The Commonwealth Court has ruled that Whitehall Township in Lehigh County could not tax sales occurring outside the territorial limits of the township.
In a February 11, 2013 decision, the Commonwealth Court of Pennsylvania struck down the township’s business privilege tax assessment primarily based upon the plain language of the imposition ordinance. In Giles & Ransome, Inc. v. Whitehall Township, 645 C.D. 2012 (Pa. Cmwlth., February 11, 2013), the Commonwealth Court closely examined Whitehall Township’s Business Privilege Tax ordinance and concluded that the ordinance permitted the imposition of tax only on transactions within the territorial limits of the township.
Whitehall Township had issued a Business Privilege Tax (BPT) assessment on Giles & Ransome, Inc. which taxed the gross sales of three salespeople who occasionally used an office in the township, but were not assigned to any particular office and were not managed by anyone in the township. Giles & Ransome sells heavy equipment in the eastern part of Pennsylvania and parts of New Jersey and Delaware. The record showed that the salespeople spent nearly all of their time in the field visiting customers over a multi-county area and that all sales orders were approved or rejected outside the township.
The township argued that these sales should be included in the BPT base, even though the township ordinance only imposes tax on “the actual or whole gross volume of business transacted by such taxpayer within the territorial limits of the Township.” Whole or Gross Volume of Business is further defined by the ordinance as “the gross consideration credited or received for or on account of sales made, services performed, rentals of property, and/or other business transactions, within the territorial limits of the Township . . . .”
The township relied on earlier cases allowing municipalities to impose tax on receipts from services rendered outside the township where the service activities were managed, directed and controlled from a headquarters office or “base of operations” within the taxing jurisdiction.
The Commonwealth Court, however, agreed with Giles & Ransome that the township could not tax the extra-territorial sales of the salespeople. Relying on a plain reading of the ordinance, the court noted that this was not a case for a “base of operations” analysis; but rather, the ordinance specifically restricted the imposition of tax to only those transactions within the territorial limits of the township. Since the record contained no evidence of specific sales occurring within the township, the court concluded that the assessment was improper. The township has filed a petition for allowance of appeal to the Supreme Court of Pennsylvania, which has been opposed by Giles & Ransome. We will keep you updated on further developments.
The lesson to be taken away from the court’s decision is that it is crucial to analyze the language of the statute to determine what the scope of the tax is. Business privilege and mercantile tax ordinances take different forms, which necessarily require different modes of analysis. For instance, an ordinance can be a broad, privilege-based ordinance, with no territorial restrictions, like the City of Pittsburgh ordinance that was analyzed in the seminal case of Gilberti v. City of Pittsburgh, 511 A.2d 1321 (Pa. 1986), the first case to suggest a “base of operations” justification for taxing extraterritorial sales. Alternatively, the ordinance may take the form of a narrow, transaction-based ordinance, with a territorial restriction like the one in Giles & Ransome. In that case, the township may properly tax only those transactions that occur within the territorial limits of the township.
[Editor’s Note: This case was argued in the Commonwealth Court by Randy Varner.]