The annual assessment appeal deadline of August 1, 2017 is quickly approaching for the following Pennsylvania Counties:

Adams, Bucks, Butler, Cambria, Chester, Dauphin, Delaware, Erie, Fayette, Franklin, Indiana, Lawrence, Lehigh, Luzerne, Monroe, Montgomery, Northampton and York.

Each county has its own separate set of local rules pertaining to assessment appeals that need to be navigated in order to successfully file an annual assessment appeal.  If you have commercial or industrial properties in any of these counties that you feel are over assessed, please contact Paul Morcom or Randy Varner to help you timely appeal those properties.

The Pennsylvania Supreme Court in Valley Forge Towers Apts. N, LP v. Upper Merion Area School District, 49 MAP 2016, held that the taxpayer’s complaint set forth a valid claim that Upper Merion Area School District’s appeal policy of appealing only the real estate assessments of commercial properties violates the Uniformity Clause of the Pennsylvania Constitution.

The case reversed lower court dismissals of taxpayer’s complaint and remanded the matter back to the Montgomery County Court of Common Pleas for further proceedings. The Court found “that a taxing authority is not permitted to implement a program of only appealing the assessment of one sub-classification of properties, where that sub-classification is drawn according to property type – that is, its use as commercial, apartment complex, single family residential, industrial, or the like.”

The Court noted that the Commonwealth Court has been misconstruing the two main principles articulated in Downingtown and Clifton, which are as follows:

  1. All property in a taxing district is a single class, and as a consequence, the Uniformity Clause does not permit the government, including taxing authorities, to treat different property sub-classifications in a disparate manner.
  2. This prohibition applies to any intentional or systematic enforcement of the tax laws, and is not limited to wrongful conduct.

This case is significant for taxpayer’s because it now gives them an avenue to attack school district appeals on Uniformity grounds based on the school district’s appeal policy. If it can be shown through discovery that the school district intentionally or systematically appeals only a subclass of properties then the school district appeal may be dismissed before the taxpayer has to hand over requested discovery from the school district, which may include confidential or proprietary information that the school district could use to try and increase the properties assessed value.

The Valley Forge Towers decision is a big win for taxpayers, but the battle is still far from over. There are many questions still left unanswered by the Court’s decision that still need to be answered.

If your property is appealed by a school district, please contact either Paul R. Morcom, or any member of McNees’ state and local tax group to make sure all of your rights as a property owner are protected.

On October 20, 2017, the McNees State and Local Tax team will present a full-day seminar on Pennsylvania Sales and Use Tax.  Always a popular offering, this seminar will offer CPE credits and will be held at the Hollywood Casino in Grantville, Pa.  Don’t gamble with your knowledge of Pennsylvania tax; rather, let the McNees team present the hottest information and answer any questions you may have.  More specific details will follow.  For now, however, reserve October 20, 2017 on your calendar.  See you at the casino!

Those who pay property tax in Pennsylvania have an annual opportunity to appeal the assessed value of property. Deadlines for these appeals vary by county, but most are either August 1st or September 1st, so now is the time to analyze your assessment to determine whether you may be able to have it lowered to reduce your tax burden.

In order to properly analyze your assessment, you must have an idea of what your property is actually worth. That is, what is the price that you would be able to sell it to a willing buyer? Once you have made that determination, you must then go to your assessed value and apply your county’s applicable common level ratio to determine the “implied market value.” If the “implied market value” from your assessment is higher than what you believe your property is worth, your assessment is likely too high which results in you paying more property tax than is warranted.

In this economy, many property owners are experiencing issues that result in a lowering of property values. For instance, landlords may be experiencing higher than normal vacancy rates, for prolonged periods of time, which will affect the value of property. Those who own factories may be facing factors relating to obsolescence. Property owners may own property in blighted areas that have seen dramatic decreases in property values since the last revaluation. Regardless of context, all property owners should examine assessment annually to make sure they are in line with fair market value.


McNees Wallce & Nurick attorneys Randy L. Varner and Paul Morcom are the proud authors of the 2016 edition of Assessment Law & Procedure in Pennsylvania, published by the Pennsylvania Bar Institute. The treatise is a comprehensive manual that incorporates years of practical experience by McNees attorneys in this specialized area of the law.   Designed to provide the reader with a guide through each step of the assessment and appeal process, Assessment Law & Procedure in Pennsylvania also provides detailed discussions of the relevant case law and statutory provisions that provide the framework for Pennsylvania assessment law. Originally circulated informally, the first edition was published in 1994 by the Pennsylvania Bar Institute and quickly became the “assessment bible” for counsel, assessment appeal board members, assessors and appraisers.


The property tax assessment and appeal process can be confusing and intimidating and directly affects the bottom line of your business. We can help you analyze the assessment on your property and, if necessary, handle an appeal. Feel free to contact us for any questions related to the assessment and appeal process.

In Sales & Use Tax Bulletin 2017-01 (April 10, 2017), the Pennsylvania Department of Revenue announced major changes in its procedures for the handling of sales and use tax refund petitions. The Bulletin provides that “large” refund requests may be addressed through the field audit process. This will be accomplished by allowing the Board of Appeals to “dispose of” a refund petition by issuing a decision and order requiring a field audit. The Department will have discretion as to whether to conduct a field audit in a particular case, but noted that “in general, refund petitions requesting in excess of $100,000, or multiple petitions in one year exceeding that threshold in the aggregate, are more likely to be referred for a field audit.”

The Board of Appeals also has introduced two new appeal schedules for Sales and Use Tax refund petitions, as well as detailed “supporting documentation” requirements for Sales and Use Tax appeals, which are available on the Board’s website. First, the existing REV-39 Appeal Schedule form has been revised to require more information, and the Board has stated a preference that the schedule be submitted in an electronic format for ease of processing. In addition to detailed transaction information for each contested transaction, the instructions for the updated REV-39 form purport to require submission of proof of tax payment “for every transaction in which the refund of tax is requested.” Historically, the Board had required the submission of detailed proof of payment information only for a sample of the transactions included in a refund claim, unless the taxpayer was unable to provide satisfactory proof of payment for the selected sample transactions. The instructions further state that the “[f]ailure to provide any of the information requested . . . may result in the dismissal of [a] petition.”

Second, the Board has introduced a new Summary Appeal Schedule, which must be submitted with petitions seeking a refund of $100,000 or more, other than refund requests for sales tax attributed to bad debts. For purposes of determining whether a petitioner has requested a refund of $100,000 or more, the Board may consider all petitions filed within one year as a single refund request. The Summary Appeal Schedule “may be filed to determine if the Department intends to refer the refund request for a field audit review prior to submission of all of the evidence supporting the claim.” The Schedule requires a list of the substantive issues (e.g., resale exclusion, computer services, direct use in manufacturing, etc.), the estimated number of transactions per issue, the estimated dollar amount per issue, and the calendar year in which the disputed transactions occurred. The total dollar amount in the Summary Appeal Schedule must match the total refund amount requested in the petition. Otherwise, a complete appeal schedule will be requested by the Board.

If a taxpayer is referred for a field audit, the Department will consider both underpayments and overpayments of tax through the audit process. The audit conducted by the Department “will encompass at least the same periods within the 3-year refund window, and may extend to additional periods if the taxpayer agrees to a waiver of the statute of limitations on assessments.” The Bulletin lists the use of a “stratified random sample of liabilities and overpayments . . . to limit the number of transactions required to be reviewed at all appellate levels” as one of the advantages of addressing refund requests through a field audit. Other stated advantages include potential reductions in the amount of interest and penalty due on audited underpayments and the fact that “[c]onsolidating the liability and overpayment issues into a field audit would allow the appellate process to handle both issues simultaneously.”

The Bulletin clarifies that a taxpayer may file a subsequent refund petition pursuant to 72 P.S. § 10003.1(b) after completion of the field audit to contest any “refunds not granted in the audit.” The Bulletin appears to contemplate that such a petition would cover only the specific refund transactions that were reviewed in the audit, as opposed to all refund transactions originally identified by the taxpayer. That is, in the case of a test audit for expense purchases, only tax overpayments on transactions that were selected as part of the test sample would be included in the subsequent refund claim.

Various issues will need to be addressed as the Department moves forward with the new procedures. For example, does the Board of Appeals have statutory authority to “dispose of” a refund petition without considering the merits of the claim? And, can a taxpayer seek refunds or credits for tax paid on transactions that were not included in a test sample, but were included in the sampled population, when a refund claim is filed after a field audit, on the basis that the test audit did not adequately capture tax overpayments made by the taxpayer?


As discussed in prior posts, Sales and Use Tax Ruling No. SUT-17-001, issued by the Pennsylvania Department of Revenue in February, raised concerns that the Department’s interpretation of the term “support” in Act 89 of 2016 exceeded the scope of the taxing statute.  In response to complaints that its original ruling was overbroad, the Department retracted its original ruling and issued a revised ruling on April 4, 2017.  The revised ruling (A5700684) defines software support to include “identifying the source of problems affecting the usability” of the software and/or attempting to restore it to a useable state, as well as troubleshooting and providing direction as to the implementation or use of the software (i.e., help desk and call center support, whether delivered verbally or online).

“Training” services and certain “consulting” services were removed from the scope of “support” services subject to tax under current law. Since the term “consulting” can be used to describe various types of activities, the ruling states, however, that it “may not be interpreted as a definitive determination of the taxability of what taxpayers may describe as consulting.” That is, if services described as “consulting” fall within the definition of “support” contained in the ruling, the Department would view such services as taxable “support” services.


As discussed in prior blog posts, Ruling No. SUT-17-001 issued by the Pennsylvania Department of Revenue in February raised concerns that the Department’s interpretation of the term “support” in Act 89 of 2016 exceeded the scope of the statute.  Act 89 imposed tax on digital products, and on “maintenance, updates and support” for such products, as of August 1, 2016.  In Ruling No. SUT-17-001, the Department characterized certain “consulting” and “training” services as taxable “support” services.  The Department has since removed Ruling No. SUT-17-001 from its website – presumably because it is reconsidering the scope of taxable “support” services for computer software under current law.

Less than six months ago the Pennsylvania Supreme Court in Mount Airy #1, LLC v. Pennsylvania Dep’t of Revenue, 2016 Pa. Lexis 2174 (Pa. Sept. 28, 2016), held that the Pennsylvania Race Horse Development and Gaming Act’s “local share assessment” (a tax imposed upon slot machine revenue) violated the Uniformity Clause of the Pennsylvania Constitution. As a result of the Mount Airy decision, more than $140 million in tax payments to host municipalities are in limbo. The Court initially gave state lawmakers 120 days from its decision to find a proper solution. The legislators, however, failed to meet the 120 day deadline. Consequently, a group of state senators filed a petition for an extended stay on January 12, 2017 and on January 20, 2017, the Court gave lawmakers an additional four months -until May 26th- to fix the tax on casino slot revenue.

Now with the looming dark cloud deadline of May 26, 2017 as a backdrop, the Pennsylvania Supreme Court is going to hear oral arguments on two more tax cases involving Uniformity. On March 8 and April 5, 2017, the Pennsylvania Supreme Court will be hearing oral arguments in Valley Forge Towers Apts., et. al. v. Upper Merion Area School District, No. 49 MAP 2016 and Nextel Communications of the Mid-Atlantic, Inc. v. Commonwealth, Pa., No. 6 EAP 2016, respectively.

In Valley Forge Towers Apts. N, LP v. Upper Merion Area School District, 124 A.3d 363, 365 (Pa. Cmwlth. 2015), the Pennsylvania Commonwealth Court held that a school district does not violate the Uniformity Clause when it has reasonable financial considerations of increasing its revenue by appealing certain high-valued properties within its district. On April 26, 2016, the Pennsylvania Supreme Court granted allocator in Valley Forge Towers v. Upper Merion Area School District, 49 MAP 2016. The Supreme Court phrased the issue presented for review, as follows: “[i]s a school district’s decision to appeal property assessment insulated from review because, inter alia, the school district has a statutory right to file appeals and can identify an economic reason for its appeals?” The taxpayers claimed in their suit that the Upper Merion Area School District (“School District”) violated the Uniformity Clause by appealing only commercial properties and not appealing any of the thousands of under assessed single-family properties within the School District.

If the Supreme Court determines that the School District’s selection process in determining which properties to appeal in a given tax year violates the Uniformity Clause, it could take away school districts’ ability to file assessment appeals, drastically change the way school districts select properties to appeal, or it could give property owners a guide map on how to successfully fight school district-initiated assessment appeals. All of those outcomes could be financially devastating not only to the school districts that initiated the appeals, but also for the local municipality and county that piggy backed on any assessment increase. Unfortunately, many local taxing jurisdictions have grown accustomed to balancing their yearly budgets using real estate tax revenue generated from school district -initiated assessment appeals. If and when that ability to appeal is altered in any way, the local taxing jurisdictions are going to have to come up with more creative and hopefully constitutional ways to make up any lost revenue.

In Nextel Communications of the Mid-Atlantic, Inc. v. Commonwealth, 129 A.3d 1 (Pa. Cmwlth. 2015), the Commonwealth Court held that Pennsylvania’s cap on the use of net operating loss carryforwards to the greater of a fixed dollar amount of $3 million or a percentage of taxable income of 12.5 percent of taxable income for the 2007 tax year violated the Uniformity Clause. The Commonwealth Court reasoned that, while the Uniformity Clause does not require absolute equality and perfect uniformity in taxation, if no legitimate distinction exists between the classes subject to differing tax treatment, and a substantial unequal tax burden is imposed on similarly-situated taxpayers, the tax violates the Uniformity Clause. The court found that the only factor that distinguishes between those taxpayers who paid no corporate net income tax as a result of the 2007 net operating loss deduction limitation and those that paid some, was the amount of their taxable income – a classification that cannot withstand the scrutiny afforded under the Uniformity Clause.

Accordingly, the Commonwealth Court granted the taxpayer in Nextel full use of its net operating loss carryforwards, which resulted in a $3.94 million dollar refund. Although the Commonwealth Court decision specifically stated that it only applied to Nextel and the 2007 tax year, other similarly situated taxpayers filed refund appeals that could ultimately cost the Commonwealth hundreds of millions of dollars if the Pennsylvania Supreme Court upholds the Commonwealth Court’s analysis.

If you are subject to a school district initiated assessment appeal, or if you are not able to utilize your full net operating loss carryforwards, please contact Paul Morcom, or any member of McNees’ state and local tax group, to discuss.

Reproduced with permission from Daily Report for Executives, 35 DER (Feb. 23, 2017). Copyright 2017 by The Bureau of National Affairs, Inc. (800-372-1033)


Daily Report for Executives

February 23, 2017

Sales and Use Taxes

  • Pennsylvania Deems All Software Support Now Taxable

BNA Snapshot

  •  Had been tax-exempt since 1997
  •  Applies to all consulting, training, tech support of canned computer software
  •  Practitioners call it ‘significant overreach’

By Leslie A. Pappas

All support for canned computer software—even training and consulting from third-party vendors—is now subject to tax in Pennsylvania under recently issued guidance from the state Department of Revenue.

“My jaw just dropped,” Paul Graney, partner in the state and local tax group at Marcum LLP, told Bloomberg BNA. The ruling appears to say that “everything on an invoice from a software company is going to be taxable in Pennsylvania.”

The guidance applies sales and use tax to some computer-related services that have been nontaxable since 1997. Letter Ruling No. SUT-17-001, dated Feb. 9, lays out the department’s interpretation of Act 84 of 2016, which made digital downloads subject to the state’s 6 percent sales and use tax. The act amended the definition of tangible personal property to include digital versions of videos, books, music, applications and canned software, including “maintenance, updates and support.”

“The Department considers the Legislature’s express inclusion of ‘maintenance, updates and support’ language within the definition of tangible personal property to operate as rendering all such services to canned computer software as being subject to tax,” the letter ruling said.

According to the letter, support service could include:

  •  remote desktop support where a vendor accesses and alters canned software directly;
  •  telephone support where a vendor troubleshoots and helps fix an issue;
  •  upgrades, patches, or modules a vendor distributes to its customers;
  •  alterations or corrections to a copy of a software program sent to a vendor by a customer;
  •  call-in or help-desk support that provides direction about the use or manipulation of software; and
  •  training with response to the use, correction, or manipulation of software.

‘Significant Overreach.’

The letter “seems like a significant overreach of the statute,” Graney told Bloomberg BNA. The department seems to be taking standard language from software industry maintenance contracts “and stretching that out to items that were clearly not taxable in the past and pulling those in.”

The letter ruling “broadens the definition of tangible personal property” and makes all support services related to canned computer software subject to sales and use tax, Jonathan Liss, senior director for state and local tax for BDO USA LLP in Philadelphia, told Bloomberg BNA.

“Taxable support services include all types of technical support for canned software, canned software consulting services, and training that relates to canned software,” Liss emphasized in an e-mail to clients.

The guidance would apply as of Aug. 1, 2016, when Act 84 of 2016 took effect, he told Bloomberg BNA.

One Word

Pennsylvania appears to have taxed all computer services based on a single word in the statute, Jason C. Skrinak, practice leader for RKL LLP’s tax services group in Harrisburg, told Bloomberg BNA.

“They put so much credence into the one word: support,” he said.

The guidance goes beyond services that may be bundled into a maintenance contract as part of the price of computer software, Skrinak said. The letter ruling also seems to include third-party support services after the sale, which in the past would not have been subject to tax. The department “went pretty outside of the box on this,” he said.

Nontaxable Since 1997

The department’s interpretation appears to include some software-related services that were made nontaxable under a 1997 law.

“The Department took it upon themselves to interpret the definition of tangible personal property to include various computer-related services which are no longer taxable and were repealed from the tax code” on July 1, 1997, under 61 Pa. Code Section 60.13, Dennis Kolumber, principal in charge of Ryan LLC’s Philadelphia Offices, told Bloomberg BNA.

Some items in the letter ruling also seem to go beyond what is normally considered maintenance and support, said Sharon R. Paxton, vice chair of the state and local tax group at McNees Wallace & Nurick LLC in Harrisburg.

Training and Consulting

For example, the letter includes training and consulting services as taxable items, Paxton told Bloomberg BNA.

Yet the scope of consulting services that the department would view as taxable isn’t clear, she said. For example, companies often hire third-party consultants to modify canned software to meet a particular business need. In the past, the department agreed that charges for modifications made to canned software were non-taxable if they were reasonable and separately stated. It isn’t clear whether the department would now consider such services taxable.

“It’s not clear to me if they’re trying to pick that up,” she said, “but the letter specifically references consulting and modifications to canned software, so that could be a possibility.”

The department said that third-party support could be taxable. Training and consulting by third-party vendors “constitutes taxable support if the support involves access to, use of, or alteration of the software,” Department of Revenue spokesman Kevin Hensil told Bloomberg BNA in an e-mail.

The Department of Revenue issued the ruling in response to a taxpayer, he said.

To contact the reporter on this story: Leslie A. Pappas in Philadelphia at

To contact the editor responsible for this story: Ryan C. Tuck at

For More Information

Pennsylvania letter ruling No. SUT-17-001 is at