United States: Pennsylvania Tax Developments - July 2015

Last Updated: July 21 2015
Article by Lee Zoeller, Kyle O. Sollie, Frank J. Gallo, Kenneth R. Levine, Daniel M. Dixon and Christine M. Hanhausen

Most Read Contributor in United States, October 2017

This is a brief update on recent Pennsylvania tax developments. For more information, contact one of the authors or the Reed Smith attorney with whom you usually work.

Amended Return "Trap"—Court Holds That Amended Return Was Not a Petition for Refund; Possible Legislative Fix?

On June 9, the Commonwealth Court issued a decision holding that the taxpayer's amended return did not qualify as a "petition for refund" and, therefore, the taxpayer did not timely request a refund of overpaid taxes.1

Under Pennsylvania law, a petition for refund of corporate tax must be filed within three years after payment of the tax.2 In this case, it was undisputed that the taxpayer filed an amended return claiming a refund before the expiration of that three-year period, and then the taxpayer filed a petition for refund (on the Department of Revenue's petition form) after the expiration of that period.

The taxpayer argued that its amended return "should be treated as a timely filed petition for refund" because it "contained substantial information required for a petition for refund."3 For the court, however, "substantial" was not enough.4 The statute and regulations specify the requirements for a "petition for refund," and because the taxpayer's amended return was missing some of the required information, the court concluded that the taxpayer's amended return was not a petition for refund.5 Because the taxpayer didn't file a "complete" petition for refund (following the Department's regulations) until after three years of payment of the tax,6 the court held that the taxpayer was statutorily barred from obtaining a refund.7 The court did not address the fact that the Department's own regulations give the taxpayer an opportunity to cure any deficiency in the form of a filing.

On July 6, the taxpayer filed exceptions to the Commonwealth Court's decision.

Meanwhile, legislation is pending in the General Assembly—HB 1198—that seeks to fix the problem that led to the situation that was before the court in this case. According to a memo published by the primary sponsor of HB 1198, the "Department of Revenue's current policy is a trap for the unwary ... result[ing] in a loss of appeal and refund rights." This bill would generally require the Department to review an amended return and issue a written decision within one year of filing, and a taxpayer who disagrees with the Department's decision would then have 90 days to file an appeal with the Board of Appeals.8 (As of the date of this publication, HB 1198 had been passed by the House and was currently pending in the Senate.)

Finally, litigation is pending in the Commonwealth Court regarding whether a refund petition must be filed by the third anniversary of the original due date of a tax return, or the third anniversary of when the return was filed on extension.9 Reed Smith represents the taxpayer in that matter. Briefing is expected to be complete this summer and argument is scheduled for the fall.

Pa. Supreme Court to Decide if Localities May Tax Rental Income

On April 8, the Pennsylvania Supreme Court agreed to hear Lower Merion Township's appeal in Fish, et al. v. Township of Lower Merion, 100 A.3d 746 (Commw. Ct. 2014), in which the Commonwealth Court held that the Township was statutorily prohibited from imposing its business privilege tax on gross receipts from leases or rentals.

The Township's tax is authorized by state law,10 which excludes from that authority the power to impose tax on "leases or lease transactions."11 The Commonwealth Court held that the state law's exclusion for "leases or lease transactions" means that the Township may not impose its tax on receipts from rental property. According to the Commonwealth Court, the prior case law is clear that the state law exclusion "must be interpreted in a manner 'that most restricts the taxing authority—that is, the broadest interpretation of the lease exception; an unqualified prohibition on the taxation of leases.'"12

The Township requested review by the Pennsylvania Supreme Court, the Supreme Court agreed, and briefing is now complete. The Township, in its main brief filed with the Supreme Court in May, is making the same primary argument that it made to the Commonwealth Court—that is, the state law prohibits only direct transactional taxes on leases, but it does not prohibit privilege taxes on the business of being a lessor.13

Any taxpayer that earns revenue from leases or rentals of any property (real or personal) and pays local tax in Pennsylvania (not including Philadelphia taxes) should consider filing refund claims to preserve its rights pending the outcome of this litigation.

Pa. Counties File Suit Against Telecom Companies for Alleged Underreporting of "e911 Fees"

Both Delaware County and Allegheny County filed lawsuits alleging that 19 telecommunications providers underreported the amount of e911 fees owed to the respective county. The counties are alleging that, because of technological improvements, the telecommunications providers were able to provide multiple calls per line and, as a result, did not pay sufficient e911 fees. The counties also don't appear to distinguish between lines that cannot make outgoing calls and those that can.

While it is certainly true that technology has changed and advanced, it is unclear whether the law in each county can support such a claim. But still, the counties are alleging more than $200 million in damages.

Suits raising similar arguments are being filed around the country (often through third-party investigators, like this one or via a qui tam action), and these Pennsylvania counties are just some of the latest jurisdictions to join the trend. Generally, the information cited in support of the claims appears sparse, at best, from the face of the complaints. It also remains unclear whether the counties have appropriate standing to bring the claims at all, and whether "lumping" these different companies together is factually supportable or appropriate.

E911 Fee Increase

On June 30, Governor Wolf signed House Bill 911 into law (as Act 12). The law set a new uniform fee at $1.65 a month per device. The Pennsylvania Emergency Management Agency estimates the $1.65 fee will generate $314 million a year, up from the approximately $190 million generated last year. The new law also now specifically addresses the e911 fee for outbound voice-over-Internet lines.

Governor Wolf's Budget Proposal—Will Anything Pass?

Three weeks after the deadline, and still no budget. As discussed in our previous quarterly update, Governor Wolf presented a budget proposal that included numerous, significant, tax proposals. Wolf's tax proposals included:14

  • Mandatory combined reporting
  • Reduced NOL cap
  • Reduced corporate net income tax rate
  • Expanded sales and use tax base
  • Increased sales and use tax rate
  • Severance tax on natural gas drilling
  • Increased personal income tax rate
  • Increased bank shares tax rate
  • Property tax reform

However, on June 1, Governor Wolf's tax reform package as a whole was unanimously defeated on the House floor (193-0). This vote made it clear that the governor's tax proposals (and budget) will not survive without changes. Similarly, on July 1, Governor Wolf vetoed the Republican Caucus's budget proposal, which included no new taxes. Suffice it to say, this left Governor Wolf and the Republican Caucus with no budget and a need to compromise. Yet, while Governor Wolf and Republican leaders continue to meet to discuss the budget, their competing tax proposals have created a stalemate.

For example, while the enactment of a severance tax is at the forefront of the heated debate, and both parties introduced proposals on the issue, the recent rhetoric would suggest there is little room for compromise. Likewise, both parties presented property tax reform proposals (in addition to Governor Wolf's own proposal). The big sticking point with property tax reform remains what other taxes would be increased to offset the loss of major revenue from property taxes. We expect to see more movement on tax reform proposals over the next few weeks as the legislature moves toward a much-needed budget.

The Latest in Pennsylvania Tax Controversy:

Pending Cases to Watch:

  • NOL Litigation – Oral argument is tentatively scheduled for this fall on whether Pennsylvania's cap on net operating loss deductions is unconstitutional.
  • Refund on Extended Return Filing – As mentioned above, briefing is underway on the issue of whether a refund claim is due within three years from the return filing date or three years from the original return due date. We expect argument to be scheduled for the fall.

Settlements to Note:

  • Costs of Performance – After months of uncertainty regarding whether the case would proceed to litigation, the lead sales-factor-sourcing case reached a resolution with a favorable settlement for the taxpayer, who had been asserting the right to use a sourcing method for its receipts based on the location of its costs of performance, rather than on the market-based-sourcing approach being advocated by the Commonwealth.
  • Affiliate Nexus – Another affiliate nexus case settled favorably for an online retailer whose affiliates maintained retail locations in the state where customers could return online purchases.

Interesting Board of Finance & Revenue Decision:

  • Untimely Audit Assessment – The Board disagreed with the Department and found an audit assessment untimely, even though the Department argued that the auditor general approved the assessment within the time frame.

More Things You Should Know:

  • New Acting Chief Counsel. On May 6, Gretchen Wisehart resigned as Chief Counsel at the Department of Revenue. Jeff Snavely is now Acting Chief Counsel for Revenue.
  • Secretary of Revenue Confirmed. On June 10, the legislature confirmed Eileen McNulty as Secretary of Revenue.
  • Board of Finance and Revenue Regulations. On May 16, the Board posted draft regulations for Board procedure. On July 16, the Independent Regulatory Revenue Commission released its comments. In addition, the Board received several comments from the public during the public comment period. The Board must now respond to all comments from the IRRC and the public before proposing the final-form regulation to the IRRC.
  • Market-Sourcing Regulations. The Department of Revenue is currently drafting market-sourcing regulations; however, we would not expect a formal publication in the immediate future.


1. Quest Diagnostics Venture LLC v. Commonwealth, 782 F.R. 2012

2. 72 P.S. § 10003.1(a).

3. Quest Diagnostics Venture, at p. 6.

4. 72 P.S. § 9703; 61 Pa. Code § 7.14. See also 61 Pa. Code § 151.14 (discussing amended returns).

5. Quest Diagnostics Venture, at p. 7.

6. The parties in Quest stipulated that the payment of tax occurred April 15, 2008.

7. Quest also argued that (i) the Department's regulations were invalid, (ii) equitable principles should preclude the Department from raising the issue of timeliness of the claim, and (iii) the Taxpayers' Bill of Rights should preclude the Department from denying the timeliness of the claim. The court rejected these arguments as well. Id. at p. 9-14.

8. HB 1198 would establish different appeal procedures for specific situations. For example, if a taxpayer files an amended return in lieu of a petition for reassessment and the taxpayer disagrees with the Department's action, the taxpayer may pay the assessed deficiency and file a petition for refund in accordance with 72 P.S. § 10003.1.

9. Mission Funding Alpha v. Commonwealth, 313 F.R. 2012.

10. 53 P.S. § 6924.301.1

11. The state law at issue applies to most local jurisdictions (including Pittsburgh, but excluding Philadelphia).

12. Fish, 100 A.3d at 751.

13. Brief of Appellant, Fish, et al. v. Township of Lower Merion, 29 MAP 2015 (filed May 20, 2015).

14. The House and Senate have held hearings on increasing the personal income tax rate, increasing the sales tax rate and base, imposing a severance tax, and combined reporting.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.