Pennsylvania’s sales tax is imposed only on the “service fee” portion of charges for “employment agency services,” “help supply services,” and “interior office building cleaning services” (collectively, the “Services”).  See 72 P.S. §§ 7201(g)(6), 7204(51). The taxable “service fee” is the total charge for the Services less the “costs” of the supplied employee which are itemized or stated in the aggregate on “billings” from the vendor.  Historically, taxpayers requesting a refund of tax paid on the “employee cost” component of the Services were permitted to provide letters from vendors attesting to the cost of the supplied employee(s).  In Sales and Use Tax Bulletin 2025-01, the Pennsylvania Department of Revenue (“Department”) announced that, effective March 12, 2025, the Department will no longer accept such letters because “the law requires that the employee costs [be] itemized or stated in the aggregate on the billing….”  The Department advises taxpayers seeking refunds “to have the vendor issue a revised invoice with the employee costs specifically itemized or stated in the aggregate.”

It appears that the Department will continue to accept vendor attestation letters when auditing purchasers of such Services.  However, the Bulletin specifies that, if a taxpayer receives relief based on a letter from the vendor, “the vendor may be assessed a tax deficiency, plus interest and penalties if it is determined that the employee costs are inaccurate.” 

If you have any questions about the Department’s Bulletin, or any state or local tax issue, please feel free to contact Sharon Paxton (717-237-5393) or any member of the McNees SALT Group. 

The Internal Revenue Service (IRS) has recently released a new form, 15620, which will significantly impact the way taxpayers report certain transactions in relation to Section 83(b) elections.

What is an 83(b) Election?

An 83(b) election is a valuable tax strategy for individuals who receive property, such as restricted stock or LLC ownership interests, as compensation in exchange for services. However,  the property is still subject to vesting. By making an 83(b) election, the individual can lock in the tax liability at the time of transfer, which can result in significant tax savings if the property or stock increases in value over time. In addition, 83(b) elections also put a clear stake in the ground and begin the tolling period for long-term capital gain treatment.

Example of 83(b) Election tax savings

To illustrate, suppose an individual receives restricted stock valued at $500, but the rights do not vest for three years, and during that timeframe, the stock’s value increases to $2,000. By making an 83(b) election, this person can yield substantial tax savings, because not only will they pay tax on the $500 rather than the $2,000, but they will also be eligible for long-term capital gain treatment instead of having to wait an additional year from the date of vesting.

Risks of making an 83(b) Election

However, some risks are associated with making an 83(b) election. If the property or stock decreases in value, the individual will have already paid taxes on the higher value. Additionally, if the individual’s rights to the property never vest, they will not be able to recover the taxes paid.

Benefits of using Form 15620 for 83(b) Elections

The new IRS Form 15620 can now be used by taxpayers to make an 83(b) election. The form requires taxpayers to provide detailed information about the property or stock received, including the date of transfer, the total fair market value, and the amount of tax paid. The form must be filed within 30 days from the date the transfer occurs by mailing it to the IRS, and the taxpayer must also send a copy to the employer or person who granted the property or stock.

The new IRS Form 15620 is an important development for taxpayers who make 83(b) elections. By providing detailed information about the property or stock received (and its valuation at the time it is received), taxpayers can ensure they comply with IRS reporting requirements and avoid potential penalties. Understanding 83(b) elections is critical for individuals who receive property subject to vesting as compensation, and consulting with a tax professional is highly recommended before making an election under Code Section 83(b).

In an unreported panel decision of Armstrong Township v. Lycoming County Board of Assessment Appeals and Choice FuelCorp, Inc., 140 C.D. 2022 (Pa. Cmwlth. Ct. Apr. 5, 2024), the Commonwealth Court of Pennsylvania reversed the trial court’s order that had enforced a settlement agreement between Armstrong Township (the “Township”) and Choice FuelCorp, Inc. (“Choice”). This case sheds light on the critical aspects of settlement agreements and the necessity of a clear “meeting of the minds” for enforceability. Here, we break down the court’s rationale and implications for legal professionals.

Case Background

Choice purchased a property in Lycoming County in 2006, which was utilized as a fuel tank storage farm under a non-conforming use. In 2016, to bring the tanks back to operational status, Choice entered into a consent order and agreement requiring them to submit a market value report, which they reported as $3,700,000. The Township, noting a discrepancy between its assessed value of $237,180 and Choice’s reported market value, requested a reassessment by the Lycoming County Board of Assessment Appeals (“Board”). The Board, however, upheld the original assessment. The Township subsequently appealed to the trial court, which vacated the Board’s decision and set the property’s market value at $774,177.

Settlement Negotiations and Dispute

The parties entered into settlement negotiations during the litigation process. The Township claimed an agreement was reached with Choice for reassessed values for the years 2020 and 2021. However, Choice’s owner, Jason Weisz, promptly repudiated the proposed terms, leading to the Township’s motion to enforce the settlement. The trial court granted this motion, but Choice appealed, arguing there was no enforceable agreement due to the lack of mutual assent.

Court’s Analysis

Judge Lori A. Dumas, writing for the Commonwealth Court, focused on whether there was a “meeting of the minds” essential for a binding settlement agreement. The court highlighted several key points:

  • Lack of Mutual Assent:

    The correspondence between the parties, especially Weisz’s immediate repudiation of the terms, indicated ongoing negotiations rather than a finalized agreement. The court underscored that an email from the Township’s counsel asking for written confirmation of the settlement was an implicit acknowledgment that the agreement was not yet finalized.

    • Attorney’s Authority:

    The court also examined whether Choice’s attorney had the express authority to finalize the settlement. Given Weisz’s prompt denial and testimony indicating his disagreement with the terms, the court found no evidence of such authority.

    • Case Law Application:

    The court distinguished this case from the trial court’s use of case precedents like Mastrioni-Mucker v. Allstate Insurance Company, 976 A.2d 510 (Pa. Super. Ct. 2009) and Reed v. Pittsburgh Board of Public Education, 862 A.2d 131 (Pa. Cmwlth. Ct. 2004), where settlements were upheld due to clear mutual assent and agreed terms. In contrast, the evidence here pointed to significant miscommunications and lack of agreement on essential terms.

    Implications for Legal Practice

    This decision underscores the importance of clear, unambiguous communication and documentation in settlement negotiations. Legal professionals should ensure:

    • Documented Consent: All parties must explicitly agree to the terms in writing, and attorneys should secure clear, documented authority from their clients before finalizing agreements.
    • Clarity in Negotiations: Ambiguities and conditional acceptances should be clarified promptly to avoid disputes over whether a binding agreement exists.
    • Evidentiary Support:  In case of disputes, thorough documentation and credible testimony are crucial in demonstrating the presence or absence of mutual assent.

    Conclusion

    The reversal of the trial court’s decision in Armstrong Township highlights the judiciary’s stringent standards for enforcing settlement agreements. The ruling serves as a critical reminder for legal practitioners about the necessity of precise and unequivocal agreements in settlement negotiations to avoid protracted litigation and ensure enforceability. This blog post is based on the Commonwealth Court’s decision in the case referenced above and aims to provide legal professionals with insights into the court’s reasoning and the broader implications for legal practice.   If you have any questions regarding the implications of this case, or if you have any SALT issues, please contact Ryan Gonder, Esquire (717-237-5340) or any member of the McNees SALT Group.

    Allegheny County is no longer going to be the oddball Pennsylvania county when it comes to its annual assessment appeal deadline. On June 4, 2024, Allegheny County amended its Ordinance regarding annual assessment appeal deadlines so that for the 2025 tax year all annual assessment appeals shall be filed by October 1, 2024. Additionally, for years after 2025, the annual assessment appeal deadline changes to September 1. These are significant changes that need to be adhered to in order to timely file going forward.

    Historically, Allegheny County, with an annual assessment appeal deadline of March 31, was the only county in Pennsylvania (1 of 67) where you appealed your assessed value the year it was already effective. Hence Allegheny County and all of its taxing jurisdictions could never budget accordingly. Whereas every other county in Pennsylvania had annual assessment appeal deadlines of August 1, August 15, August 31, September 1, or the first Monday in October, which were well before the assessed values were actually in effect, i.e. January 1.

    The common level ratio for Allegheny County for the 2025 tax year is 52.7%, which is down from 54.5% for the 2024 tax year.

    If you have any questions about appealing your real commercial property in Allegheny County for the 2025 tax year, please contact Paul Morcom (717-237-5364) or any member of the McNees SALT Group.

    Pennsylvania real estate taxes are usually very large line items on any corporate balance sheet. Accordingly, you should be reviewing your assessed value(s) on an annual basis if you are a Pennsylvania commercial or industrial property owner or a lessee of a commercial or industrial property that pays the property taxes as part of your lease. A reduction in your property’s assessed value will have substantial impacts on your balance sheet for many years because Pennsylvania counties don’t perform periodic county-wide reassessments. Thus, if you feel your assessed value(s) are too high, you must timely file an annual assessment appeal in the county that the property is located.

    Unfortunately, there is no set annual assessment appeal deadline for all 67 counties in Pennsylvania. Every county has its own annual assessment appeal deadline.

    The annual assessment appeal deadline of August 1, 2024 for assessed values effective for tax year January 1, 2025 is quickly approaching for the following Pennsylvania Counties:

    Adams, Blair, Bucks, Butler, Cambria, Chester, Clarion, Crawford, Dauphin, Delaware, Erie, Fayette, Franklin, Indiana, Lackawanna, Lancaster, Lawrence, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna, Westmoreland and York.

    The annual assessment appeal deadline of September 1, 2024 for assessed values effective for tax year January 1, 2025 is on the horizon for the following Pennsylvania Counties:

    Armstrong, Beaver, Bedford, Bradford, Cameron, Carbon, Centre, Clearfield, Clinton, Columbia, Cumberland, Elk, Forest, Fulton, Greene, Huntington, Jefferson, Juniata, Lebanon, Lycoming, McKean, Mercer, Mifflin, Montour, Northumberland, Perry, Pike, Potter, Schuylkill, Snyder, Somerset, Sullivan, Tioga, Union, Venango, Warren, Washington and Wayne.

    There are a few oddball counties that have to be different and thus the annual assessment appeal deadline for Berks County is August 15, 2024 and Wyoming County is usually August 31, but because this year August 31 falls on a Saturday, you will have until September 2, 2024 to file an annual assessment appeal.  Philadelphia County is not a specific date, but instead the annual appeal deadline is the first Monday in October, which is the 7th this year.

    Each county has its own separate set of local rules pertaining to annual assessment appeals that need to be navigated in order to successfully file an annual assessment appeal.  If you own or lease commercial or industrial properties in Pennsylvania, please make sure that you are aware of these appeal deadlines. Additionally, if you are not sure if you should file an appeal on your property, please contact Paul Morcom at 717-237-5364 or any member of the McNees Wallace & Nurick LLC SALT team to determine if an appeal is warranted for tax year 2025.

    A little known statutory change now allows for certain fraternal societies to obtain tax exempt status in Pennsylvania.

    In Hospital Utilization Project v. Commonwealth, 487 A.2d 1306 (Pa. 1985) (“HUP”), the Pennsylvania Supreme Court set forth the following five-pronged test to determine whether an entity qualifies as “purely public charity” under the Pennsylvania Constitution and is therefore entitled to exemption from certain taxes:

    • Does the entity advance a charitable purpose?
    • Does the entity donate or render gratuitously a substantial portion of its services?
    • Does the entity benefit a substantial and indefinite class of persons who are legitimate subjects of charity?
    • Does the entity relieve the government of some of its burden?, and
    • Does the entity operate entirely free from private profit motive?

    In 1997, the General Assembly enacted the Institutions of Purely Public Charity Act, also known as Act 55, in response to the court system’s perceived lack of consistency in applying the HUP test.  Act 55 codified five HUP prongs but defined how prongs were met and added other requirements.  The purpose of Act 55 was to bring objectivity and consistency.

    Regarding the third prong above, Act 55 states that an institution does not benefit an indefinite class of persons who are legitimate subjects of charity if: (i) the institution does not qualify as a 501(c)(3) non-profit; and (ii) the institution is, among other things, qualified under 501(c)(7) as a “club organized for pleasure or recreation” or 501(c)(8) as a “fraternal beneficiary society, order or association.”  Based on this language alone, many fraternal associations, such as, for example, Masonic lodges, would not qualify as institutions of purely public charity and would not be entitled tax exempt status in Pennsylvania.

    However, effective December 13, 2023, the General Assembly enacted an obscure provision into the Fiscal Code as part of their budget negotiations, stating that, notwithstanding the language in Act 55, an institution is considered to benefit a substantial and indefinite class of persons who are legitimate subjects of charity if:

    • the institution is a domestic fraternal society, order or association, that operates under a lodge system, the net earnings of which are devoted to religious, charitable, scientific, literary, educational and fraternal purposes and qualifies for an exemption from taxation under 26 U.S.C. § 501(c)(8) and (10) [] and:
    • the organization has been operating in this Commonwealth for at least 100 years upon the effective date of this subparagraph; and
    • the organization has not been issued a license under the act of April 12, 1951 (P.L.90, No.21), known as the Liquor Code.

    (2) the institution is a title-holding organization that qualifies for an exemption from taxation under 26 U.S.C. § 501(c)(2) that is wholly owned or controlled by one or more qualifying fraternal organization described under paragraph (1).

    72 P.S. § 102-L.

    This new language now opens the door for certain long-standing fraternal societies to qualify for sales and real estate tax exemptions in Pennsylvania.

    If you have any questions regarding this statutory change, or if you have any SALT issues, please contact Adam Koelsch, Esquire (717-237-5305) or any member of the McNees SALT Group.

    In Mixell v. Cumberland County Board of Assessment Appeals, 313 A.3d 330 (Pa. Commw. Ct. 2024), the Commonwealth Court held that the Board of Assessment Appeals (“Board”) had failed to show proof of mailing sufficient to establish that a property owner had received hearing notices in her property tax appeal.

    The property owner had filed an appeal to restore the so-called “clean and green” preferential assessment on her property after it was subdivided and the county assessed roll-back taxes on it. The Board supposedly mailed hearing notices to the owner, but she did not appear at the hearing. The Board then issued a decision denying the appeal on the basis that the owner had abandoned it under 53 Pa.C.S. § 8844(e)(1).  That statute provides that any appellant who fails to appear for the hearing is presumed to have abandoned the appeal unless the board has agreed to reschedule the hearing date.

    The property owner appealed to the trial court, claiming that she had been unable to attend the scheduled hearing. The Board filed preliminary objections, asserting abandonment as a basis to dismiss the appeal, and attaching the hearing notice and the decision. In response, the owner filed an answer and new matter, asserting that she never received the hearing notices.

    Under the “mailbox rule,” proof of mailing raises a rebuttable presumption that a notice mailed was received by the intended recipient.  Once it is shown that a notice was mailed, the rule is difficult to rebut, because caselaw has established that mere testimony from the intended recipient that the notice was not received is insufficient.

    Based only on the filings, the trial court concluded that the property owner had received the hearing notices based on the mailbox rule and dismissed the appeal.

    On appeal, however, the Commonwealth Court concluded that there was insufficient evidence to sustain the preliminary objections based on the mailbox rule. The only evidence in support of the rule was the hearing notices themselves, which showed a date but bore no other indication that the notices were in fact mailed. There was no testimony or other evidence showing that the notices were taken to a regular place of mailing.  The Commonwealth Court concluded that, in any event, even if the dates on the notices constituted proof of mailing, the trial court had not allowed the property owner an opportunity to rebut the presumption of receipt.

    As a result, the Commonwealth court vacated the trial court’s order and remanded it back to the trial court for a hearing on the mailbox rule.

    The mailbox rule is often invoked by boards and taxing authorities to deny appeals on the basis of missed deadlines.  Consequently, understanding how best to rebut the rule’s powerful presumption often means the difference between winning and losing a case.

    If you have any questions about this Decision or any state or local tax matter, please feel free t contact Adam Koelsch (717-237-5305) or any member of the McNees SALT Group.

    In HUF Restaurant, Inc. v. Commonwealth, Docket No. 394 F.R. 2018 (04/19/2024), a three-judge panel of the Commonwealth Court of Pennsylvania ruled that HUF Restaurant, Inc. (“HUF”), which had purchased restaurant assets and a liquor license from Zola New World Bistro, Ltd. (“Zola”) in a bulk sale transaction, was liable for unpaid sales and use taxes owed by Zola.  HUF had obtained a lien certificate from the Pennsylvania Department of Revenue (“Department”) prior to closing which indicated that there were no outstanding state tax liens against Zola.  In addition, the Department had issued a tax clearance in conjunction with the transfer of a liquor license from Zola to HUF.

    The Department had advised Zola that it would be subject to a sales and use tax audit after Zola and HUF had entered into an agreement of sale, but prior to the closing date.  The audit subsequently resulted in a sales and use tax assessment against Zola.  Zola filed a timely appeal with the Department’s Board of Appeals but did not file a further appeal after the Board denied relief.  HUF was not aware of the sales tax audit prior to closing on the transaction and only became aware of the tax assessment after the appeal period had lapsed and the Board of Appeals’ decision had become final.  Although Zola was contractually responsible for this tax liability under the agreement of sale, it failed to pay the assessment.  The Department therefore issued a bulk sale notice of assessment against HUF for Zola’s sales and use tax liabilities for the pre-closing period.

    HUF appealed the Department’s assessment against it, and the administrative boards denied relief on the basis that no bulk sale certificate was obtained before HUF’s purchase of Zola’s assets.  HUF argued that it should not be responsible for the disputed tax liability because the Department had cleared HUF and Zola of any taxes owed as part of the liquor license transfer process.  HUF further claimed that the Commonwealth should be estopped from pursuing the assessment because HUF had justifiably relied on this tax clearance during its purchase of Zola’s assets, and the Department failed to inform HUF of the pending audit when it certified to the PLCB that Zola did not owe any state taxes at that time.  The Court concluded that HUF’s failure to obtain a bulk sale certificate pursuant to 72 P.S. § 1403(a) was fatal to its appeal.  The Court explained that there are no exceptions to the statutory bulk sale certificate requirement and HUF could not “rely upon the clearance provided during the liquor license transfer process because that involved a separate statutory scheme and the clearance provided was of limited scope.”   

    If you have any questions about this Decision or any state or local tax issue, please feel free to contact Sharon Paxton (717-237-5393) or any member of the McNees SALT team.

    The deadline for filing a real estate tax assessment appeal for the 2024 tax year is fast approaching in Allegheny County.  The deadline is April 1, 2024.  The Common Level Ratio for 2024 is 54.5%.

    Allegheny County is the only county out of the 67 counties in Pennsylvania whereby you appeal the assessed value when the assessed value is already effective.

    If you have any questions about appealing your real commercial property in Allegheny County, please contact Paul Morcom (717-237-5364).

    On January 10, 2024, the Commonwealth Court held in NHL Players Ass’n v. City of Pittsburgh, (No. 1150 C.D. 2022) that the City of Pittsburgh’s Facility Tax — a unique tax on nonresidents who use a sports stadium or arena (“Facility”) to engage in an athletic event or other performance — violated the Pennsylvania Constitution.

    The Local Tax Enabling Act (“LTEA”), a state statutory act, permitted the City of Pittsburgh (“City”) to impose the Facility Tax in a flat dollar amount or up to 3% of the income attributed to a nonresidents’ usage of the facility.  The City imposed a 3% Facility Tax by ordinance.

    By contrast, residents, including those earning income at a City Facility, did not pay the Facility Tax, but instead paid a 1% local Earned Income Tax (“EIT”) to the City and a 2% tax to the School District. Nonresidents performing work in the City, but not earning income at a Facility, also paid a 1% EIT, but were prohibited from paying a tax to the School District by law.

    The NHL Players Association, the MLB Players Association, the NFL Players Association, and various individuals, filed a civil complaint against the City, alleging in part that the Facility Tax ordinance (importantly, not the provision of the LTEA authorizing the ordinance) violated the Pennsylvania Constitution.  Specifically, the complaint alleged that the ordinance violated the Uniformity Clause, which states that “all taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax.”  The trial court agreed that the tax violated the Uniformity Clause, because nonresident athletes paid a 3% Facility Tax while resident athletes only paid a 1% EIT.

    On appeal, the City argued that the tax burden on both residents and nonresidents working at a Facility is 3% — residents pay a 1% EIT and a 2% School District tax, and nonresidents pay the 3% Facility Tax.  The City further argued that the trial court should have severed the unconstitutional language in the ordinance by removing the word “nonresident” and replacing it with “individual.”

    But the Commonwealth Court disagreed.

    The Court held that the Facility Tax ordinance violated the Uniformity Clause.  The Court concluded that the tax burdens were not equal because the City has effectively imposed a 3% EIT on nonresidents, but imposed a 1% EIT on residents, who derive income from a Facility.  According to the Court, the 2% School District tax paid by residents was not relevant, because such a tax could not be imposed on nonresidents.  Nothing argued by the City justified different treatment between the two classes of taxpayer.

    The Court further held that the unconstitutional language could not be severed from the ordinance.  Replacing the word “nonresident” with “individual” would impose the Facility Tax on residents.  The LTEA, however, authorizes a Facility Tax on nonresidents only.  According to the Court, the LTEA did not allow expansion of the ordinance to impose tax on residents because the LTEA specifically stated that, if the LTEA authorizing provision were found unconstitutional, nonresidents would simply be required to pay EIT.  Therefore, the Court invalidated the ordinance.

    Local taxes are often complicated and frequently overlooked.  Such taxes are not necessarily permissible simply because they are authorized by the state legislature.  Taxpayers should not automatically assume that they are subject to every tax and should carefully consider their local tax liabilities.

    If you have any questions about this Decision or any local tax matter, please feel free to contact Adam Koelsch (717-237-5305) or any member of the McNees State and Local tax team.