Landmark Pennsylvania Corporate Net Income Tax Case Not Retroactively Applicable (except when it is)
September 17, 2021
Before 2017, the Commonwealth’s Corporate Net Income Tax statute had limited a taxpayer’s net operating loss deduction to the greater of a flat cap amount of the taxpayer’s taxable income or a percentage of the taxpayer’s apportioned income, both of which varied by year. For tax year 2007, the limit was the greater of 12.5% of taxable income or $3 million. In Nextel, the taxpayer argued that the statute discriminated against corporations with more than $3 million in taxable income (“large corporations”), because taxpayers with $3 million or less in taxable income (“small corporations”) paid no tax while large corporations could reduce their taxes by only 12.5%. The Supreme Court held that the flat cap violated the Uniformity Clause of the Pennsylvania Constitution but it preserved the percentage cap. Subsequently, the Department issued Corporation Tax Bulletin 2018-02, stating that it would not apply the Nextel decision to taxable years beginning prior to January 1, 2017.