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Whitehall Township Treasurer Ronald Reaman v. Allentown Power Center, L.P.

Commonwealth Court of Pennsylvania

August 8, 2013

Whitehall Township Treasurer Ronald Reaman
Allentown Power Center, L.P., Appellant

Argued: March 11, 2013




Allentown Power Center, L.P. (Taxpayer) appeals an order of the Court of Common Pleas of Lehigh County (trial court) directing Taxpayer to pay a business privilege tax in the amount of $31, 469.38, including penalties and interest for tax years 1995 through 2009. Taxpayer disputes the trial court's interpretation of Whitehall Township's business privilege tax ordinance as applying to commercial rental property or, alternatively, that if it does owe the tax, it does not owe any penalty on the unpaid tax. We affirm.

Taxpayer and the Township stipulated to the relevant facts. Taxpayer is a New Jersey limited partnership and is the record owner of a commercial rental property located at 2409 MacArthur Road, Whitehall Township, Pennsylvania (Property). The Property is a main retail commercial property in Whitehall. During the tax years 1995 through 2009, several different businesses, including Blockbuster Video and Staples, rented space in the Property.

On December 21, 1970, the Township enacted Ordinance 978, which imposed a business privilege tax on the gross receipts of those engaged in business within the Township. Whitehall Township, Pa., Ordinance 978 (Dec. 21, 1970) (Ordinance 978, __). On December 12, 1988, the Township enacted Ordinance 1638, which replaced Ordinance 978 with largely similar language and provisions. Whitehall Township, Pa., Ordinance 1638 (Dec. 12, 1988) (Ordinance 1638, __). One language difference significant to this appeal is that Ordinance 1638 expressly identified rental income as a type of gross receipt subject to the business privilege tax, and Ordinance 978 did not.

On July 2, 2008, the Township notified Taxpayer that it intended to audit its gross receipts for tax years 2005 through 2007. Taxpayer refused to cooperate. Nevertheless, the Township was able to determine that Taxpayer had not filed a business privilege tax return nor paid that tax for the years 1995 through 2009. On November 19, 2008, the Township issued Taxpayer an assessment for unpaid business privilege taxes in the amount of $42, 962.61, including penalties, interest and unpaid annual licensing fees, for tax years 1995 through 2008. Taxpayer refused to pay, even under protest. Taxpayer did not appeal the tax assessment to the Whitehall Township Tax Appeals Board.

The Township then filed a tax collection action against Taxpayer seeking the sum of $50, 355.14.[1] After formal discovery, the Township revised its tax assessment demand to $31, 469.38, which included fees, interest and penalties through 2009.[2]

In his deposition, Ronald Reaman, former Treasurer for the Township, testified that during his term, from January 1998 to January 2010, the Township assessed its business privilege tax upon rental income, and most property owners paid the tax. Diane Hunsicker, the current Treasurer, testified that the business privilege tax forms are kept for seven years before they are destroyed. Neither Reaman nor Hunsicker could explain why the Township's original business privilege tax ordinance had been replaced with Ordinance 1638.

In his deposition, Robert Susko, a certified public accountant who does audits for several townships, testified about his yearly tax audits for the Township. Each year, Susko picks a class of taxpayers to audit, and in 2008, he selected rental properties. Because Taxpayer did not provide him with the necessary records for his audit, he estimated the tax owing. He noted that for as long as he had been performing audits for the Township, the business privilege tax form has always had a column for rental income.

After the completion of discovery, the matter was assigned to arbitration. The arbitration panel unanimously found in favor of the Township. Taxpayer appealed the decision of the arbitration panel to the trial court. The parties stipulated to the facts, and each party filed a motion for summary judgment. The trial court heard oral argument on December 6, 2012. On January 23, 2012, the trial court entered an order granting the Township's motion for summary judgment and denying Taxpayer's cross-motion for summary judgment. The trial court ordered Taxpayer to pay the Township the sum of $31, 469.38 for unpaid business privilege taxes and associated fees, interest and penalties for tax years 1995 through 2009.

In reaching this conclusion, the trial court decided that the definition of "business" in Ordinance 978, not Ordinance 1638, was controlling. This was because the Local Tax Reform Act, [3] abolished the authority of municipalities to impose a business privilege tax. However, it preserved such taxes if enacted before November 30, 1988. Because Ordinance 1638 was enacted on December 12, 1988, its definition of "business, " which expressly included the rental of property, would not be considered. Nevertheless, the trial court concluded that Taxpayer's rental income derived from its property for tax years 1995 through 2009 satisfied the definition of "business" in Ordinance 978. The trial court found that the Township's ordinance had a broad sweep that was intended to tax revenue from any activity undertaken for profit, such as the rental of commercial real property.

In accordance with these conclusions, the trial court held Taxpayer liable for the business privilege tax and penalties. Because Taxpayer did not pay the tax under protest or appeal the tax assessment, the trial court held that the penalties were appropriate. Taxpayer then appealed to this Court.[4]

On appeal, Taxpayer presents two issues for our review. First, Taxpayer argues that Ordinance 978's definition of "business" does not cover the rental of real property. Second, even assuming the business privilege tax did apply to Taxpayer's rental income, Taxpayer argues that it is not liable for interest and penalties on the unpaid tax for ...

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