Perils of the Business Privilege Tax
With Tax Season in full bloom and filing deadlines just around the corner, people often forget that more than just income taxes must be paid. One such tax, known as a Business Privilege Tax (BPT), is levied by local taxing authorities against all types of businesses, with few exceptions. Often imposed by municipalities throughout the Commonwealth, it is nothing more than a tax on the privilege of operating a business in that municipality.
Pursuant to the Local Tax Enabling Act, 53 P.S. § 6924.101 et. seq., “a local taxing authority may levy a tax on the privilege of doing business in the jurisdiction of the local taxing authority if (i) the privilege is exercised by conducting transactions in the jurisdiction of the levying local taxing authority for all or part of fifteen or more calendar days within the calendar year; or (ii) the privilege is exercised through a base of operations in the jurisdiction of the levying local taxing authority. The gross receipts subject to [(ii)] shall not include any receipts subject to a tax measured by such gross receipts which is imposed under subparagraph (i).” 53 P.S. § 6924.301.1(a.1)(1).
While subparagraph (i) provides a clear case of tax liability if the business conducts transactions within the jurisdiction of the local taxing authority for at least fifteen days a year, subparagraph (ii) is much more ambiguous, and could lead to trouble.
In Gilberti v. City of Pittsburgh, 511 Pa. 100, 511 A.2d 1321 (1986), the Supreme Court of Pennsylvania held that maintenance of a business office in the city was an exercise of a privilege “within the limits” of the taxing authority and, hence, was an activity as to which the city could levy a business tax against gross receipts which included income derived from services performed at locations outside city limits.
Moreover, in Fish v. Twp. of Lower Merion, 128 A.3d 764 (Pa. 2015), the Pennsylvania Supreme Court held that a township’s application of a BPT to businesses whose sole income consisted of rent payments on leased real property was not barred by a provision of the Local Tax Enabling Act, which precluded “any tax on leases or lease transactions” because the privilege to do business in the township as a business involved in the leasing industry was not the same as taxing the individual leases.
Though the Commonwealth has since enacted legislation that prevents taxing authorities from levying new BPTs or amending their BPT, those taxes that were in place prior to the legislation can still be levied. Moreover, reading Gilberti and Fish together unveils the true reach of a properly drafted BPT. Depending on how a taxing authority’s BPT was drafted, it is possible that they could levy a tax against a business, with a base of operations within their municipality, even though all of the receipts of the business are generated from work in surrounding municipalities. Such is often the case for businesses that hold and lease property, both residential and commercial, where the receipts of the leases are accounted and administered at a central business location. Regardless of where the receipts are generated, pursuant to Gilberti and Fish, the business would likely be subject to a BPT if the municipality where the business is headquartered decided to levy such a tax. Nevertheless, if the taxing authority having jurisdiction where the receipts are generated also levies a BPT, the business may be able to claim a credit against the BPT levied by the taxing authority where the business headquarters is located.
The application of a Business Privilege Tax is fact specific and there are various nuances that can impact the application to your business. Therefore, it is important to keep up to date records and to fully understand your tax liability. If you have any questions regarding the Business Privilege Tax, and whether your business may be liable, contact one of the attorneys at Hamburg, Rubin, Mullin, Maxwell & Lupin today.
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