale to or use by a manufacturer or processor.
(4) The rolling, drawing or extruding of ferrous and nonferrous metals.
(5) The fabrication for sale of ornamental or structural metal or metal stairs, staircases, gratings, fire escapes or railings (not including fabrication work done at the construction site).
(6) The preparation of animal feed or poultry feed for sale.
(7) The production, processing and bottling of nonalcoholic beverages for wholesale distribution.
(8) The slaughtering and dressing of animals for meat to be sold or to be used in preparing meat products for sale, and the preparation of meat products, including lard, tallow, grease, cooking and inedible oils for wholesale distribution.
(9) The operation of a saw mill or planing mill for the production of lumber or lumber products for sale. The operation of a saw mill or planing mill begins with the unloading by the operator of the saw mill or planing mill of logs, timber, pulpwood or other forms of wood material to be used in the saw mill or planing mill.
(10) The milling for sale of flour or meal from grains.
(10.1) The aging, stripping, conditioning, crushing and blending of tobacco leaves for use as cigar filler or as components of smokeless tobacco products for sale to manufacturers of tobacco products.
(11) The publishing of books, newspapers, magazines or other periodicals, printing and broadcasting radio and television programs by licensed commercial or educational stations.
(12) The processing of used lubricating oils.
(13) The blending, rectification or production by distillation or otherwise of alcohol or alcoholic liquors, except the distillation of alcohol from byproducts of winemaking for the sole purpose of fortifying wine.
(14) The salvaging, recycling or reclaiming of used materials to be recycled into a manufacturing process.
(15) The development or substantial modification of computer programs or software for sale to unrelated persons for their direct and independent use.
(16) The cleaning and roasting and the blending, grinding or packaging for sale of coffee from green coffee beans or the production of coffee extract.
(17) The refining, blasting, exploring, mining and quarrying for or otherwise extracting limestone, sand, gravel or slag from the earth or from waste or stock piles or from pits or banks and the cleaning, crushing, grinding, pulverizing, sizing or screening of limestone, sand, gravel or slag, including blast furnace slag.
(18) The preparation of dry or liquid fertilizer for sale.
(19) The production, processing and packaging of ice for wholesale distribution.

"Research and development." The activities relating to the discovery of new and the refinement of known substances, products, processes, theories and ideas, but not including activities directed primarily to the accumulation or analysis of commercial, financial or mercantile data.

"Student loan assets." The term includes the following assets:

(1) Student loan notes.
(2) Federal, State or private subsidies or guarantees of student loans.
(3) Instruments that represent a guarantee of debt, certificates or other securities issued by an entity created for the securitization of student loans or by a trustee on its behalf.
(4) Contract rights to acquire or dispose of student loans and interest rate swap agreements related to student loans.
(5) Interests in or debt obligations of other student loan securitization trusts or entities.
(6) Cash or cash equivalents representing reserve funds or payments on or with respect to student loan notes, the securities issued by an entity created for the securitization of student loans or the other student loan-related assets. Solely for purposes of this definition, "cash or cash equivalents" shall include direct obligations of the United States Department of the Treasury, obligations of Federal agencies which obligations represent the full faith and credit of the United States, investment grade debt obligations or commercial paper, deposit accounts, Federal funds and banker's acceptances, prefunded municipal obligations, money market instruments and money market funds.

"Subsidiary corporation." Any corporation, a majority of the total issued and outstanding shares of voting stock of which are owned by the taxpayer corporation directly or through one or more intervening subsidiary corporations.

(b) It shall be the duty of every domestic and foreign entity to make for each taxable year, as defined in section 401(5) , a written report verified in accordance with the requirements of the department on a form or forms to be prescribed and furnished by it setting forth the information required. The time for filing reports may be extended; the procedure in case the department is not satisfied with the reports for the entity, and the penalties for failing to file reports and pay taxes shall be as prescribed by law.

72 P.S. § 7601

1971, March 4, P.L. 6, No. 2, art. VI, § 601. Amended 1983, Dec. 23, P.L. 360, No. 89, § 1, imd. effective; 1985, July 1, P.L. 78, No. 29, § 10, imd. effective; 1986, July 2, P.L. 318, No. 77, § 7, effective 1/1/1987; 1987, July 13, P.L. 317, No. 58, § 3, imd. effective; 1991, Aug. 4, P.L. 97, No. 22, § 21, imd. effective; 1994, June 16, P.L. 279, No. 48, § 13, effective 7/1/1994; 1995, June 30, P.L. 139, No. 21, § 10, effective 7/1/1995; 1997, May 7, P.L. 85, No. 7, § 15; 1998, April 23, P.L. 239, No. 45, § 9, imd. effective; 1999, May 12, P.L. 26, No. 4, § 10, imd. effective; 2000, May 24, P.L. 106, No. 23, § 6, imd. effective; 2001, June 22, P.L. 353, No. 23, § 13, effective 7/1/2001; 2002, June 29, P.L. 559, No. 89, § 16, effective 7/1/2002; 2003, Dec. 23, P.L. 256, No. 46, § 13, imd. effective; 2005, July 7, P.L. 149, No. 40, § 8, imd. effective; 2006, July 7, P.L. 319, No. 67, § 6, imd. effective; 2009, Oct. 9, P.L. 451, No. 48, § 7.1, imd. effective.