House Finance Committee reports bill to create net operating loss exchange for PA startups

The House Finance Committee voted 24-2 to report House Bill 1129 as amended, which would establish a net operating loss exchange allowing eligible technology and biotechnology startups to sell accrued net operating losses to purchasing taxpayers in exchange for cash.

Supporters say the program would give early-stage companies immediate capital and help keep jobs and intellectual property in Pennsylvania. "House Bill 11 29 establishes a net operating loss exchange program, and it would allow technology and biotechnology startups to be eligible businesses that could sell their net losses in exchange for financial assistance to keep that startup business running," said Shannon Snell, the committee's senior research analyst.

Under the amendment approved by the committee (House amendment 1437), an eligible business must have operated in Pennsylvania for no more than seven years, must file a Pennsylvania corporate net income tax return, and must have at least 30% of its U.S. employees based in Pennsylvania (up from 15% in the underlying bill). The amendment sets a per-company annual selling cap of $5 million in eligible net losses and a statewide annual cap of $200 million in eligible net losses available for purchase. The bill requires purchasing taxpayers to pay selling taxpayers at least $0.80 on the dollar for the losses, and it defines the buyer's tax benefit as the eligible net loss multiplied by the corporate net income tax rate.

The amendment lays out the types of allowable expenditures for exchange funds, which committee discussion and staff analysis said include fixed assets, construction, acquisition, development, materials, tenant fit-out, working capital, salaries and research and development related to the business. The committee heard an estimated fiscal impact to the Commonwealth of about $14,980,000 in the first year if the full $200 million cap were used at the corporate tax rate currently in law; sponsors noted that the impact would scale with changes in the corporate tax rate.

Representative Friel, a prime sponsor, framed the bill as an economic development tool aimed at retaining startups and high-paying jobs in Pennsylvania. "I've always looked at this as a jobs bill because I believe in startups and creating a foundation of an ecosystem to help businesses not just grow... but stay here in Pennsylvania," Friel said. Representative Fritz, a co-sponsor, said the measure was expanded from an earlier, narrower draft and described the proposal as a pilot that could be broadened later.

Committee members raised procedural and practical concerns. Representative Gaydos asked whether exchanges could take the form of services rather than cash; staff answered the bill is written as a cash exchange and does not permit barter under the amendment. Chair Griner expressed skepticism about administrative mechanics and potential complexity, saying, "I personally don't think this bill's ready. I can't see how DCED and revenue even can... I can't fathom how the mechanics of this works."

Sponsors and staff noted prior committee hearings on the topic, including one in fall 2024 and a public hearing on June 17. The committee agreed to the amendment unanimously and later voted to report the bill, as amended, by a roll call of 24 to 2. The committee record shows the bill will proceed with the amendment in place for further consideration by the full House.

The bill references an exchange model used in New Jersey and drew debate about whether to emulate that state's experience; committee members said the Pennsylvania proposal differs in eligibility and administration. The Department of Community and Economic Development would administer the exchange and the Department of Revenue would have a role in related tax treatment under the current draft.

If enacted as drafted in committee, the program would be capped statewide at $200 million in sellable losses in year one, with an individual company limit of $5 million per year and buyer payment minimums set at 80 cents per dollar. The committee record did not provide an implementation timeline or effective date; those details would be developed as the bill moves through the legislative process.