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.

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
 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      definitions, providing for elective tax imposed at pass-
12      through entity level and further providing for taxability of
13      partners, for income of a Pennsylvania S corporation and for
14      income taxes imposed by other states.
15      The General Assembly of the Commonwealth of Pennsylvania
16   hereby enacts as follows:
17      Section 1.    Section 301(w) of the act of March 4, 1971
18   (P.L.6, No.2), known as the Tax Reform Code of 1971, is amended
19   to read:
20      Section 301.    Definitions.--Any reference in this article to
21   the Internal Revenue Code of 1986 shall mean the Internal
22   Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.),
23   as amended to January 1, 1997, unless the reference contains the
24   phrase "as amended" and refers to no other date, in which case
 1   the reference shall be to the Internal Revenue Code of 1986 as
 2   it exists as of the time of application of this article. The
 3   following words, terms and phrases when used in this article
 4   shall have the meaning ascribed to them in this section except
 5   where the context clearly indicates a different meaning:
 6         * * *
 7         (w)    "Taxpayer" means any individual, estate or trust subject
 8   to the tax imposed by this article, any partnership having a
 9   partner who is a taxpayer under this act, any Pennsylvania S
10   corporation having a shareholder who is a taxpayer under this
11   act [and], any person required to withhold tax under this
12   article and, unless otherwise provided, a pass-through entity
13   that elects to pay the tax imposed under section 302.3.
14         Section 2.    The act is amended by adding a section to read:
15         Section 302.3.    Elective Tax Imposed at Pass-Through Entity
16   Level.--(a)      Notwithstanding any other provision of this
17   article, a pass-through entity may elect, on an annual basis, to
18   have the tax imposed under this article applied to the income of
19   the pass-through entity. The following shall apply:
20         (1)    An electing pass-through entity shall be subject to and
21   shall pay a tax imposed at the rate provided in section 302(b)
22   on:
23         (i)    Each resident taxable owner's share of each class of
24   income and gain enumerated in section 303 for the taxable year.
25         (ii)    Each nonresident taxable owner's share of each class of
26   income and gain enumerated in section 303 from sources within
27   this Commonwealth for the taxable year.
28         (2)    An electing resident Pennsylvania S corporation shall be
29   subject to and shall pay a tax imposed at the rate provided in
30   section 302(b) on each resident taxable owner's share of each

20250HB1703PN2092                      - 2 -
 1   class of income and gain enumerated in section 303 for the
 2   taxable year.
 3      (3)     An electing standard Pennsylvania S corporation shall be
 4   subject to and shall pay a tax imposed at the rate provided in
 5   section 302(b) on each taxable owner's share of each class of
 6   income and gain enumerated in section 303 from sources within
 7   this Commonwealth for the taxable year.
 8      (4)     An entity that is disregarded for tax purposes under
 9   this article shall be disregarded for the purposes of this
10   section.
11      (5)     In determining the pass-through entity's tax under this
12   section, a pass-through entity that owns a direct or indirect
13   ownership interest in one or more pass-through entities shall
14   include the share of each class of income enumerated in section
15   303 received from those pass-through entities. The pass-through
16   entity that generates an item of income, gain or loss shall
17   determine the classification and whether that item of income,
18   gain or loss constitutes income or loss from sources within this
19   Commonwealth.
20      (6)     Guaranteed payments made to a partner in a partnership
21   shall be treated as additional income allocated to the partner.
22   With respect to a nonresident taxable owner, only guaranteed
23   payments that constitute income from sources within this
24   Commonwealth shall be subject to the tax under this section.
25      (7)     In determining the tax due under this section, a pass-
26   through entity shall not be permitted to use any tax credits
27   otherwise available to the pass-through entity except a credit
28   for estimated taxes paid for the current taxable year under this
29   section or an overpayment of a prior-year tax paid under this
30   section.

20250HB1703PN2092                    - 3 -
 1      (b)   (1)   Any election described under subsection (a) shall
 2   be made by an individual with authority to bind the pass-through
 3   entity or sign returns under this article or who is authorized
 4   to make the election and represents to having the authorization
 5   under penalty of perjury on or before the fifteenth day of the
 6   fourth month of the pass-through entity's taxable year in a
 7   manner prescribed by the department.
 8      (2)   In instances where a pass-through entity does not have
 9   either a resident individual, estate or trust as a partner,
10   member, shareholder or beneficiary, or income or loss from
11   sources within this Commonwealth as of the fifteenth day of the
12   fourth month of the pass-through entity's taxable year, the
13   pass-through entity may make an election no later than ninety
14   days from the date the pass-through entity meets the
15   requirements specified under section 335(c)(1) to file a return,
16   or the last day of the pass-through entity's taxable year,
17   whichever is earlier. For the purpose of determining the filing
18   requirements of a pass-through entity under this clause, the
19   reference to partnership in section 335(c)(1) shall include a
20   Pennsylvania S corporation.
21      (3)   An election under this section shall take effect for the
22   taxable year in which the election is submitted to the
23   department. Only one election may be submitted by an individual
24   identified under clause (1) on behalf of the pass-through entity
25   to the department for the taxable year.
26      (4)   An election made under this section shall be irrevocable
27   for the taxable year.
28      (5)   An election under this section may be made only for tax
29   years that the limitation on individual deductions applies under
30   26 U.S.C. § 164(b)(6) (relating to taxes).

20250HB1703PN2092                   - 4 -
 1      (c)   (1)    A taxable owner of an interest in a pass-through
 2   entity that elects to pay tax under subsection (a) shall be
 3   allowed a refundable credit against the tax imposed under
 4   section 302 in the amount of the taxable owner's share of the
 5   tax that the pass-through entity actually paid under this
 6   section. A taxable owner's share of the tax shall take into
 7   account guaranteed payments and other special allocations made
 8   to the owner.
 9      (2)   A taxable owner shall be entitled to claim the credit
10   under clause (1) on the taxable owner's tax return that includes
11   the last day of the taxable year of the pass-through entity.
12      (3)   The credit allowed under this subsection shall be
13   applied after the application of all other tax credits available
14   to the owner for the taxable year. If the amount of the credit
15   allowable under this subsection for any taxable year exceeds the
16   tax due for the year under this article, the excess amount shall
17   be treated as an overpayment, to be credited or refunded.
18      (4)   No credit shall be allowed to a taxable owner under
19   clause (1) unless the electing pass-through entity paid the tax
20   imposed under this article and provides the department on the
21   tax return all the information required in subsection (e)(2) and
22   (3).
23      (5)   The aggregate amount of credits claimed by all taxable
24   owners of a pass-through entity under clause (1) may not exceed
25   the tax that the pass-through entity paid under subsection (a)
26   for the taxable year.
27      (d)   A pass-through entity that elects to pay tax under
28   subsection (a) shall be required to make estimated tax payments
29   in four equal installments on or before the fifteenth day of the
30   fourth, sixth and ninth month of the pass-through entity's

20250HB1703PN2092                    - 5 -
 1   taxable year, and the fifteenth day of the first month of the
 2   pass-through entity's subsequent taxable year.
 3      (e)    (1)   On or before the date provided under section
 4   330(a), each pass-through entity that elects to pay tax under
 5   subsection (a) shall file a return for the taxable year
 6   reporting the information required under this article.
 7      (2)    The return filed under clause (1) shall include, in a
 8   format as prescribed by the department, a certification by an
 9   individual authorized to act on behalf of the pass-through
10   entity, which includes the following:
11      (i)    A timely, valid election to be subject to the tax under
12   this article and whether a Pennsylvania S corporation is
13   electing to be treated as a resident Pennsylvania S corporation
14   or standard Pennsylvania S corporation.
15      (ii)    That all statements contained in the certification are
16   true.
17      (3)    Each pass-through entity that elects to pay tax under
18   subsection (a) shall report on a return required under this
19   article the following:
20      (i)    Any tax due under this article. The balance of any tax
21   shown on the return, not previously paid as installments of
22   estimated tax or an overpayment of a prior-year tax, shall be
23   paid with the return.
24      (ii)    Identifying information of each taxable owner eligible
25   to receive a credit under subsection (c), including a Social
26   Security number or tax identification number and status as a
27   resident or nonresident. The pass-through entity must provide
28   information sufficient to identify a disregarded entity and the
29   taxable owners.
30      (iii)    For each taxable owner who will be entitled to claim a

20250HB1703PN2092                    - 6 -
 1   credit on a tax return, the taxable owner's share of the tax
 2   imposed on the pass-through entity under this section.
 3      (iv)    Each resident taxable owner's share of the pass-through
 4   entity's income and each nonresident taxable owner's share of
 5   income from sources from within this Commonwealth included in
 6   the tax base under this section.
 7      (v)    The classification of each owner as a taxable resident
 8   or nonresident for purposes of calculating the pass-through
 9   entity's tax liability under this section.
10      (vi)    Any other information as required by the department.
11      (4)    A pass-through entity that elects to pay tax under
12   subsection (a) shall not be required to withhold tax from a
13   nonresident taxable owner under section 324.
14      (5)    To meet the requirements of this section, if a taxable
15   owner holds an interest in the pass-through entity through an
16   entity that is a disregarded entity for purposes of this
17   article, the pass-through entity must provide information
18   sufficient to identify both the disregarded entity that holds an
19   interest in the pass-through entity and the taxable owner that
20   owns the disregarded entity and is eligible for a credit under
21   subsection (c).
22      (6)    Each pass-through entity paying tax under this section
23   shall report to each taxable owner required to file a return
24   under this article a statement that contains the following
25   information:
26      (i)    Classification as a resident taxable owner or a
27   nonresident taxable owner for purposes of calculating the pass-
28   through entity's tax under subsection (a).
29      (ii)    The taxable owner's allocable share of the pass-through
30   entity's income included in the tax base for purposes of

20250HB1703PN2092                   - 7 -
 1   computing the tax under subsection (a).
 2      (iii)     The owner's allocable share of the tax paid under
 3   subsection (a).
 4      (iv)     Any other information, as required by the department.
 5      (f)     (1)   Any assessment of tax imposed under this section,
 6   including interest, penalties and additions, shall be assessed
 7   against the pass-through entity at the tax rate applicable to
 8   the tax year. The department may not assess any additional tax,
 9   including interest, penalties and additions, against the taxable
10   owners.
11      (2)     Any determination of an overpayment or refund of tax
12   imposed under this section made subsequent to the filing of the
13   return under subsection (e) shall be made at the pass-through
14   entity level at the tax rate applicable to the tax year.
15      (3)     The pass-through entity shall be required to provide
16   each owner a statement of any adjustment of the taxable owner's
17   credit within ninety days of an assessment, overpayment or
18   refund becoming final.
19      (4)     The taxable owner shall report the adjustment of the
20   credit on an amended return for the taxable owner's taxable year
21   that includes the pass-through entity's taxable year for which
22   the tax was assessed.
23      (5)     Only the pass-through entity may appeal or settle an
24   assessment or overpayment of tax issued under this section or
25   petition for a refund of tax imposed under this section.
26      (6)     A pass-through entity that elects to pay tax under
27   subsection (a) shall be liable for the tax due under this
28   section.
29      (7)     Except as provided under clause (8), a taxable owner,
30   either directly or through a disregarded entity, shall be

20250HB1703PN2092                     - 8 -
 1   severally liable for an assessment of the tax imposed under
 2   subsection (a) that is not paid by a pass-though entity that
 3   made an election under subsection (b) to the extent of the
 4   taxable owner's direct share of the unpaid tax, including
 5   interest, additions and penalties of the electing resident
 6   Pennsylvania S corporation or electing standard Pennsylvania S
 7   corporation.
 8      (8)   A taxable owner who, directly or through a disregarded
 9   entity, is a general, managing or controlling partner of a
10   partnership that made an election under subsection (b), who is
11   the managing or controlling shareholder in a Pennsylvania S
12   corporation that made an election under subsection (b), who owns
13   more than fifty per cent of the interests or profits of a
14   partnership or Pennsylvania S corporation that made an election
15   under subsection (b) or who was the individual who made the
16   election under subsection (b) on behalf of a partnership or
17   Pennsylvania S corporation, shall be jointly and severally
18   liable for an assessment of the tax imposed under subsection
19   (a), including interest, additions and penalties, that was not
20   paid by a pass-through entity that made an election under
21   subsection (b).
22      (9)   If an electing pass-through entity, electing resident
23   Pennsylvania S corporation or electing standard Pennsylvania S
24   corporation fails to pay the tax under this section, including
25   interest, additions and penalties, any tax paid by a taxable
26   owner shall not be treated as being collected from the electing
27   pass-through entity, electing resident Pennsylvania S
28   corporation or electing standard Pennsylvania S corporation.
29      (g)   The basis of both a resident taxable owner and
30   nonresident taxable owner of a pass-through entity that elects

20250HB1703PN2092                  - 9 -
 1   to pay tax under subsection (a) shall be determined as if the
 2   election under subsection (b) had not been made and each of the
 3   taxable owners of the taxed pass-through entity had properly
 4   taken into account each taxable owner's pro rata share of the
 5   taxed pass-through entity's items of income, gain, loss and
 6   deduction in the manner required with respect to a pass-through
 7   entity for which no such election is in effect.
 8      (h)     (1)   Unless otherwise provided in, or inconsistent with,
 9   this section, the provisions of this article shall apply to this
10   section.
11      (2)     The department may issue guidelines and promulgate
12   regulations necessary for the implementation of this section.
13      (i)     (1)   In the case of any taxable year that includes the
14   effective date of this section, a pass-through entity may file
15   an election under subsection (b)(1) at any time within ninety
16   days of the effective date of this section provided that if the
17   election is made, the pass-through entity must, on or before the
18   date the next estimated tax payment is due after the election,
19   make an estimated tax payment equal to the total estimated tax
20   that would have been due for the tax year had the election been
21   made for the full tax year, and any nonresident withholding made
22   under section 324 by the pass-through entity for the current tax
23   year may be applied by the pass-through entity against the
24   estimated tax liability.
25      (2)     In the case of any taxable year that includes the
26   effective date of this section, any nonresident withholding made
27   under section 324 by the pass-through entity for the current tax
28   year for an owner shall be applied by the pass-through entity
29   against the estimated tax liability.
30      (3)     In the case of any taxable year that includes the

20250HB1703PN2092                     - 10 -
 1   effective date of this section, the department may not assess
 2   interest and penalties against an eligible pass-through entity
 3   for any underpayment of estimated tax due under subsection (d),
 4   so long as the eligible pass-through entity acted in good faith
 5   with no intent to defraud the Commonwealth.
 6      (j)   As used in this section, the following words and phrases
 7   shall have the meanings given to them in this subsection unless
 8   the context clearly indicates otherwise:
 9      "Electing pass-through entity."     A pass-through entity that
10   elects at the time an election is made to be subject to the tax
11   under this section to determine the tax in accordance with
12   subsection (a).
13      "Electing resident Pennsylvania S corporation."    A
14   Pennsylvania S corporation that is a pass-through entity whose
15   shareholders only include resident individuals, estates or
16   trusts, and disregarded entities whose owners only include
17   resident individuals, estates or trusts that elects at the time
18   an election is made to be subject to the tax under this section
19   to determine the tax in accordance with subsection (a).
20      "Electing standard Pennsylvania S corporation."    A
21   Pennsylvania S corporation that is a pass-through entity whose
22   shareholders only include resident and nonresident individuals,
23   estates or trusts, and disregarded entities whose owners only
24   include resident and nonresident individuals, estates or trusts
25   that elects at the time an election is made to be subject to the
26   tax under this section to determine the tax in accordance with
27   subsection (a).
28      "Nonresident taxable owner."   An individual, estate or trust
29   subject to the tax imposed under this article, other than a
30   resident taxable owner, that is a partner, shareholder, member

20250HB1703PN2092                  - 11 -
 1   or other owner of an interest in a pass-through entity that has
 2   income from sources within this Commonwealth.
 3      "Partnership."   A domestic or foreign general partnership,
 4   joint venture, limited partnership, limited liability company,
 5   business trust or other unincorporated entity that for Federal
 6   income tax purposes is classified as a partnership. The term
 7   does not include a publicly traded partnership.
 8      "Pass-through entity."    A partnership or Pennsylvania S
 9   corporation.
10      "Resident taxable owner."    A resident individual, resident
11   trust or resident estate that is a partner, shareholder, member
12   or other owner of an interest in a pass-through entity.
13      "Taxable owner."   A resident taxable owner or nonresident
14   taxable owner.
15      Section 3.    Sections 306, 307.8(a) and 314 of the act are
16   amended to read:
17      Section 306.    Taxability of Partners.--Except as provided
18   under [section] sections 302.3 and 306.2, a partnership as an
19   entity shall not be subject to the tax imposed by this article,
20   but the income or gain of a member of a partnership in respect
21   of said partnership shall be subject to the tax and the tax
22   shall be imposed on his share, whether or not distributed, of
23   the income or gain received by the partnership for its taxable
24   year ending within or with the member's taxable year.
25      Section 307.8.   Income of a Pennsylvania S Corporation.--(a)
26   A Pennsylvania S corporation shall not be subject to the tax
27   imposed by this article, except as provided under subsection (f)
28   and section 302.3, but the shareholders of the Pennsylvania S
29   corporation shall be subject to the tax imposed under this
30   article as provided in this article.

20250HB1703PN2092                   - 12 -
 1      * * *
 2      Section 314.    Income Taxes Imposed by Other States.--(a)   A
 3   resident taxpayer before allowance of any credit under section
 4   302.3 or 312 shall be allowed a credit against the tax otherwise
 5   due under this article for the amount of any income tax, wage
 6   tax or tax on or measured by gross or net earned or unearned
 7   income imposed on him or on a Pennsylvania S corporation or
 8   partnership in which he is a direct or indirect shareholder or
 9   partner, to the extent [of his pro rata share thereof determined
10   in accordance with section 307.9,] that the tax was imposed on
11   the taxpayer's distributive share or other share thereof by
12   another state with respect to income which is also subject to
13   tax under this article. For purposes of this subsection, the
14   term "state" shall only include a state of the United States,
15   the District of Columbia, the Commonwealth of Puerto Rico and
16   any territory or possession of the United States.
17      (b)   The credit provided under this section shall not exceed
18   the proportion of the tax otherwise due under this article that
19   the amount of the taxpayer's income subject to tax by the other
20   jurisdiction bears to his entire taxable income.
21      (c)   In lieu of submitting a copy of each State return in
22   which a tax liability is reported and tax is paid, a partner,
23   shareholder, partnership or Pennsylvania S corporation may
24   provide a certified statement that reflects each partner's or
25   shareholder's share of taxable income, amount of State income
26   tax paid and other information that the department requires.
27      Section 4.    This act shall apply as follows:
28            (1)   The amendment or addition of sections 301(w), 302.3,
29      306 and 307.8(a) of the act shall apply to taxable years
30      beginning after December 31, 2025.

20250HB1703PN2092                    - 13 -
1         (2)   The amendment of section 314(a) shall apply to
2     taxable years beginning after December 31, 2024.
3     Section 5.    This act shall take effect immediately.




20250HB1703PN2092                 - 14 -