A recent court case has barred taxing jurisdictions from imposing a tax on leases or lease transactions. While the case is expected to be appealed, refund opportunities may be available if the business has included these receipts in their tax base in prior periods.
What Is the Court Case Affecting Business Privilege Taxes?
The Pennsylvania Commonwealth Court, in a five to two decision, held the Local Tax Enabling Act (“LTEA”) bars taxing jurisdictions from imposing business privilege taxes on leases or lease transactions. Fish, Hrabick and Briskin v. Township of Lower Merion, No. 1940 C.D. 2013 (September 19, 2014). This holding seemingly applies whether or not the Local Taxing Authority (LTA) imposes a transaction-based or privileged-based tax and has created refund opportunities for certain businesses.
While the LTEA allows for the imposition of business gross receipts taxes (business privilege or mercantile taxes), the LETA expressly excludes the power to impose tax “on…leases or lease transactions.” As a result, gross receipts from leases – whether for real property or personal property – may not be taxed under this decision.
Who Does This Decision Apply To?
The case will have the most impact on businesses located in townships where the business privilege tax is particularly high, including Reading, Wyomissing, Allentown, Harrisburg, York and others.
What Is the Timing of the Case?
The township is expected to request the Pennsylvania Supreme Court to hear an appeal of the decision. If the Pennsylvania Supreme Court denies the appeal, refund claims for all open periods should be filed. But if an appeal is granted, a final decision will be many months away.
What Are My Next Steps?
Taxpayers should monitor the developments of this case and also consider filing protective appeals if the business has included these receipts in their tax base in prior periods, especially for periods that may be closing due to statutes of limitations. Generally speaking, the statue of limitations for business privilege tax appeals is three years; however, it is necessary to review the applicable local ordinances and any regulations of the taxing jurisdiction to confirm timing questions.
Contributed by Frank J. Tobias, CGFM, (firstname.lastname@example.org) a principal in RKL’s Tax Services Group. He specializes in the area of multi-state planning and compliance with extensive experience in all areas of Pennsylvania taxation. Frank brings a well-rounded perspective on state and local tax issues with his experience in both public accounting and his previous professional experience overseeing the administration of PA Corporation taxes for the PA Department of Revenue.