Business Privilege Tax, Interest and Penalties Sustained

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A panel of the Commonwealth Court sustained a decision that upheld the assessment of a township’s business privilege tax, interest and penalties. Whitehall Township Treasurer v. Allentown Power Center, L.P., No. 248 C.D. 2012 (Pa. Commw. Aug. 8, 2013). The taxpayer was assessed business privilege tax for 15 years beginning in 1995 on gross receipts from a rental commercial property. Evidently, no returns had been filed. The ordinance was imposed on gross receipts from any activity carried on or exercised for gain or profit in the township including, but not limited to, the sale of merchandise or other tangible personalty and the performance of services. The taxpayer argued that the rental of real property was not the sale of merchandise or other personalty or the performance of services, and therefore, no tax could be imposed. The court disagreed; the commercial property certainly was carried on for profit. The “included, but not limited to” language in the ordinance allowed the taxation of gross receipts from other than the sale of merchandise or other personalty or the performance of services, so long as the gross receipts were from an activity carried on for profit. The taxpayer further relied on a 1988 amendment to the business privilege tax ordinance that added rental income as an example of gross receipts subject to the business privilege tax. The later ordinance itself was ineffective, because it was enacted after Act 1988-145 had prohibited the enactment of business privilege taxes after November 30, 1988. 72 P.S. § 4750.533. However, the taxpayer argued that the change in language showed that rental income was not taxable under the original ordinance. The court was not persuaded, principally because the 1970 ordinance included an exception for gross receipts on rentals by an owner from a building erected as a private dwelling and occupied as a residence by the owner during the tax year, for which there would have been no need if rental incomes were not covered. Thus, the later ordinance merely clarified the first ordinance, and the addition of the rental income example did not undermine the broad reach of the first ordinance.

The court affirmed the denial of an abatement of interest and penalties, on the grounds that the ordinance in question did not provide for abatement. The court stated that, absent authority in the ordinance to abate interest and penalty, there was no authority to do so, citing Nine Penn Center Associates v. Tax Review Board, 692 A.2d 246 (Pa. Commw. 1997). The court further noted that the tax was not paid under protest and the taxpayer did not appeal an assessment by the township, but proceeded directly with an action in common pleas.

This Alert was reprinted with permission from the PA Tax Recap, a publication of Pa Legislative Services.