Nextel Communications v. Pennsylvania

In this direct appeal, the issue presented for the Pennsylvania Supreme Court was whether the “net loss carryover” provision of the Pennsylvania Revenue Code for tax year 2007 (“NLC”), which restricted the amount of loss a corporation could carry over from prior years as a deduction against its 2007 taxable income to whichever is greater, 12.5% of the corporation’s 2007 taxable income or $3 million, violated Article 8, Section 1 of the Pennsylvania Constitution (“the Uniformity Clause”). Nextel Communications, incorporated in Delaware, earned $45,053,282 in taxable income on its business activities in the Commonwealth. Under the NLC, Nextel was entitled to deduct from its 2007 taxable income the net losses it sustained in prior tax years in the amount of $3 million or 12.5% of its 2007 taxable income, whichever total was greater. In 2007, Nextel had a cumulative net loss dating from the tax year 1997 of $150,636,792. Because 12.5% of Nextel’s 2007 taxable income amounted to $5,631,660, and, hence, was greater than $3 million, Nextel claimed the 12.5% amount as a net loss deduction, thereby reducing its taxable income for 2007 to $39,421,622. Under the corporate net income tax rate of 9.9%, Nextel’s total tax liability to the Commonwealth on this adjusted income was $3,938,220, which Nextel paid to the Department. The Supreme Court affirmed the Commonwealth Court’s holding that the NLC, as applied to Nextel violated the Uniformity Clause. However, the Court also found that the portion of the NLC which created the violation, the $3 million flat deduction, could be severed from the remainder of the statute, while still enabling the statute to operate as the legislature intended. View "Nextel Communications v. Pennsylvania" on Justia Law