Section 820.512 - Personal income tax(a) General rule.--A person shall be allowed an exemption for: (1) Compensation received during the time period when the person was a resident of a subzone, improvement subzone or expansion subzone.(2) Net income from the operation of a qualified business received by a resident or nonresident of a subzone, improvement subzone or expansion subzone attributable to business activity conducted within a subzone, improvement subzone or expansion subzone, determined in accordance with section 515 , except that any business that operates both within and outside this Commonwealth, before computing its subzone, improvement subzone or expansion subzone 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.(3) All of the following: (i) Net gains or income, less net losses, derived by a resident or nonresident of a subzone, improvement subzone or expansion subzone from the sale, exchange or other disposition of real or tangible personal property located in a subzone, improvement subzone or expansion subzone as determined in accordance with accepted accounting principles and practices. The exemption provided in this subparagraph shall not apply to the sale, exchange or other disposition of any stock of 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 a subzone, improvement subzone or expansion subzone. This subparagraph shall apply to intangible personal property employed in a trade, profession or business in a subzone or expansion subzone by a 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 in the subzone, improvement subzone or expansion subzone.(ii) Net gains, less net losses, realized by a resident of a subzone, improvement subzone or expansion subzone from the sale, exchange or disposition of intangible personal property or obligations issued on or after February 1, 1994, by the Commonwealth, a public authority, commission, board or other Commonwealth agency, political subdivision or authority created by a political subdivision or by the Federal Government as determined in accordance with accepted accounting principles and practices.(iii) The exemption from income for gain or loss provided for in subparagraphs (i) and (ii) shall be prorated based on the following:(A) In the case of gains, less net losses, in subparagraph (i), the percentage of time, based on calendar days, the property located in a subzone, improvement subzone or expansion subzone was held by a resident or nonresident of the zone during the time period the zone was in effect in relation to the total time the property was held.(B) In the case of gains, less net losses, in subparagraph (ii), the percentage of time, based on calendar days, the property was held by the taxpayer while a resident of a subzone, improvement subzone or expansion subzone in relation to the total time the property was held.(4) Net gains or income derived from or in the form of rents received by a person, whether a resident or nonresident of a subzone, improvement subzone or expansion subzone, to the extent that income or loss from the rental of real or tangible personal property is allocable to a subzone, improvement subzone or expansion subzone. For purposes of calculating this exemption: (i) Net rents derived from real or tangible personal property located in a subzone, improvement subzone or expansion subzone are allocable to a subzone, improvement subzone or expansion subzone.(ii) If the tangible personal property was used both within and without the subzone, improvement subzone or expansion subzone during the taxable year, only the net income attributable to use in the subzone, improvement subzone or expansion subzone is exempt. The net rental income shall be multiplied by a fraction, the numerator of which is the number of days the property was used in the subzone, improvement subzone or expansion subzone and the denominator which is the total days of use.(5) Dividends received during the time the person was a resident of a subzone, improvement subzone or expansion subzone.(6) Interest received during the time period the person was a resident of a subzone, improvement subzone or expansion subzone.(7) The part of the income or gains received by an estate or trust for its taxable year ending within or with the resident-beneficiary's taxable year which, under the governing instrument and applicable State law, is required to be distributed currently or is in fact paid or credited to the resident- beneficiary and which would have been exempt under this act if received by a resident-beneficiary directly.(a.1) Exemption.-- Beginning in taxable year 1999, a person located in a designated subzone shall be allowed an exemption under subsection (a) from the tax imposed by Article III of the Tax Reform Code of 1971 for the classes of income set forth in subsection (a). Beginning in taxable year 2001, a person located in a designated expansion subzone shall be allowed an exemption under subsection (a) from the tax imposed by Article III of the Tax Reform Code of 1971 for the classes of income set forth in subsection (a). No person shall be allowed an exemption for activities conducted prior to designation of the real property as part of a subzone or expansion subzone.(a.2) Pass-through entities.--The exemptions provided for in subsection (a)(2), (3)(i) and (4) shall apply to all of the following:(1) The income or gain of a partnership or association. The partner or member 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) The income or gain of a Pennsylvania S corporation. The shareholder 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 corporation for its taxable year ending within or with the shareholder's taxable year.(b) Limitation.--A partnership, association, Subchapter S corporation, resident or nonresident may not apply an exemption from income under this act for any class of income against any other classes of income or gain. A partnership, association, Subchapter S corporation, resident or nonresident may not carry back or carry forward any exemption under this act from year to year. The credit allowed under this section shall not exceed the tax liability of the taxpayer under Article III of the Tax Reform Code of 1971 for the tax year.(c) Section not applicable to certain entities.-- Any portion of net income or gain that is attributable to 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. This subsection shall not apply to the exemption from tax provided in subsection (a)(5).1998, Oct. 6, P.L. 705, No. 92, § 512, imd. effective. Amended 2000, Dec. 20, P.L. 841, No. 119, § 4, imd. effective; 2002, Dec. 9, P.L. 1727, No. 217, § 6, imd. effective.