State and Local Taxation: Franchise Fees Must Be Apportioned for Purposes of a Business Privilege Tax

PA State and local taxIn Pennsylvania, the Local Tax Enabling Act authorizes a variety of municipalities to impose a tax “on the privilege of doing business in the jurisdiction of the local taxing authority.” 53 P.S. § 6924.301.1(a.1)(1). As with any state or local tax, the tax cannot violate the Commerce Clause; as a consequence, a local business privilege tax may only be imposed “when the tax is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State.” Complete Auto Transit, Inc. v.Read More

What Can Slot Machines Tell Us About the Treatment of NOLs under Pennsylvania’s Corporate Net Income Tax?

pa-taxIn December of 2015, Pennsylvania’s Commonwealth Court issued an important decision holding that the structure of the net loss carryover deduction for the Corporate Net Income Tax violated the uniformity clause of the Pennsylvania Constitution. Nextel Communs. of the Mid-Atlantic, Inc. v. Commw., 129 A.3d 1 (Pa. Commw. 2015). Specifically, the court held that the cap on the deductibility of losses violated the uniformity clause by treating taxpayers in a disparate fashion based on their taxable income without any reasonable justification. Nextel, 129 A.3d at 9-10. The court ordered a refund to remedy the violation. Id. at 12-13. Currently, the case is on appeal to the Supreme Court of Pennsylvania; all briefs have been filed and the matter is awaiting further action from the court.… Read More

State and Local Taxation: PA Supreme Court Invalidates Local Share Assessment Levied Against Casino’s Slot Revenue Outside Philadelphia

slotsThe Pennsylvania Constitution requires that taxes be uniform: “All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.” Pa. Const. art. VIII, § 1. While this provision sounds similar to the equal protection clause of the Fourteenth Amendment, in practice, it is much more robust.

On September 28, 2016, the Pennsylvania Supreme Court ruled that the local share assessment imposed under Section 1403 of the Pennsylvania Race Horse Development and Gaming Act violated the uniformity clause of the Pennsylvania Constitution because casinos were taxed differently based upon the amount of their gross revenue.… Read More

State and Local Taxation: Business Privilege Taxes and the Utility Exception in Pennsylvania

logistics, taxation, pennsylvaniaThe Local Tax Enabling Act authorizes municipalities in Pennsylvania to enact business privilege taxes; it applies throughout the Commonwealth, with the exception of Philadelphia, which is governed by separate legislation. While the scope of the act is quite broad, it does include an exclusion associated with utilities. The exclusion bars the following types of taxes:

  • “a tax on the gross receipts from utility service of any person or company whose rates and services are fixed and regulated by the Pennsylvania Public Utility Commission” (PUC); or
  • a tax on the gross receipts from “any public utility services rendered by any such person or company”; or
  • a tax on the gross receipts from “any privilege or transaction involving the rendering of any such public utility service.” See 53 P.S.
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State and Local Taxation: Philadelphia Taxpayers Are Entitled to Open-Ended Credits for Overpayments

city of PhiladelphiaOn December 21st, the Supreme Court of Pennsylvania issued an opinion that carries significant potential benefits to Philadelphia taxpayers; a divided court held that taxpayers were entitled to credit for overpayments under Section 19-2610 of the Philadelphia Code, even if the period in which a refund can be sought had expired. City of Philadelphia v. City of Phila. Tax Rev. Board ex rel. Keystone Health Plan East, Inc., No. 19 EAP 2014, 2015 Pa. LEXIS 2988 (Pa. Dec. 21, 2015). While the City sought reargument, that motion was recently denied.

The taxpayers were subsidiaries of Independence Blue Cross that did business in the City of Philadelphia and were subject to its Business Privilege Tax (“BPT”), now known as the Business Income and Receipts Tax.… Read More

State and Local Taxation: The Tenth Circuit Sustains Colorado’s Reporting Requirement for Out-of-State Retailers

quill v. northdakotaUnder controlling precedent, sales and use taxes stop at the state line:

  • In 1967, the Supreme Court held that under the due process clause and the dormant commerce clause, Illinois could not require a mail order business based in Missouri to collect use taxes associated with goods that it sold to Illinois residents when its sole connections with Illinois involved the mail and common carriers. See Nat’l Bellas Hess v. Dep’t of Revenue, 386 U.S. 753, 758-60 (1967).
  • In 1992, the Supreme Court revisited the area; the Court overturned its prior due process ruling in National Bellas Hess while upholding a bright-line physical presence rule for purposes of the dormant commerce clause.
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State and Local Taxation: What’s in a Name? That Which We Call a Privilege Can Be Taxed

state and local taxJust before Christmas 2015, the Supreme Court of Pennsylvania addressed the scope of a business privilege tax imposed by Lower Merion Township; the case was brought by a group of landlords, who contended that the township could not tax revenue generated from leasing property, and a divided Court sustained the tax. Fish v. Township of Lower Merion, No. 29 MAP 2015, 2015 Pa. LEXIS 2979 (Pa. Dec. 21, 2015).

Under the Local Tax Enabling Act, various municipalities are entitled to impose a tax “on persons, transactions, occupations, privileges, subjects and personal property within the limits of such political subdivisions, and upon the transfer of real property, or of any interest in real property, situate within the political subdivision levying and assessing the tax .… Read More

State and Local Taxation: Refund Awarded in Pennsylvania Uniformity Challenge

PA TaxNextel had a very happy Thanksgiving.

Just a few days before the holiday, the Commonwealth Court of Pennsylvania issued a decision awarding it a $3.9 million refund in a challenge to the structure of the net loss carryover (NLC) provision of Pennsylvania’s Corporate Net Income Tax. Nextel Comms. of the Mid-Atlantic, Inc. v. Commonwealth, No. 98 F.R. 2012, 2015 Pa. Commw. LEXIS 520 (Pa. Commw. Nov. 23, 2015). Nextel’s argument was that the structure of the NLC provision improperly treated taxpayers differently based upon their income, in violation of the Uniformity Clause of the Pennsylvania Constitution, which provides that “[a]ll taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax.… Read More

State and Local Taxation: More on the Dormant Commerce Clause and Maryland’s “County” Tax.

There are actually three dissents in Comptroller of the Treasury of Maryland v. Wynne, No 13-485 (May 18, 2015). Two are fairly predictable: since it’s a dormant commerce clause case, Justice Scalia and Justice Thomas are dissenting because they think the dormant commerce clause is judge-made nonsense. While predictable, Justice Scalia’s dissent is entertaining, as he delivers his argument with great force.

The third, Justice Ginsburg’s, is different. It is thought-provoking; when I got the chance to read it carefully, I understood why the majority spends so much of its time countering her analysis. It certainly suggests that the case was a much closer call than the majority opinion’s analysis would lead the reader to believe.… Read More

State and Local Taxation: The Supreme Court Applies the Dormant Commerce Clause and Invalidates Maryland’s “County” Tax.

Two provisions of the Constitution limit the authority of states to impose taxes. The due process clause requires that a state have sufficient nexus with a taxpayer or transaction to impose a tax, which is typically a fairly low threshold. In contrast, the commerce clause has historically had more teeth.

While some of the current justices disagree with the Court’s dormant commerce clause jurisprudence, in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), the Court established a test that is used to determine whether a state tax violates the dormant commerce clause. A tax will withstand a commerce clause challenge “when the tax is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State.” 430 U.S at 279.… Read More