Altoona Business Privilege Tax Expansion Violates Local Tax Reform Act

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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.

Topics:  Business Privilege Tax, Gross Receipts, Local Tax Reform Act, Tax Reform

Published In: General Business Updates, Education Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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