Navigating Pennsylvania Local Business Privilege Taxes

Navigating Pennsylvania Local Business Privilege Taxes

Nov 28, 2022

Pennsylvania CPA JournalIn addition to federal and state income tax obligations, business taxpayers operating in Pennsylvania also may be responsible for an array of additional local taxes, depending on the localities in which they transact business. These local business privilege or mercantile taxes (BPT) can be difficult to navigate for the unfamiliar taxpayer. This article identifies some of the more frequent issues faced by taxpayers in navigating the BPT regime and provides recommendations for avoiding common pitfalls in meeting BPT obligations.


Pennsylvania local BPT stems from Act 511, enacted in 1965 as the Local Tax Enabling Act (LTEA). The LTEA gave all townships and municipalities, except for Philadelphia, the authority to impose certain taxes to raise additional revenue to finance local governments.1 One of the more prominent taxes included in the LTEA was the BPT, a tax on the “privilege” of doing business within a local jurisdiction. BPT is measured by the amount of gross receipts earned by a business from its base of operations inside a township or municipality. After the enactment of the LTEA, many municipalities adopted a BPT to increase their tax revenues.

In 1988, Pennsylvania passed the Local Tax Reform Act, which mandated that no new receipts-based tax legislation could be enacted by local jurisdictions.2 As a result, only 272 out of roughly 3,000 potential taxing jurisdictions impose a BPT.3 However, those jurisdictions have moved to more aggressively impose BPT on businesses operating within their boundaries based on their interpretation of existing local ordinances and regulations. Over the past 20 years the reach of the BPT has been frequently contested, and Pennsylvania courts have issued decisions establishing important, but sometimes contradictory, rules.

Nexus Issues

One of the more controversial BPT issues concerns whether a business is subject to a municipality’s BPT in the first place. Central to this is the question of whether a “base of operations” is necessary to establish nexus with a locality imposing a BPT. In Gilberti v. City of Pittsburgh, the Pennsylvania Supreme Court ruled that Pittsburgh could tax all of a taxpayer’s receipts, regardless of where the taxpayer performed its services because that taxpayer’s base of operations was in Pittsburgh.4

The Pennsylvania Commonwealth Court added clarity to the Gilberti decision 13 years later in Township of Lower Merion v. QED Inc.5 Lower Merion Township attempted to impose its BPT on a contractor that performed work in the township, despite the fact that its sole office was in Radnor Township. Lower Merion interpreted its ordinances and regulations so as to impose BPT upon contractors for work performed within the township, regardless of the location of the contractor’s offices. The court found that, under the LTEA, the contractor was not liable to pay BPT to Lower Merion Township when it did not maintain a base of operations within the township.

In 2007, the Pennsylvania Supreme Court decided the case of V.L. Rendina Inc. v. City of Harrisburg, and turned the “base of operations” principle on its head.6 In Rendina, a taxpayer with a principal place of business in Lancaster was a general contractor for a project taking place in Harrisburg over a three-year period. During the project, the contractor leased and maintained a jobsite trailer in Harrisburg from which a superintendent directed and controlled the project. The court found that Harrisburg’s BPT ordinance was broad enough to subject the contractor to BPT. The maintenance of a trailer for a long-term construction project constituted the privilege of doing business in Harrisburg, regardless of whether the trailer was used as a base of operations or whether the construction project represented a “single, lengthy transaction.”

Rendina established that a base of operations is not always necessary to create nexus with a BPT-imposing jurisdiction; all that is necessary is a presence within the locality that satisfies the conditions of “doing business” as defined in that jurisdiction’s ordinances and regulations. This means a taxpayer could theoretically be subject to tax in two jurisdictions (where it has a base of operations and where it performs its services) on the same amount of gross receipts.

Act 42

Act 42 was enacted in 2014 to solve the discrepancies created by Gilberti and Rendina. Effective for tax years beginning on or after Jan. 1, 2014, the law created a “bright-line” rule for when localities may impose a BPT. Act 42 codified the “base of operations” standard established in Gilberti, adding that the base of operations must be an “actual, physical, and permanent place of business.”7 In addition, the law provided that a locality may also levy a BPT if a business conducts transactions in that locality for all or part of 15 or more days within the calendar year. To prevent double taxation, Act 42 permits a taxpayer to exclude from its “base of operations” location tax base any gross receipts subject to tax under the 15-day rule.8 Despite Act 42’s intended goal of providing a bright-line BPT nexus standard, taxpayers may now have multiple local tax-filing obligations in Pennsylvania that they did not have previously.


When a business has a base of operations in a Pennsylvania jurisdiction but also performs work outside the state, interstate commerce issues now come into play. The Pennsylvania Supreme Court established in Northwood Construction Co. v. Township of Upper Moreland that taxpayers may apportion their gross receipts attributable to their Pennsylvania activities where they transact business both in state and out of state.9 In Northwood, Upper Moreland Township attempted to tax a construction company on 100 percent of its gross receipts, a significant portion of which were generated from construction sites in Delaware, New Jersey, and Maryland. The court held that the township’s BPT violated the external consistency test established under the fair apportionment prong of the Complete Auto Transit v. Brady test.10 Because the BPT was not fairly apportioned, the court found it was unconstitutional under the Commerce Clause.

Perhaps the most common area of controversy in the local BPT area is computing the tax base, and specifically utilizing apportionment concepts, in attempting to achieve the imperfect science of attributing the “correct” amount of receipts to a municipality. Taxpayers should be cognizant of potentially aggressive assessments by tax collectors on audits, and be prepared to defend their filing positions.

Local BPT in Practice

Taxpayers should always consult the BPT ordinance and regulations of the jurisdictions in which they perform services to better understand the specifics of a locality’s BPT structure. Sometimes the language of an ordinance or regulation is limited enough that it may yield a favorable result for the taxpayer. For example, the city of Chester attempted to impose its BPT on a trash-hauling company based in the city for business conducted outside the city. Chester’s city ordinance, however, specifically stated that its BPT applied only to business transacted within city limits. The Commonwealth Court concluded that, based on the ordinance, the company was not liable for BPT on gross receipts earned outside the city.11

Pennsylvania local BPT presents plenty of ambiguities and challenges for local businesses and for tax collectors. A web of statutes, case law, local ordinances, and regulations can be confusing. Businesses can stay on top of BPT obligations with a basic understanding of the BPT regime, keeping up to date on the ordinances and regulations of the localities in which they do business, diligently tracking the number of days spent in each locality, and understanding state and local tax concepts in computing the tax base. 
1 The LTEA is not applicable to Philadelphia because it is governed under a different set of laws known as the Sterling Act and the First City Business Tax Reform Act.
2 Act of Dec. 13, 1988, P.L. 1121, 72 Pa. Stat. Sections 4740.101-4750.3112.
3 Pennsylvania Department of Community & Economic Development, 2014 Annual Financial Report. 
4 511 A.2d 1321 (Pa. 1986).
5 738 A.2d 1066 (Pa. Commw. Ct. 1999).
6 938 A.2d 988 (Pa. 2007).
7 53 Pa. Stat. Section 6924.301.1(a.1)(2).
8 53 Pa. Stat. Section 6924.301.1(a.1)(1)(i) and (ii).
9 856 A.2d 789 (Pa. 2004).
10 430 U.S. 274 (1977). Under
Complete Auto, a state or local tax will be invalidated under the Commerce Clause of the U.S. Constitution unless it is applied to an activity with a substantial nexus with the taxing state; is fairly apportioned; does not discriminate against interstate commerce; and is fairly related to benefits provided by the state.
J&K Trash Removal Inc. v. City of Chester, 842 A.2d 983 (Pa. Commw. Ct. 2004).

Vito A. Cosmo Jr., CPA, CGMA, is a managing director, state and local taxes, at Grant Thornton. He can be reached at

Matthew D. Melinson, CPA, is a partner, state and local taxes, at Grant Thornton and a member of the
Pennsylvania CPA Journal Editorial Board. He can be reached at

Patrick K. Skeehan, JD, is a state and local tax senior associate with Grant Thornton. He can be reached at

Local Tax Issues Update (Conference on Pennsylvania Taxes)
Hear Matthew Melinson, CPA, MST, speak on business privilege taxes - issues and enforcement, local services tax requirements, tax tips for business owners and companies, and more.

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