SB 656 — 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, 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.

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
 1   Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
 2      act relating to tax reform and State taxation by codifying
 3      and enumerating certain subjects of taxation and imposing
 4      taxes thereon; providing procedures for the payment,
 5      collection, administration and enforcement thereof; providing
 6      for tax credits in certain cases; conferring powers and
 7      imposing duties upon the Department of Revenue, certain
 8      employers, fiduciaries, individuals, persons, corporations
 9      and other entities; prescribing crimes, offenses and
10      penalties," in corporate net income tax, further providing
11      for definitions, for reports and payment of tax and for
12      consolidated reports; and, in general provisions, further
13      providing for underpayment of estimated tax.
14      The General Assembly of the Commonwealth of Pennsylvania
15   hereby enacts as follows:
16      Section 1.    Section 401(3)1(a), (b) and (t) and (5) of the
17   act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code
18   of 1971, are amended, (3)2(a)(9)(A) is amended by adding a unit,
19   (3)1 and (3)4 are amended by adding phrases and the section is
20   amended by adding clauses to read:
21      Section 401.    Definitions.--The following words, terms, and
22   phrases, when used in this article, shall have the meaning
23   ascribed to them in this section, except where the context
 1   clearly indicates a different meaning:
 2      * * *
 3      (3)   "Taxable income."   1.    (a)    In case the entire business
 4   of the corporation is transacted within this Commonwealth, for
 5   any taxable year which begins on or after January 1, 1971,
 6   taxable income for the calendar year or fiscal year as returned
 7   to and ascertained by the Federal Government before special
 8   deductions provided for in 26 U.S.C. Ch. 1 Subch. B Pt. VIII
 9   (relating to special deductions for corporations), or in the
10   case of a corporation participating in the filing of
11   consolidated returns to the Federal Government or that is not
12   required to file a return with the Federal Government, the
13   taxable income which would have been returned to and ascertained
14   by the Federal Government before special deductions provided for
15   in 26 U.S.C. Ch. 1 Subch. B Pt. VIII if separate returns had
16   been made to the Federal Government for the current and prior
17   taxable years, subject, however, to any correction thereof, for
18   fraud, evasion, or error as finally ascertained by the Federal
19   Government.
20      (b)   Additional deductions shall be allowed from taxable
21   income on account of any dividends received from any other
22   corporation but only to the extent that such dividends are
23   included in taxable income as returned to and ascertained by the
24   Federal Government. For tax years beginning on or after January
25   1, 1991, additional deductions shall only be allowed for amounts
26   included, under section 78 of the Internal Revenue Code of 1986
27   (Public Law 99-514, 26 U.S.C. § 78), in taxable income returned
28   to and ascertained by the Federal Government and for the amount
29   of any dividends received from a foreign corporation included in
30   taxable income to the extent such dividends would be deductible

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 1   in arriving at Federal taxable income if received from a
 2   domestic corporation. For taxable years beginning after December
 3   31, 2025, the additional deduction with respect to dividends
 4   shall not be allowed for dividends between members of a unitary
 5   group.
 6      * * *
 7      (p.1)   For taxable years after December 31, 2025, in the case
 8   of a corporation that is a member of a unitary business, the
 9   term "taxable income" shall mean the combined unitary income of
10   the unitary business, as determined on a water's-edge basis.
11      * * *
12      (t)   (1)   Except as provided in paragraph (2), (3) or (4) for
13   taxable years beginning after December 31, 2014, and in addition
14   to any authority the department has on the effective date of
15   this paragraph to deny a deduction related to a fraudulent or
16   sham transaction, no deduction shall be allowed for an
17   intangible expense or cost, or an interest expense or cost,
18   paid, accrued or incurred directly or indirectly in connection
19   with one or more transactions with an affiliated entity. In
20   calculating taxable income under this paragraph, when the
21   taxpayer is engaged in one or more transactions with an
22   affiliated entity that was subject to tax in this Commonwealth
23   or another state or possession of the United States on a tax
24   base that included the intangible expense or cost, or the
25   interest expense or cost, paid, accrued or incurred by the
26   taxpayer, the taxpayer shall receive a credit against tax due in
27   this Commonwealth in an amount equal to the apportionment factor
28   of the taxpayer in this Commonwealth multiplied by the greater
29   of the following:
30      (A)   the tax liability of the affiliated entity with respect

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 1   to the portion of its income representing the intangible expense
 2   or cost, or the interest expense or cost, paid, accrued or
 3   incurred by the taxpayer; or
 4      (B)   the tax liability that would have been paid by the
 5   affiliated entity under subparagraph (A) if that tax liability
 6   had not been offset by a credit.
 7   The credit issued under this paragraph shall not exceed the
 8   taxpayer's liability in this Commonwealth attributable to the
 9   net income taxed as a result of the adjustment required by this
10   paragraph.
11      (2)   The adjustment required by paragraph (1) shall not apply
12   to a transaction that did not have as [the] a principal purpose
13   the avoidance of tax due under this article and was done at
14   arm's length rates and terms.
15      (3)   The adjustment required by paragraph (1) shall not apply
16   to a transaction between a taxpayer and an affiliated entity
17   domiciled in a foreign nation which has in force a comprehensive
18   income tax treaty with the United States providing for the
19   allocation of all categories of income subject to taxation, or
20   the withholding of tax, on royalties, licenses, fees and
21   interest for the prevention of double taxation of the respective
22   nations' residents and the sharing of information.
23      (4)   The adjustment required by paragraph (1) shall not apply
24   to a transaction where an affiliated entity directly or
25   indirectly paid, accrued or incurred a payment to a person who
26   is not an affiliated entity, if the payment is paid, accrued or
27   incurred on the intangible expense or cost, or interest expense
28   or cost, and is equal to or less than the taxpayer's
29   proportional share of the transaction. The taxpayer's
30   proportional share shall be based on relative sales, assets,

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 1   liabilities or another reasonable method.
 2      (5)     The adjustment required under paragraph (1) shall not
 3   apply to a transaction between the taxpayer and an affiliated
 4   entity, where the taxpayer and the affiliated entity file a
 5   combined annual report in this State.
 6      2.    In case the entire business of any corporation, other
 7   than a corporation engaged in doing business as a regulated
 8   investment company as defined by the Internal Revenue Code of
 9   1986, is not transacted within this Commonwealth, the tax
10   imposed by this article shall be based upon such portion of the
11   taxable income of such corporation for the fiscal or calendar
12   year, as defined in subclause 1 hereof, and may be determined as
13   follows:
14      (a)     Division of Income.
15      * * *
16      (9)     (A)    Except as provided in subparagraph (B):
17      * * *
18      (vi)     (a)   For taxable years beginning after December 31,
19   2025, all business income of a unitary business shall be
20   apportioned to this State by multiplying the income by the
21   member's sales factor, the numerator of which shall be the
22   member's total sales in this State, and the denominator of which
23   shall be the combined total sales of all members of the unitary
24   business everywhere. In computing the sales of each member for
25   purposes of apportionment, the following sales are excluded from
26   the numerator and denominator:
27      (I)     sales from transactions between or among members of the
28   unitary business that are deferred under 26 CFR 1.1502-13
29   (relating to intercompany transactions) for Federal taxable
30   income purposes; and

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 1      (II)   the sales of each member that are excluded from the
 2   unitary business pursuant to the definition of water's-edge
 3   basis.
 4      (b)    The Pennsylvania sales of each nontaxable member shall
 5   be determined based upon the apportionment rules applicable to
 6   the member and shall be aggregated. Each taxable member of the
 7   group shall include in its sales factor numerator a portion of
 8   the aggregate Pennsylvania sales of nontaxable members based on
 9   a ratio, the numerator of which is the taxable member's
10   Pennsylvania sales and the denominator of which is the aggregate
11   Pennsylvania sales of all the taxable members of the group.
12      (c)    Nonbusiness income of each member of a unitary business
13   shall be allocated as provided in paragraphs (5) through (8) of
14   phrase (a) of subclause 2 of this definition. A member of the
15   unitary business is subject to tax on its apportioned share of
16   all business income of the unitary business, plus its
17   nonbusiness income or loss allocated to this State, minus the
18   member's net loss deduction.
19      (d)    The Secretary of Revenue has the authority to
20   distribute, apportion or allocate gross income, deductions,
21   credits or allowances between and among two or more
22   corporations, persons, entities, members or unitary businesses,
23   whether or not incorporated, whether or not organized in the
24   United States and whether or not affiliated, if:
25      (I)    the corporations, persons, entities, members or unitary
26   businesses are owned or controlled directly or indirectly by the
27   same interests within the meaning of 26 U.S.C. § 482 (relating
28   to allocation of income and deductions among taxpayers); and
29      (II)   the Secretary of Revenue determines that the
30   distribution, apportionment or allocation is necessary in order

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 1   to reflect an arm's length standard within the meaning of 26 CFR
 2   1.482-1 (relating to allocation of income and deductions among
 3   taxpayers) and to reflect clearly the income of those
 4   corporations, persons, entities, members or unitary businesses.
 5      (e)    The Secretary of Revenue shall apply the administrative
 6   and judicial interpretations of 26 U.S.C. § 482 in administering
 7   this section.
 8      (f)    For taxable years beginning after December 31, 2025, any
 9   member of a unitary group that would otherwise apportion its
10   business income under phrase (b), (c), (d) or (e) of subclause 2
11   of this definition shall determine its apportionment formula
12   using a single sales fraction.
13      * * *
14      4.    * * *
15      (h)    Subject to the limitations of this subclause, any member
16   of a unitary business that has unused net loss from taxable
17   years that began prior to January 1, 2026, or that generates net
18   losses while a member of a unitary business may only take the
19   net loss deduction for taxable years beginning after December
20   31, 2025, to the extent of the member's share of combined
21   unitary income after apportionment and the net losses may not be
22   used by other members of the same unitary business.
23      (i)    Any net loss realized for a taxable year unused by a
24   corporation which subsequently becomes a member of another
25   unitary business, may only be used by that corporation.
26      * * *
27      (5)    "Taxable year."   [The taxable year which the
28   corporation, or any consolidated group with which the
29   corporation participates in the filing of consolidated returns,
30   actually uses in reporting taxable income to the Federal

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 1   Government. With regard to the tax imposed by Article IV of this
 2   act (relating to the Corporate Net Income Tax), the terms
 3   "annual year," "fiscal year," "annual or fiscal year," "tax
 4   year" and "tax period" shall be the same as the corporation's
 5   taxable year, as defined in this paragraph.]
 6      1.   Except as set forth in subclause 2, the taxable year
 7   which the corporation, or any consolidated group with which the
 8   corporation participates in the filing of consolidated returns,
 9   actually uses in reporting taxable income to the Federal
10   Government, or which the corporation would have used in
11   reporting taxable income to the Federal Government had it been
12   required to report its taxable income to the Federal Government.
13   With regard to the tax imposed by Article IV, the terms "annual
14   year," "fiscal year," "annual or fiscal year," "tax year" and
15   "tax period" shall be the same as the corporation's taxable
16   year, as defined in this subclause or subclause 2.
17      2.   All members of a unitary business shall have a common
18   taxable year for purposes of computing tax due under this
19   article. The taxable year for such purposes is the common
20   taxable year adopted, in a manner prescribed by the department,
21   by all members of the unitary business. The common taxable year
22   must be used by all members of the unitary business in the year
23   of adoption and all future years unless otherwise permitted by
24   the department.
25      * * *
26      (12)    "Tax haven."   Means any of the following:
27      1.   Andorra.
28      2.   Anguilla.
29      3.   Antigua and Barbuda.
30      4.   Aruba.

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 1    5.    The Bahamas.
 2    6.    Bahrain.
 3    7.    Barbados.
 4    8.    Belize.
 5    9.    Bermuda.
 6    10.    The British Virgin Islands.
 7    11.    The Cayman Islands.
 8    12.    The Cook Islands.
 9    13.    Cyprus.
10    14.    Dominica.
11    15.    Gibraltar.
12    16.    Grenada.
13    17.    Guernsey-Sark-Alderney.
14    18.    The Isle of Man.
15    19.    Jersey.
16    20.    Liberia.
17    21.    Liechtenstein.
18    22.    Luxembourg.
19    23.    Malta.
20    24.    The Marshall Islands.
21    25.    Mauritius.
22    26.    Monaco.
23    27.    Montserrat.
24    28.    Nauru.
25    29.    Netherlands Antilles.
26    30.    Niue.
27    31.    Panama.
28    32.    Samoa.
29    33.    San Marino.
30    34.    Seychelles.

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 1      35.    St. Kitts and Nevis.
 2      36.    St. Lucia.
 3      37.    St. Vincent and the Grenadines.
 4      38.    Turks and Caicos Islands.
 5      39.    Vanuatu.
 6      40.    A jurisdiction that is identified as a tax haven by the
 7   Organization for Economic Co-operation and Development.
 8      (13)    "Unitary business."    A single economic enterprise that
 9   is made up of separate parts of a single corporation, of a
10   commonly controlled group of corporations, or both, that are
11   sufficiently interdependent, integrated and interrelated through
12   their activities so as to provide a synergy and mutual benefit
13   that produces a sharing or exchange of value among them and a
14   flow of value to the separate parts. A unitary business includes
15   all those parts and corporations that are included in a unitary
16   business under the Constitution of the United States.
17      (14)    "Water's-edge basis."    A system of reporting that
18   includes the income and apportionment factors of certain members
19   of a unitary business, described as follows:
20      1.    Any member incorporated in the United States or formed
21   under the laws of any state of the United States, the District
22   of Columbia, any territory or possession of the United States or
23   the Commonwealth of Puerto Rico.
24      2.    Any member, regardless of the place incorporated or
25   formed, if at least twenty per cent of the member's sales factor
26   is within the United States, and the following shall apply:
27      (a)    For purposes of determining whether at least twenty per
28   cent of a member's sales factor is within the United States, the
29   calculation must be performed on a stand-alone basis. Sales
30   shall be gross figures without eliminations for transactions

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 1   with other members of any unitary business.
 2      (b)    Whether sales are within the United States is based on
 3   the sales factor sourcing rules contained in section 401(3).
 4      3.    Any member which is one of the following:
 5      (a)    A domestic international sales corporation as described
 6   in 26 U.S.C. Ch. 1 Subch. N Pt. IV Subpt. A (relating to
 7   treatment of qualifying corporations).
 8      (b)    A foreign sales corporation as described in the former
 9   26 U.S.C. §§ 921, 922, 923, 924, 925, 926 and 927.
10      (c)    An export trade corporation as described in 26 U.S.C.
11   Ch. 1 Subch. N Pt. III Subpt. G (relating to export trade
12   corporations).
13      4.    Any member not described in subparagraph (i), (ii) or
14   (iii) shall include the portion of the member's taxable income
15   derived from or attributable to sources within the United
16   States, as determined under 26 U.S.C. (relating to Internal
17   Revenue Code) without regard to Federal treaties, and its
18   apportionment factors related thereto.
19      5.    Any member that is a "controlled foreign corporation" as
20   defined in 26 U.S.C. § 957 (relating to controlled foreign
21   corporations; United States persons), to the extent the income
22   of that member is income defined in 26 U.S.C. § 952 (relating to
23   Subpart F income defined) as Subpart F income, not excluding
24   lower-tier subsidiaries' distributions of such income which were
25   previously taxed, determined without regard to Federal treaties,
26   and the apportionment factors related to that income, any item
27   of income received by a controlled foreign corporation and the
28   apportionment factors related to such income shall be excluded
29   if the corporation establishes to the satisfaction of the
30   Secretary of Revenue that such income was subject to an

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 1   effective rate of income tax imposed by a foreign country
 2   greater than ninety per cent of the maximum rate of tax
 3   specified in 26 U.S.C. § 11 (relating to tax imposed). The
 4   effective rate of income tax determination shall be based upon
 5   the methodology set forth under 26 CFR 1.954-1 (relating to
 6   foreign base company income).
 7      6.   Any member that is incorporated in or is doing business
 8   in a tax haven. The income and apportionment factors of a member
 9   doing business in a tax haven shall be excluded if the member
10   establishes to the satisfaction of the Secretary of Revenue that
11   the member's income was subject to an effective rate of income
12   tax imposed by a country greater than ninety per cent of the
13   maximum rate of tax specified in 26 U.S.C. § 11.
14      (15)    "Commonly controlled group."    For a corporation, the
15   corporation is a member of a group of two or more corporations
16   and more than fifty per cent of the voting stock or controlling
17   interest of each member of the group is directly or indirectly
18   owned by a common owner or by common owners, either corporate or
19   noncorporate, or by one or more of the member corporations of
20   the group.
21      (16)    "Combined unitary income."    The aggregate taxable
22   income or loss of all members of a unitary business, subject to
23   apportionment, except:
24      1.   Income from an intercompany transaction between members
25   of a unitary business shall be deferred in a manner similar to
26   26 CFR 1.1502-13 (relating to intercompany transactions) for
27   Federal taxable income purposes.
28      2.   Dividends paid by one member of a unitary business to
29   another.
30      3.   Income of the following members is not included in the

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 1   determination of combined unitary income:
 2        (a)    any member subject to taxation under Article VII, VIII,
 3   IX or XV;
 4        (b)    any member specified in the definition of "institution"
 5   in section 701.5 that would be subject to taxation under Article
 6   VII, were it doing business in this State, as defined in section
 7   701.5;
 8        (c)    any member commonly known as a title insurance company
 9   that would be subject to taxation under Article VIII, were it
10   incorporated in this State;
11        (d)    any member specified as an insurance company,
12   association or exchange in Article IX that would be subject to
13   taxation under Article IX, were it transacting insurance
14   business in this State;
15        (e)    any member specified in the definition of "institution"
16   in section 1501 that would be subject to taxation under Article
17   XV, were it located, as defined in section 1501, in this State;
18   or
19        (f)    any member that is a small corporation as defined in
20   section 301(s.2) except to the extent of such small
21   corporation's net recognized built-in gain to the extent of and
22   as determined for Federal income tax purposes under 26 U.S.C. §
23   1374(d)(2) (relating to tax imposed on certain built-in gains).
24        (17)    "Member."   A corporation that is a member of a unitary
25   business. The term does not include a corporation listed in
26   clause (16)3.
27        Section 2.     Section 403 of the act is amended by adding
28   subsections to read:
29        Section 403.    Reports and Payment of Tax.--* * *
30        (a.1)    (1)   Each corporation that is a member of a unitary

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 1   business that consists of two or more corporations, unless
 2   excluded by the provisions of this article, shall file as part
 3   of a combined annual report. The member of the unitary business
 4   shall designate one member that is subject to tax under this
 5   article to file the combined annual report and to act as agent
 6   on behalf of all other members of the unitary business. Each
 7   corporation that is a member of a unitary business is liable for
 8   its tax liability under this article. The agent is also liable
 9   for the aggregate amount of the unitary business' tax liability
10   pursuant to this article.
11      (2)     The oath or affirmation of the designated member's
12   president, vice president, treasurer, assistant treasurer or
13   other authorized officer shall constitute the oath or
14   affirmation of each corporation that is a member of that unitary
15   business.
16      (3)     The designated member shall transmit to the department
17   upon a form prescribed by the department a combined annual
18   report under oath or affirmation of the member's president, vice
19   president, treasurer, assistant treasurer or other authorized
20   officer.
21      (4)     In addition to the information required in subsection
22   (a), the combined annual report shall set forth:
23      (i)     All members included in the unitary business.
24      (ii)     All necessary data, both in the aggregate and for each
25   member of the unitary business, that sets forth the
26   determination of tax liability for each member of the unitary
27   business.
28      (iii)     Any other information that the department may require.
29      (a.2)     A member of a unitary business of two or more
30   corporations must determine the member's income and

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 1   apportionment factors on a water's-edge basis.
 2      * * *
 3      Section 3.     Section 404 of the act is amended to read:
 4      Section 404.    Consolidated Reports.--The department shall not
 5   permit any corporation owning or controlling, directly or
 6   indirectly, any of the voting capital stock of another
 7   corporation or of other corporations, subject to the provisions
 8   of this article, to make a consolidated report[, showing the
 9   combined net income].
10      Section 4.     Section 3003.3(d) of the act is amended and the
11   section is amended by adding a subsection to read:
12      Section 3003.3.    Underpayment of Estimated Tax.--* * *
13      (d)   Notwithstanding the provisions of [the preceding
14   subsections,] this section, other than as set forth in
15   subsection (d.1), interest with respect to any underpayment of
16   any installment of estimated tax shall not be imposed if the
17   total amount of all payments of estimated tax made on or before
18   the last date prescribed for the payment of such installment
19   equals or exceeds the amount which would have been required to
20   be paid on or before such date if the estimated tax were an
21   amount equal to the tax computed at the rates applicable to the
22   taxable year, including any minimum tax imposed, but otherwise
23   on the basis of the facts shown on the report of the taxpayer
24   for, and the law applicable to, the safe harbor base year,
25   adjusted for any changes to sections 401, 601, 602 and 1101
26   enacted for the taxable year, if a report showing a liability
27   for tax was filed by the taxpayer for the safe harbor base year.
28   If the total amount of all payments of estimated tax made on or
29   before the last date prescribed for the payment of such
30   installment does not equal or exceed the amount required to be

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 1   paid per the preceding sentence, but such amount is paid after
 2   the date the installment was required to be paid, then the
 3   period of underpayment shall run from the date the installment
 4   was required to be paid to the date the amount required to be
 5   paid per the preceding sentence is paid. Provided, that if the
 6   total tax for the safe harbor base year exceeds the tax shown on
 7   such report by ten per cent or more, the total tax adjusted to
 8   reflect the current tax rate shall be used for purposes of this
 9   subsection. In the event that the total tax for the safe harbor
10   base year exceeds the tax shown on the report by ten per cent or
11   more, interest resulting from the utilization of such total tax
12   in the application of the provisions of this subsection shall
13   not be imposed if, within forty-five days of the mailing date of
14   each assessment, payments are made such that the total amount of
15   all payments of estimated tax equals or exceeds the amount which
16   would have been required to be paid on or before such date if
17   the estimated tax were an amount equal to the total tax adjusted
18   to reflect the current tax rate. In any case in which the
19   taxable year for which an underpayment of estimated tax may
20   exist is a short taxable year, in determining the tax shown on
21   the report or the total tax for the safe harbor base year, the
22   tax will be reduced by multiplying it by the ratio of the number
23   of installment payments made in the short taxable year to the
24   number of installment payments required to be made for the full
25   taxable year.
26      (d.1)   With respect to any underpayment of an installment of
27   estimated corporate net income tax for any tax year that begins
28   in taxable year 2025 or 2026 by a corporation required to file a
29   combined annual report pursuant to section 403(a.1)(1), interest
30   shall not be imposed if the total amount of all payments of

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 1   estimated corporate net income tax made on or before the last
 2   date prescribed for the payment of such installment equals or
 3   exceeds the amount which would have been required to be paid on
 4   or before such date if the estimated tax were an amount equal to
 5   the combined tax shown on the reports of all the members of the
 6   unitary business for the safe harbor base year computed at the
 7   rate applicable to the taxable year.
 8      Section 5.   The amendment of sections 401, 403, 404 and
 9   3003.3 of the act shall apply to taxable years beginning after
10   December 31, 2025.
11      Section 6.   This act shall take effect immediately.




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