PA Tax Law News – Summer 2014
June 23, 2014
In this issue: PA Budget – Minor Tax & Escheat Impacts l Hotel Tax Increases and Philadelphia Cigarette Tax l Property Appeal Deadlines On Horizon l Altoona Business Privilege Tax Expansion Violates Local Tax Reform Act
PA Budget – Minor Tax & Escheat Impacts
by James L. Fritz
On June 30th, the Pennsylvania House and Senate adopted a budget for FY 2014-15 which requires no major tax increases. The Governor signed the budget and accompanying Fiscal Code bill on July 10th, after making several line-item vetoes. Many observers had expected a new natural gas severance tax and possibly other tax increases to close a substantial revenue gap. However, facing demands from the Governor for further state pension cuts before agreeing to any significant tax increases, the General Assembly opted to fine-tune expenditures and close the funding gap largely with one-time fixes. The Governor’s line-item vetoes included substantial cuts to operating funds for the General Assembly, apparently intended to somehow persuade legislators to adopt further pension cuts for future state employees. We’ll leave the potential success or failure of this strategy to the popular press and will focus on matters of direct interest to the state and local tax community.
Notably, this budget preserves the phase-out of the Capital Stock and Franchise Tax, as of December 31, 2015. In addition, the sales tax vendor discount, which partially compensates vendors for the cost of collecting the complicated tax, has again been preserved.
The General Assembly closed the FY 2014-15 revenue gap by:
- Assuming General Fund revenues will increase by 3.51% in FY 2014-15 ($880 million)
- Shortening the holding period for some unclaimed property ($150 million) (see below)
- Revenue from additional Oil & Gas leases on state lands ($95 million)
- Various fund transfers ($247 million)
- Philadelphia Casino License Fee ($75 million)
- Additional Delinquent Tax Collections ($40 million)
To facilitate the enhancement of delinquent tax collections, the Enhanced Revenue Collections Account (ERCA) program in the Department of Revenue has been extended through 2019-20 and the annual appropriation for the program has been increased from $15 million to $25 million.
Abandoned & Unclaimed Property Changes
A one-time revenue “bump” will be realized by shortening the holding period – to 3 years from 5 years – for certain types of unclaimed property, including:
Property held by Financial Institutions
Deposits (including interest thereon)
Sums payable on checks
Personal Property removed from safe deposit boxes due to nonpayment of box rental charges
Property held by Insurers
Moneys held or owing under annuity contracts or life insurance policies
Moneys held or owing under insurance policies other than life insurance
Property held by Utilities
Customer advances, tolls, deposits, or collateral security, and other property due to or demandable by owners
Property held by other Businesses
Gift certificates or cards without expiration dates but with service fees
Undelivered stock certificates
Dividends, profits, distributions, payments or distributive shares of principal
Principal or interest due on bonds or debentures
Sums or certificates of participating rights due by cooperatives to patrons
Note: Gift certificates or cards with expiration dates but no service fees will become reportable upon the later of 2 years from the expiration date or 5 years after the card was issued or funds were last loaded (in the case of store gift cards or general use prepaid cards)
Property held by Fiduciaries
All property held in a fiduciary capacity for the benefit of another person
IRA’s and retirement plans for self-employed individuals which are not subject to a mandatory distribution requirement
Property held by Courts, Public Officers & Public Agencies
All property held for the owner (with certain exceptions)
Miscellaneous Property held for or owing to another
All property not otherwise provided for, admitted in writing and adjudicated to be due, which is held or owing in the ordinary course of the holder’s business
In most cases, the holding period does not commence until after the last activity on an account or the last “indication of interest in property.” The last “indication of interest in property” means:
[A]ny contact, communication or transaction, related to property, from the owner, or involving some affirmative action by the owner, which is documented in a contemporaneous record prepared by or on behalf of the holder or in the possession of the holder ….
This includes electronic contacts and transactions, as well as verbal contacts and transactions.
The holding period provision for IRA’s and individual retirement plans does not kick in until after the owner has reached 70.5 years of age.
Unclaimed Property Finder Registration. Individuals, other than attorneys and non-attorney representatives compensated on a non-contingent basis, will be required to register with the State Treasurer, retain certain records and make reports if they engage in locating and recovering abandoned or unclaimed property for a fee.
Audits. The State Treasurer’s auditing powers have been clarified with respect to abandoned and unclaimed property. The treasurer may assess the costs of examination against the holder. Where adequate records are lacking, “reasonable estimates” may be made. Contract auditors may be hired to conduct examinations on behalf of the Treasurer.
by James L. Fritz
At this writing, a bill authorizing certain counties to impose or increase their hotel taxes remains pending before the Pennsylvania House for concurrence on Senate amendments. Authorization of a local option Cigarette Tax of 10¢ per cigarette ($2 per pack) for Philadelphia schools remains in limbo in the same bill.
The Cigarette Tax is expected to raise $70-90 million per year. Collection of the local tax would be piggy-backed on the state cigarette tax and would be administered by the Pennsylvania Department of Revenue. All definitions, rules and regulations for the state tax would apply, except that stamping agents would receive no additional compensation for this tax.
The House is expected to return within the next few weeks to address the amended bill.
As we noted in our last newsletter, the deadlines for property assessment appeals are looming. Deadlines for these appeals vary by county, but most are either August 1 or September 1, so now is the time to analyze your assessment to determine whether you may be able to have it lowered to reduce your tax burden.
The property tax assessment and appeal process can be confusing and intimidating and directly affects the bottom line of your business. We can help you analyze the assessment on your property and, if necessary, handle an appeal. Feel free to contact us for any questions related to the assessment and appeal process.
On June 2, 2014, the Court of Common Pleas of Blair County ruled that a 2007 Resolution enacted by the Altoona Area School District (“AASD”), which purported to eliminate a tax exclusion for gross receipts attributable to services rendered outside the AASD, improperly expanded the scope of AASD’s Business Privilege Tax (“BPT”) in violation of the Local Tax Reform Act (“LTRA”). See Leonard S. Fiore Inc. v. Altoona Area School District, Nos. 2009 GN 166; 2013 GN 1048, 1050, 1052, 1054; 2014 GN 379 (C.C.P. Blair County, June 2, 2014).
The AASD enacted a BPT in 1980, which authorized the imposition of tax on every person engaging in business within the AASD “whether or not he maintains a place of business in the School District…” Amended versions of the 1980 Resolution were enacted in 1984, 1985 and 1989. The Resolutions enacted in the 1980’s contained an exclusion for “[r]eceipts attributable to services rendered outside the geographic limits of the School District…” The AASD passed a Resolution on August 6, 2007 that eliminated the broad exclusion for gross receipts attributable to work performed outside the AASD. Leonard S. Fiore Inc. and Fiore Brothers Inc., two companies with offices located within the AASD, challenged the validity of the 2007 Resolution on the basis that it violated the LTRA, 72 P.S. § 4750.533, which prohibits political subdivisions from enacting a “mercantile or business privilege tax on gross receipts or a part thereof” if such tax was not in effect on or before November 30, 1988.
The LTRA contains a “grandfather” clause which allows political subdivisions that levied a BPT on or before November 30, 1988, to continue to levy, assess and collect such tax “on such subjects upon which the tax was imposed by the political subdivision as of November 30, 1988, at a rate not to exceed the rate imposed by the political subdivision as of November 30, 1988.” Id. The taxpayers challenged the 2007 Resolution on the basis that the exclusion for out-of-district services in the prior Resolution(s) allowed the AASD to impose a BPT on only a part of gross receipts, not all gross receipts as attempted by the 2007 Resolution.
The AASD’s Hearing Officer had concluded that the 2007 Resolution did not violate the LTRA because the BPT continued to tax the privilege of doing business at a rate that did not exceed the rate imposed as of November 30, 1988. The District maintained “that it always possessed the right to tax work outside the Altoona Area School District and simply clarified its rights through the 2007 Resolution.” The common pleas court, however, agreed with the taxpayers’ position that the elimination of the exclusion for gross receipts attributable to services performed outside the AASD, but within Pennsylvania, improperly expanded the scope of the BPT by imposing tax “on a subject, i.e. all of gross receipts, that was not previously taxed.”
As this decision illustrates, it is important to review and analyze the specific provisions of a BPT ordinance or resolution, including any attempts by a taxing jurisdiction to expand the scope of its taxing authority through regulation or otherwise, when evaluating a company’s BPT liability. A taxing jurisdiction that has imposed a BPT only on transactions or services rendered within its territorial limits cannot expand the scope of its tax base by relying on court decisions that have allowed the taxation of extraterritorial receipts based on different tax imposition language.
Companies with offices in the AASD should consider filing refund claims to recover any BPT paid for 2011 and subsequent years on receipts attributable to services or transactions performed outside the AASD.
Sales and Use Tax Seminar – Mechanicsburg
On August, 26, 2014, Sharon Paxton will co-present a full-day seminar on Sales and Use Tax for Manufacturers in Pennsylvania for Lorman Education Services at the Park Inn Harrisburg West. A complete agenda and a link to register at a discounted rate is available at:
Solving State & Local Tax Problems
Call upon the McNees State and Local Tax Group whenever you need assistance with Pennsylvania and other state and local tax problems. Members of our SALT Group routinely advise companies of all sizes, individuals and nonprofit entities on state and local tax issues. We have handled more than 1,000 appeals involving Pennsylvania sales and use tax, corporate net income taxes, capital stock and franchise taxes, insurance taxes, fuels taxes, personal income and other state taxes. Members of our Group also have authored the leading treatise on Pennsylvania local real estate tax law and represented clients in local tax matters in 66 of the Commonwealth’s 67 counties. Our services include:
Assistance in dealing with State & Local Tax Auditors
Assessment and Refund Appeals to the PA Department of Revenue Board of Appeals
Appeals to the PA Board of Finance and Revenue
Appeals to PA County and Appellate Courts
Abandoned and Unclaimed Property (Escheat) Advice and Appeals
Real Estate Valuation and Exemption Appeals before County Boards of Assessment and in PA Courts
Obtaining Letter Rulings
Negotiating Compromises – both in the appeals context and in the collections process
Advice Concerning Legislative Approaches to Solving State & Local Tax Issues
Contact any of the following members of our SALT Group for assistance:
James L. Fritz 717-237-5365 email@example.com
Sharon R. Paxton 717-237-5393 firstname.lastname@example.org
Randy L. Varner 717-237-5464 email@example.com
Bert M. Goodman 610-240-0345 firstname.lastname@example.org
Timothy J. Horstmann 717-237-5462 email@example.com
Megan F. Luck 717-237-5416 firstname.lastname@example.org
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PA TAX LAW NEWS is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material