Section 512. Personal income tax.
(a) General rule.--For tax years that begin on or after January 1 of the tax years following the date an economic development district is designated, a resident or person who owns an interest in a qualified pass-through entity or who owns a qualified business which is a sole proprietorship shall be allowed an exemption for:
(1) Net income, except as provided in paragraphs (2) and
(3), from the operation of the qualified business received by
the person which is attributable to business activity
conducted by the qualified business within an economic
development district except that any qualified business which
operates both within and outside this Commonwealth, before
computing its economic development district exemption, shall
first determine its Pennsylvania activity over its activity
everywhere by applying the three-factor apportionment formula
as set forth in Department of Revenue personal income tax
regulations applicable to income apportionment in connection
with a business, trade or profession carried on both within
and outside this Commonwealth.
(2) Net gains or income, less net losses, derived from
the sale, exchange or other disposition of tangible personal
property located within an economic development district, as
determined in accordance with accepted accounting principles
and practices, received by the person which is attributable
to business activity conducted by the qualified business
within the economic development district. The exemption
provided for in this subparagraph shall not apply to the
sale, exchange or other disposition of any stock or goods,
merchandise or inventory or any operational assets unless the
transfer is in connection with the sale, exchange or other
disposition of all of the assets in complete liquidation of a
qualified business located in an economic development
district. The exemption provided for in this paragraph shall
apply to intangible personal property employed in a trade,
profession or business within the economic development
district by the qualified business but only when transferred
in connection with a sale, exchange or other disposition of
all of the assets in complete liquidation of the qualified
business. The exemption provided for in this paragraph shall
be prorated based on the percentage of time, based on
calendar days, the property was held by the person during the
time period the economic development district was in effect
in relation to the total time the property was held.
(3) Net gains or income derived from or in the form of
rents from the rental of tangible personal property which is
allocable to an economic development district received by the
person which is attributable to business activity conducted
by the qualified business within the economic development
district. For purposes of calculating this exemption, all of
the following shall apply:
(i) Net rents derived from tangible personal
property located within the economic development district
are allocable to the economic development district.
(ii) If the tangible personal property was used both
within and outside the economic development district
during the taxable year, only the net rents attributable
to use within the economic development district is
exempt. The net rents shall be multiplied by a fraction,
the numerator of which is the number of days the property
was used within the economic development district and the
denominator of which is the total days of use.
(b) Pass-through.--
(1) A partner or member of a qualified pass-through
entity shall be entitled to the exemptions under this section
for the partner's or member's share, whether or not
distributed, of the income or gain received by the
partnership or association for its taxable year.
(2) A shareholder of a qualified pass-through entity
shall be entitled to the exemptions under this section for
the shareholder's pro rata share, whether or not distributed,
of the income or gain received by the Subchapter S
corporation for its taxable year ending within or with the
shareholder's taxable year.
(c) Limitations.--
(1) No exemption shall be allowed for activities
conducted on the real property prior to designation of the
real property as an economic development district.
(2) A partnership, association, Subchapter S
corporation or person may not carry back or carry forward any
exemption under this section from year to year. The credit
allowed under this section shall not exceed the tax liability
of the person under Article III of the Tax Reform Code of
1971 for the tax year.
(d) Section not applicable to certain entities.--Any portion of net income or gain which is attributable to the operation of a railroad, truck, bus or airline company, pipeline or natural gas company, water transportation company or entity which would qualify as a regulated investment company under Article IV of the Tax Reform Code of 1971 or would qualify as a holding company under Article VI of the Tax Reform Code of 1971 shall not be used to calculate an exemption under this section.