HB 1129 — 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.

PRIOR PRINTER'S NO.

1258 PRINTER'STHE NO.GENERAL ASSEMBLY OF PENNSYLVANIA HOUSE BILL Session of No.

20651129 THE2025 GENERALINTRODUCED ASSEMBLYBY OFFRIEL, PENNSYLVANIAFRITZ, HOUSEHANBIDGE, BILLPIELLI, SessionGIRAL, VENKAT, SANCHEZ, CEPEDA-FREYTIZ, MALAGARI, DONAHUE, HILL-EVANS, ZIMMERMAN, WEBSTER, GREEN AND BRENNAN, APRIL 4, 2025 REFERRED TO COMMITTEE ON FINANCE, APRIL 4, 2025 AN ACT Amending the act of No.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 collection, administration and enforcement thereof;

1129 2025 INTRODUCED BY FRIEL, FRITZ, HANBIDGE, PIELLI, GIRAL, VENKAT, SANCHEZ, CEPEDA-FREYTIZ, MALAGARI, DONAHUE, HILL-EVANS, ZIMMERMAN, WEBSTER, GREEN AND BRENNAN, APRIL 4, 2025 AS REPORTED FROM COMMITTEE ON FINANCE, HOUSE OF REPRESENTATIVES, AS AMENDED, JULY 1, 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 taxes thereon;

providing procedures for the payment,osing collection, administration and enforcement thereof;

PART IX 20250HB1129PN2065 - 2 - NET OPERATING LOSS TRANSFER PROGRAM 20250HB1129PN1258 - 2 - Section 421.

(1) has headquarters or base of operations located in <-- this Commonwealth;

and DOES(2) BUSINESSis INengaged THISin COMMONWEALTHeither ANDof <--the FILESfollowing: A CORPORATE NET INCOME TAX RETURN UNDER THIS ARTICLE;

AND(i) (2)the isresearch, engageddevelopment, inproduction eitheror provision of biotechnology for the following: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;

(i) the research, development, production or provision(ii) of biotechnology for the purposeprovision of developingservices or providing products ornecessary processes for specificresearch, commercialdevelopment, production or publicthe purposes,provision includingof medical,20250HB1129PN1258 pharmaceutical,- nutritional3 and- othera health-relatedtechnology purposes,or agriculturalbiotechnology purposesbusiness. and environmental 20250HB1129PN2065 - 3 - purposes;

or"Cost." (ii)The expenses incurred in connection with the provisionoperation of servicesan oreligible productsbusiness necessaryin forthis research,Commonwealth, development,including productionthe orexpenses of fixed assets, such as the provisionconstruction, acquisition and development of areal technologyestate, ormaterials, biotechnologystart-up, business.tenant fit-out, working capital and any other expenses determined by the department to be necessary to carry out the purposes of this article.

"Cost." The expenses incurred in connection with the <-- operation of an eligible business in this Commonwealth, including the expenses of fixed assets, such as the construction, acquisition and development of real estate, materials, start-up, tenant fit-out, working capital and any other expenses determined by the department to be necessary to carry out the purposes of this article.

(1) has been in operation in this Commonwealth for no more than five SEVEN years;

and <-- (2) has at least 15% 30% of its total United States <--full- full-timetime employees working in this Commonwealth.

"ELIGIBLE"Fixed NETassets." LOSS."The THEconstruction, AMOUNTacquisition OFand NETdevelopment LOSSof ACCRUEDreal BYestate, Amaterials, <--start-up, SELLINGtenant TAXPAYERfit-out, THATworking WOULDcapital, OTHERWISEsalaries, BEresearch ALLOWABLEand ASdevelopment Aexpenditures DEDUCTIONand FROMany TAXABLEother INCOMEexpenses UNDERdetermined SECTIONby 401(3),the WHICHdepartment THEto SELLINGbe TAXPAYERnecessary ISto ELIGIBLEcarry TOout TRANSFERthe UNDERpurposes THISof PART.the program.

"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 20250HB1129PN2065 - 4 - 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.

(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 20250HB1129PN1258 - 4 - under 26 U.S.C.

"Private financial assistance." The term does not include a <-- loan.

"Selling taxpayer." A taxpayer that is an eligible business and sells tax benefits ELIGIBLE NET LOSSES under this part.

<-- 20250HB1129PN2065 - 5 - "Tax benefit." 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).

"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.

(1) has its headquarters or base of operations in this <-- Commonwealth;

DOES20250HB1129PN1258 BUSINESS- IN5 THIS- COMMONWEALTH(2) ANDowns, FILEShas Afiled <--for CORPORATEor NEThas INCOMEa TAXvalid RETURNlicense UNDERto THISuse ARTICLE;protected, proprietary intellectual property;

(2) owns, has filed for or has a valid license to use protected, proprietary intellectual property;

(a) Establishment.-- (1) The Net Operating Loss Transfer Program is <-- established in the department to allow an eligible business to sell tax benefits for use by purchasing taxpayers.

THE NET <-- 20250HB1129PN2065 - 6 - 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.

(b) Approval of sale of tax benefitsbenefits.-- ELIGIBLE NET LOSSES.-- <-- (1) The department, in consultation with the Department of Revenue, shall review and approve applications by eligible businesses to sell tax benefits in exchange for private <-- financial assistance to be contributed by a purchasing taxpayer in an amount equal to at least 80% of the amount of the tax benefit valuevalue. ELIGIBLE NET LOSSES.

<--20250HB1129PN1258 - 6 - (2) A selling taxpayer's transferable tax benefits <-- 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 tax benefits that the selling taxpayer is eligible <-- to transfertransfer. ELIGIBLE NET LOSSES THAT THE SELLING TAXPAYER MAY <-- TRANSFER UNDER SECTION 427(A).

(3) The department, in consultation with the Department <-- of Revenue, shall establish rules for the repayment of all, or a portion of, an amount equal to the selling price of the 20250HB1129PN2065 - 7 - tax benefit under section 427.

(C)20250HB1129PN1258 APPROVAL- OF7 PURCHASE- OFSection TAX423. BENEFITS.--THE DEPARTMENT, <-- IN CONSULTATION WITH THE DEPARTMENT OF REVENUE, SHALL REVIEW AND APPROVE APPLICATIONS FOR THE PURCHASE OF TAX BENEFITS IN AN AMOUNT EQUAL TO AT LEAST 80% OF THE AMOUNT OF THE TAX BENEFIT THAT THE PURCHASING TAXPAYER REQUESTS TO RECEIVE.

(D)Authorization DISTRIBUTIONto OFapprove TAXcertain BENEFITStransfers ANDof EXCHANGEtax FUNDS.--THEbenefits. DEPARTMENT SHALL RATABLY DISTRIBUTE TAX BENEFITS AND EXCHANGE FUNDS BASED ON THE AMOUNT OF ELIGIBLE NET LOSSES APPROVED FOR 20250HB1129PN2065 - 8 - SALE AND THE AMOUNT COMMITTED BY PURCHASING TAXPAYERS DURING A TAXABLE YEAR.

SectionThe 423.department, in consultation with the Department of Revenue, shall approve the sale of tax benefits, subject to section 427.

Authorization to approve certain transfers of tax <-- benefits SALE OF ELIGIBLE NET LOSSES.

<-- The department, in consultation with the Department of Revenue, shall approve the sale of tax benefits ELIGIBLE NET <-- LOSSES, subject to section 427.

(2) Has tax benefits that the selling taxpayer is <-- eligible to sellsell. ELIGIBLE NET LOSSES.

<-- (3) Has no positive net operating income for the past two years.

(5) CERTIFIES THAT, AS OF THE DATE OF THE APPLICATION, <-- THE APPLICANT IS OPERATING AS AN ELIGIBLE BUSINESS AND HAS NO 20250HB1129PN2065 - 9 - CURRENT INTENTION TO CEASE OPERATING AS AN ELIGIBLE BUSINESS.

(a) Fee.--An application submitted by a selling taxpayer or a purchasing taxpayer shall be accompanied by a nonrefundable $2,500 $3,500 application fee.