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Public Enemy Number One: Business Privilege Taxes and the Court's Flawed Reasoning in Applied Tech Products Corporation v. Radnor Township (Downloadable) |
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This article was originally published in The State and Local Tax Lawyer, Volume 11, 2006. The article was authored by Pamela Millard, and is 15 pages in length.
ABA Editorial Board: Editor in Chief -- Gregory A. Nowak; Managing Editor -- Debra Silverman Herman; Primary Editors -- Brandee Tilman, Jeffrey C. Glickman
Georgetown Student Editorial Board: Managing Editor -- Nathan C. Brunette; Publications Editor -- Kelly Scindian
Note: The following is an excerpt from the introduction to the article as published in The State and Local Tax Lawyer.
In Applied Tech Products Corp. v. Radnor Township, the Commonwealth Court of Pennsylvania affirmed the ruling of the Court of Common Pleas of Delaware County that a company doing business in the town of Radnor, Pennsylvania with a group of affiliated companies located outside the township was subject to Radnor's Business Privilege Tax (BPT). The Commonwealth Court focused on two issues in its decision: (1) whether the taxpayer, who offers management and financial services to affiliated entities, provided or offered services "to the general public or a limited number thereof;" and (2) whether management fees received by the taxpayer from its affiliated companies were excludable as dollar-for-dollar reimbursements under the Township's BPT Ordinance. On the first issue, the Court held that the affiliated companies with whom the taxpayer conducts business are members of the public, and that regulations promulgated by Radnor Township support the contention that sales to affiliated business entities are subject to the BPT. On the second issue, the court concluded that management fees received by the taxpayer from affiliated entities were not excludable as dollar-for-dollar reimbursements under the BPT because the fees represented payment for services and were not attributable as expenses to a specific affiliate. This Note asserts that the Commonwealth Court of Pennsylvania correctly determined in Applied Tech that the taxpayer provided business services "to the general public or a limited number thereof," but used tenuous legal reasoning to do so. As a result, the court established case law in conflict with relevant precedent, and set the stage for future BPT litigation.
Part I of this Note examines the relevant provisions of the BPT, associated BPT Regulations, and the effect of the Local Tax Reform Act of 1988 (LTRA) on Radnor's BPT Ordinance. Part II sets forth the facts of the case and summarizes the decisions of the Court of Common Pleas of Delaware County and the Commonwealth Court of Pennsylvania. Part III analyzes how the Commonwealth Court relied upon questionable precedent to establish a legal issue already conceded by the taxpayer, and ignored relevant case law in reaching its decision. Part III argues that the court missed an important opportunity to establish a consistent legal standard for the statutory language at issue in the case. Part III then discusses the role of the LTRA in limiting the Township's ability to promulgate regulations broadening the scope of its BPT Ordinance. Part IV concludes that, given the conflict with past opinions, the Supreme Court of Pennsylvania should resolve the inconsistent rulings and provide much-needed guidance for businesses uncertain of their BPT liabilities, municipalities hamstrung by legislative restrictions imposed by the LTRA, and legislative bodies in the state of Pennsylvania struggling to implement local tax reform.
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