SB 722 — An Act amending the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971, in personal income tax, further providing for classes of income.

PRINTER'S NO.   737

                     THE GENERAL ASSEMBLY OF PENNSYLVANIA



                        SENATE BILL
                        No. 722
                                                   Session of
                                                     2025

     INTRODUCED BY J. WARD, ROTHMAN, BARTOLOTTA, BROOKS, LAUGHLIN,
        COLEMAN, PHILLIPS-HILL, PENNYCUICK, HUTCHINSON, BROWN,
        MILLER, BAKER, DUSH, STEFANO AND ROBINSON, MAY 5, 2025

     REFERRED TO FINANCE, MAY 5, 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 personal income tax, further providing for
11      classes of income.
12      The General Assembly of the Commonwealth of Pennsylvania
13   hereby enacts as follows:
14      Section 1.    Section 303(a)(2) of the act of March 4, 1971
15   (P.L.6, No.2), known as the Tax Reform Code of 1971, is amended
16   to read:
17      Section 303.     Classes of Income.--(a)     The classes of income
18   referred to above are as follows:
19      * * *
20      (2)     Net profits. The net income from the operation of a
21   business, profession, or other activity, after provision for all
22   costs and expenses incurred in the conduct thereof, determined
 1   either on a cash or accrual basis in accordance with accepted
 2   accounting principles and practices but without deduction of
 3   taxes based on income. For purposes of calculating net income
 4   under this paragraph, to the extent a taxpayer properly deducts
 5   an amount under [section 195(b)(1)(A) of the Internal Revenue
 6   Code of 1986 (26 U.S.C. § 195(b)(1)(A))] 26 U.S.C. § 195(b)(1)
 7   (A) (relating to start-up expenditures), as amended, and the
 8   regulations promulgated [under section 195(b)(1)(A) of the
 9   Internal Revenue Code of 1986] thereunder, the taxpayer shall be
10   permitted a deduction in equal amount in the same taxable year.
11   The following apply:
12      (i)     Net profits from this class of income, if any, shall be
13   determined after adding the net profits from all businesses,
14   including small businesses. For purposes of calculating net
15   profits under this subparagraph:
16      (A)     Net loss from non-small businesses shall be netted
17   against net profits from other non-small businesses.
18      (B)     Net loss from small businesses shall be netted against
19   net profits from other small businesses after netting against
20   any net profits determined in clause (A).
21      (ii)     The excess of the amount of net loss for a taxable year
22   for small businesses determined in subparagraph (i)(B) after
23   netting against any net profits determined in subparagraph (i)
24   (A) shall carry over for twenty taxable years. In a subsequent
25   taxable year, the net loss carryover shall be applied against
26   any profits resulting from netting the net profits and net
27   losses of non-small and small businesses in subparagraph (i)(A)
28   and (B).
29      (iii)     Unused net loss carryovers shall expire after twenty
30   years.

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 1      (iv)    In determining whether there is a net loss carryover,
 2   and in applying the net loss carry-over provisions, the net
 3   profits and net losses of spouses who file a joint return shall
 4   not be combined.
 5      (v)    Unless treated differently for Federal income tax
 6   purposes, if an interest in a business is jointly owned, each
 7   taxpayer is deemed to own an equal share in the profits, losses,
 8   gains and capital for purposes of applying this paragraph.
 9      (vi)    Upon the death, liquidation, dissolution, winding up or
10   other termination of a taxpayer, a net loss carryover shall
11   expire and shall not transfer to another taxpayer.
12      (vii)   For purposes of this paragraph, the term "small
13   business" means an interest in an operating trade or business
14   entity, the principal purpose of which is not the management of
15   investments or income-producing assets owned by an entity which
16   has employed an average of less than fifty full-time equivalent
17   employes, and a net book value of assets totaling less than five
18   million dollars ($5,000,000) as of December 31 of the taxable
19   year in which the net operating loss arose, and which is
20   directly or indirectly owned by fewer than ten proprietors,
21   partners or shareholders. The rules in 26 U.S.C. § 318 (relating
22   to constructive ownership of stock) shall be used to determine
23   whether the small business is owned by fewer than ten persons.
24   In applying 26 U.S.C. § 318, a reference to "stock" shall mean
25   any interest in a small or non-small business, except for 26
26   U.S.C. § 318(a)(2)(C) and (3)(C).
27      * * *
28      Section 2.   The amendment of section 303(a)(2) of the act
29   shall apply to tax years beginning after December 31, 2024.
30      Section 3.   This act shall take effect immediately.

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