Pennsylvania HB 1703: 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 definitions, providing for elective tax imposed at pass-through entity level and further providing for taxability of partners, for income of a Pennsylvania S corporation and for income taxes imposed by other states.

Bill Text

PRINTER'S NO. 2092
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No. 1703
Session of
2025
INTRODUCED BY GREINER, JAMES, PICKETT, GAYDOS, STENDER, HADDOCK,
MENTZER, ZIMMERMAN AND WARREN, JULY 7, 2025
REFERRED TO COMMITTEE ON FINANCE, JULY 8, 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
and enumerating certain subjects of taxation and imposing
taxes thereon; providing procedures for the payment,
collection, administration and enforcement thereof; providing
for tax credits in certain cases; conferring powers and
imposing duties upon the Department of Revenue, certain
employers, fiduciaries, individuals, persons, corporations
and other entities; prescribing crimes, offenses and
penalties," in personal income tax, further providing for
definitions, providing for elective tax imposed at pass-
through entity level and further providing for taxability of
partners, for income of a Pennsylvania S corporation and for
income taxes imposed by other states.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 301(w) of the act of March 4, 1971
(P.L.6, No.2), known as the Tax Reform Code of 1971, is amended
to read:
Section 301. Definitions.--Any reference in this article to
the Internal Revenue Code of 1986 shall mean the Internal
Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.),
as amended to January 1, 1997, unless the reference contains the
phrase "as amended" and refers to no other date, in which case
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the reference shall be to the Internal Revenue Code of 1986 as
it exists as of the time of application of this article. The
following words, terms and phrases when used in this article
shall have the meaning ascribed to them in this section except
where the context clearly indicates a different meaning:
* * *
(w) "Taxpayer" means any individual, estate or trust subject
to the tax imposed by this article, any partnership having a
partner who is a taxpayer under this act, any Pennsylvania S
corporation having a shareholder who is a taxpayer under this
act [and], any person required to withhold tax under this
article and, unless otherwise provided, a pass-through entity
that elects to pay the tax imposed under section 302.3.
Section 2. The act is amended by adding a section to read:
Section 302.3. Elective Tax Imposed at Pass-Through Entity
Level.--(a) Notwithstanding any other provision of this
article, a pass-through entity may elect, on an annual basis, to
have the tax imposed under this article applied to the income of
the pass-through entity. The following shall apply:
(1) An electing pass-through entity shall be subject to and
shall pay a tax imposed at the rate provided in section 302(b)
on:
(i) Each resident taxable owner's share of each class of
income and gain enumerated in section 303 for the taxable year.
(ii) Each nonresident taxable owner's share of each class of
income and gain enumerated in section 303 from sources within
this Commonwealth for the taxable year.
(2) An electing resident Pennsylvania S corporation shall be
subject to and shall pay a tax imposed at the rate provided in
section 302(b) on each resident taxable owner's share of each
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class of income and gain enumerated in section 303 for the
taxable year.
(3) An electing standard Pennsylvania S corporation shall be
subject to and shall pay a tax imposed at the rate provided in
section 302(b) on each taxable owner's share of each class of
income and gain enumerated in section 303 from sources within
this Commonwealth for the taxable year.
(4) An entity that is disregarded for tax purposes under
this article shall be disregarded for the purposes of this
section.
(5) In determining the pass-through entity's tax under this
section, a pass-through entity that owns a direct or indirect
ownership interest in one or more pass-through entities shall
include the share of each class of income enumerated in section
303 received from those pass-through entities. The pass-through
entity that generates an item of income, gain or loss shall
determine the classification and whether that item of income,
gain or loss constitutes income or loss from sources within this
Commonwealth.
(6) Guaranteed payments made to a partner in a partnership
shall be treated as additional income allocated to the partner.
With respect to a nonresident taxable owner, only guaranteed
payments that constitute income from sources within this
Commonwealth shall be subject to the tax under this section.
(7) In determining the tax due under this section, a pass-
through entity shall not be permitted to use any tax credits
otherwise available to the pass-through entity except a credit
for estimated taxes paid for the current taxable year under this
section or an overpayment o