Articles Posted in Tax Law

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Appellee Mission Funding Alpha was a calendar-year taxpayer that conducted business in the Commonwealth of Pennsylvania during the year ending December 31, 2007, and subject to the Pennsylvania Foreign Franchise Tax. In this case, appellee’s annual tax report (the Report) was due to be filed on or before April 15, 2008. As of that date, appellee had timely remitted to the Pennsylvania Department of Revenue (the Department) quarterly estimated payments totaling $430,000 for its 2007 Tax Year liability. A credit overpayment was also carried forward for appellee’s 2007 Tax Year liability. Without first seeking an extension of time to file its Report after the due date of April 15, 2008, appellee filed it late, on September 19, 2008. The Department accepted appellee’s reported franchise tax liability and imposed a $913 late-filing penalty because appellee had not requested a filing extension and had not filed its Report by the due date of April 15, 2008. On September 16, 2011, appellee filed a petition for refund with the Board of Appeals, seeking a refund of the entire amount of its reported 2007 franchise tax liability ($66,344). The Board of Appeals dismissed the petition as untimely, stating it was filed more than three years after the payment date of April 15, 2008. Appellee then appealed to the Board of Finance and Revenue, arguing its refund petition was timely because the time to file a petition did not begin to run until its tax was defined or deemed paid, which did not occur until appellee filed its 2007 Report on September 19, 2008. The Board of Finance and Revenue affirmed the decision of the Board of Appeals, concluding although appellee paid $66,344 in franchise tax for 2007 on the due date of April 15, 2008, the refund petition was filed more than three years after that due date, and therefore was untimely. Appellee argued the applicable statute of limitations for a refund claim is three years from the date of payment of tax but a tax is not deemed “paid” until amounts are applied to a definite tax liability. The Pennsylvania Supreme Court held the Commonwealth Court erred in holding the three-year tax refund period specified in Section 3003.1(a) of the Tax Reform Code of 1971 (Tax Code), 72 P.S. 10003.1(a), began to run on the date the corporate taxpayer files its annual tax report. Appellee’s refund petition was not timely filed because the three-year tax refund period began to run on April 15, 2008, and expired prior to the September 16, 2011 filing date. View "Mission Funding Alpha v. Pennsylvania" on Justia Law

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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

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This appeal raised a question of whether the Uniformity Clause of the Pennsylvania Constitution permitted a taxing authority to selectively appeal only the assessments of commercial properties, such as apartment complexes, while choosing not to appeal the assessments of other types of property – most notably, single-family residential homes – many of which were under-assessed by a greater percentage. The common pleas court sustained the preliminary objections and dismissed the complaint, finding Appellants’ claims failed as a matter of law because the School District (the taxing authority) was not the entity that set assessments, and the applicable statute gave it a clear statutory right to appeal tax assessments set by the County. In rejecting Appellants’ argument relating to discriminatory treatment, the Court indicated that “[t]he filing of selective appeals does not result in a uniformity violation, and it is not deliberate discrimination.” In this regard, the court ultimately concluded “the Uniformity Clause does not require equalization across all subclassifications of real property.” The Commonwealth Court affirmed in a published decision. The Pennsylvania Supreme Court disagreed with the lower courts, finding Appellants’ complaint set forth a valid claim that the School District’s appeal policy violated the Uniformity Clause. View "Valley Forge Towers v. Upper Merion SD" on Justia Law

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In September 2004, an anonymous informant sent the City of Philadelphia a letter claiming that appellant Nathan Lerner was concealing taxable business income from the City. The City made numerous attempts to meet with Lerner in person to resolve his case, but Lerner refused the City’s offers. In 2010, Lerner filed a petition for review with the City’s Tax Review Board. The Board held a hearing, concluded that it lacked jurisdiction in light of a collection action pending at a trial court, and dismissed Lerner’s petition. Lerner appealed the Board’s dismissal to the trial court, which consolidated Lerner’s appeal with the City’s collection action. The Commonwealth Court affirmed the trial court’s order quashing Lerner’s appeal. Lerner sought to delay the City’s collection action with onerous discovery requests and frivolous filings. Meanwhile, Lerner simultaneously disregarded the City’s discovery requests and refused to disclose information about his income, expenses, assets, and business interests. When the trial court ordered Lerner to comply, he violated the court’s order. As a result, the court precluded Lerner from entering any evidence at trial that he had not disclosed to the City. At the outcome of a bench trial, though the trial court found that the amount Lerner owed was “basically an amount pulled out of the sky,” Lerner had waived his right to challenge that assessment when he failed to timely petition the Board for review. Lerner appealed when the trial court denied his post-trial motion for relief. In that appeal, Lerner argued for the first time that the ground upon which the trial court's judgment was premised was misplaced. Lerner decided to assert on appeal that a taxpayer who fails to exhaust his or her administrative remedies may nonetheless challenge a tax assessment in a subsequent collection action when the taxing authority’s own evidence demonstrates that the assessment has no basis in fact. Although Lerner espoused the same argument before the Supreme Court, he did not preserve it. Accordingly, the Supreme Court affirmed the Commonwealth Court's judgment. View "City of Philadelphia v. Lerner" on Justia Law

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Mount Airy #1, LLC operated a hotel and casino located in Mount Pocono. Mount Airy challenged the constitutionality of Section 1403(c) of the Pennsylvania Race Horse Development and Gaming Act. That section levied a “local share assessment” against all licensed casinos’ gross slot machine revenue. According to Mount Airy, the statutory provision violated the Uniformity Clause of the Pennsylvania Constitution because it imposed grossly unequal local share assessments upon similarly situated slot machine licensees. After review of the parties' arguments, the Pennsylvania Supreme Court held that the local share assessment was a non-uniform tax of the sort prohibited by Article 8, Section 1 of the Pennsylvania Constitution. Therefore, the Court severed Subsections 1403(c)(2) and (c)(3) from the Gaming Act. View "Mount Airy #1, LLC v. Pa. Dept. of Revenue, et al." on Justia Law

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In this appeal, the issue raised for the Supreme Court's review was whether freight brokerage services were excepted from local business privilege taxation1 under the “public utility” exception found in Section 301.1(f)(2) of the Local Tax Enabling Act (“LTEA”), Act of December 31, 1965, P.L. 1257, as amended, 53 P.S. sec. 6924.301.1(f)(2). The Commonwealth Court concluded that S&H Transport was not excepted. The Supreme Court affirmed the Commonwealth Court’s decision because the Supreme Court concluded that the rates of the common motor carriers with whom S&H did business were not fixed and regulated by the Pennsylvania Public Utility Commission, and thus the entire exception was inapplicable. View "S & H Transport v. City of York" on Justia Law

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Appellant Lower Merion Township was a township of the first class. Article IV of its municipal code required every person engaging in a business, trade, occupation, or profession in the Township to pay an annual business privilege tax calculated as a percentage of gross receipts. Appellees Fish, Hrabrick, and Briskin (“Lessors”) each own one or more parcels of real estate in the Township that they rent to tenants pursuant to lease agreements. The Township notified Lessors that, for every such parcel, they were obligated to purchase a separate business registration certificate and pay the business privilege tax based on all rental proceeds. Lessors sought a declaratory judgment stating that, pursuant to the Local Tax Enabling Act (the “LTEA”), the Township’s business privilege tax could not be applied to rental proceeds from leases and lease transactions. Lessors did not challenge the validity of Article IV generally. Rather, they observed that the LTEA’s general grant of power in this regard is subject to an exception stating that such local authorities lack the ability to “levy, assess, or collect . . . any tax on . . . leases or lease transactions[.]” Lessors argued their real property rental activities fell within the scope of this exception. The trial court granted the Township's motion, denied the Lessors' motion and dismissed the complaint. A divided Commonwealth Court reversed, but the Supreme Court agreed with the trial court's judgment, reversed the Commonwealth Court and reinstated the trial court's order dismissing the complaint. View "Fish v. Twp of Lower Merion" on Justia Law

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A series of cross-appeals involved tax credits and refunds for overpayments of the City of Philadelphia’s Business Privilege Tax (BPT). The City appealed the Commonwealth Court’s decision affirming the award of credits to Keystone Health Plan East, Inc., and QCC Insurance Company (collectively, Taxpayers), who appealed the same decision affirming the denial of their refund requests. The Philadelphia Department of Revenue agreed Taxpayers overpaid their taxes, but denied the refund requests as untimely. Taxpayers appealed to the Philadelphia Tax Review Board, arguing the net income corrections effectively reset the “due date” since they had 75 days from the completion of an IRS audit to file the amended returns. The Review Board rejected Taxpayers’ argument, determining “due date” referred to the date the returns were initially due (April 15, 2004 and 2005, respectively). Notwithstanding this denial of refunds, the Review Board, sua sponte, awarded Taxpayers credits for their overpayments. The trial court affirmed the Review Board’s decision. Both parties appealed, and a divided three-judge panel of the Commonwealth Court affirmed. The majority further held the trial court did not err in affirming the award of credits. Finding no reversible error in the Commonwealth Court's decision, the Supreme Court affirmed. View "City of Phila. v. Tax Review Bd." on Justia Law

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At issue in these cross-appeals by Verizon Telephone Company of Pennsylvania and the Commonwealth was the taxability of Verizon’s gross receipts under the Pennsylvania Gross Receipts Act, for: (1) the installation of private phone lines; (2) the provision of directory assistance services; and (3) certain non-recurring charges levied on its customers for the installation of telephone lines; moves of, and changes to telephone lines and services; and from repairs of telephone lines. After careful consideration, the Supreme Court concluded that revenue derived from all such activities constitutes gross receipts taxable under 72 P.S. 8101(a)(2), and, thus, affirmed the portion of the order of the Commonwealth Court which determined revenue from the first two above-enumerated activities were taxable. The Supreme Court reversed the portion of the Commonwealth Court’s order finding revenue from the third activity was not. View "Verizon, PA, Inc. v. Pennsylvania" on Justia Law

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This matter concerned a parcel of commercial/industrial property located in Springettsbury Township, which was owned by appellee Harley-Davidson Motor Company. Approximately 110 acres of the parcel contained buildings and other improvements, and the remaining 119 acres were considered “excess” land. Previously, the United States Navy, from 1941 until 1964, and, later, a private firm, American Machinery and Foundry Company (“AMF”), with whom Harley-Davidson merged in 1969, used the parcel to operate a weapons manufacturing plant and, in the course of their business, buried numerous contaminants (as well as unexploded military ordnance) in the subsurface strata. This use caused significant environmental damage to the property. In 1993, Harley-Davidson repurposed a portion of the site to operate a motorcycle manufacturing plant. In 2003, the Assessment Office of York County notified Harley-Davidson that it intended to increase the parcel’s property tax assessment. Harley-Davidson filed an appeal with the York County Board of Assessment Appeals, which affirmed. Harley-Davidson then filed a de novo appeal with the trial court. Appellant Central York School District (“School District”) intervened, and the parties proceeded to a three-day bench trial to determine the parcel’s assessments for tax years 2004 through 2010, pursuant to the Second Class A and Third Class County Assessment Law. This appeal by allowance before the Pennsylvania Supreme Court involved the proper determination of the fair market value of Harley-Davidson's property for purposes of property tax assessment, including consideration of environmental contamination, remediation, and stigma, as well as the potential for future subdivision of the property. After review, the Supreme Court found: (1) hypothetical ways in which a property could be used by potential buyers are properly considered by an expert in evaluating what a willing buyer would pay for a property; (2) the potential effect of agreements concerning possible environmental remediation liability and ongoing environmental restrictions and maintenance is a relevant factor that must be taken into account when determining the fair market value of property, and (3) environmental stigma may be relevant to determining fair market value of real estate for tax purposes in appropriate circumstances. The Supreme concluded: (1) the Commonwealth Court erred in concluding that the School District’s expert valued the subject property as already subdivided, and, thus, its determination in this regard was reversed; (2) the Commonwealth Court properly concluded that these agreements were not accounted for by the trial court; thus, the Commonwealth Court’s remand was affirmed; and (3) the trial court properly relied upon the School District’s expert’s opinion regarding a 5% environmental stigma devaluation for the property; thus, reversed the Commonwealth Court’s rejection of the trial court’s reliance upon such stigma in its valuation of the property. View "Harley-Davidson v. Central York Sch District et al" on Justia Law