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CPA Now
Jan 14, 2013

Taxpayers 1 – Tax Collectors 0

By Peter Calcara, Vice President - Government Relations
The University of Notre Dame may not have won one for “The Gipper” on Monday night, but the Commonwealth Court came up big for some Pennsylvania taxpayers this week. In Berks County Tax Collection Committee, et al. v. The Pennsylvania Department of Community and Economic Development, the court rejected a motion filed by several county tax collection committees to overturn nearly 30 years of precedent, thus maintaining the established interpretation of the so-called Philadelphia “super credit.”

The tax collectors’ primary argument was that application of the super credit violates the Pennsylvania Constitution’s uniformity clause because it treats similarly situated taxpayers differently, and was therefore contrary to other crediting provisions in various tax codes. The collectors also argued that the court’s interpretation in Dunmire v. Applied Business Controls has been misinterpreted or misconstrued over the past 30 years!

Writing for the three judge panel, President Judge Dan Pellegrini spared no punches.

“Contrary to the committees’ claim, our holding in Dunmire has not been misinterpreted or misconstrued; it held that the taxpayers could apply a ‘super credit’ of their Philadelphia EIT to their total net earnings, not just those attributable to Philadelphia.”

With regard to the committees’ uniformity argument, Pellegrini’s rebuke could not have been more clear: “[I]t is based upon the faulty premise that a taxpayer who earns income both in Philadelphia and outside Philadelphia and, therefore, pays the 3.4985 percent nonresident EIT under the Sterling Act on his or her Philadelphia-based income, is similarly situated with another taxpayer whose income is earned entirely outside Philadelphia and who is not subject to the Philadelphia non-resident EIT. While both taxpayers may earn income in the same political subdivision outside Philadelphia, the taxpayer with Philadelphia-based income is paying an increased EIT rate on a portion of that income, whereas the EIT imposed on the other taxpayer’s entire income is at a lower rate.”

In a footnote, Pellegrini observed, “The General Assembly’s rationale for providing a ‘super credit’ for the Philadelphia EIT paid by nonresidents … is to encourage these nonresidents to continue working in Philadelphia and to continue to voluntarily subject themselves to an increased EIT rate rather than moving their workplaces to the surrounding municipalities whose EIT rate is a fraction of that imposed by Philadelphia. Nevertheless, the taxpayers are still subject to the EIT imposed by the local municipality or school district on income earned outside Philadelphia to the extent that that EIT exceeds the EIT paid to Philadelphia on the Philadelphia-based income.”

At the urging of members, the PICPA filed an amicus brief in the matter. While the PICPA did not take a position on the merits of the super credit versus the apportionment method, we did offer the court input on how the super credit works.

It’s anyone’s guess on what happens next. The committees could regroup and ask for a hearing before the full court, or they could seek a legislative solution. The PICPA will continue to follow this matter both in the courts and in the General Assembly, and we will keep members apprised of any developments.

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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.