On October 30, 2017, Act 43 of 2017 reduced the period of time a taxpayer has to file an appeal at the Board of Appeals (“BOA”) and the Board of Finance and Revenue (BF&R) from 90 days to 60 days, effective after December 29, 2017.

On December 4, 2017, the BOA advised that for any petitions filed with the BOA on or before December 29, 2017, the Department’s decision and order will indicate a 90 day appeal period to the BF&R.  For any petitions filed with the BOA on of after January 1, 2018, the Department’s decision and order will indicate a 60 day appeal period to the BF&R.  The BOA is in the process of updating its forms and computer system accordingly, and hopes for a January 1, 2018 completion.  Any questions should be directed to Lauren Zaccarelli, the Chair of the BOA, at 717-787-4916, or lzaccarell@pa.gov.

Additionally, on December 7, 2017, the BF&R issued guidance which states,”[t]ax appeals originally filed at the BOA after December 29, 2017 must be filed with the BF&R no later than 60 days after the mailing date of the decision and order from the BOA, rather than the current 90 days.  The BF&R guidance goes on to note that this change does not apply to appeals of tax types that have specific appeal periods established in a statute outside of the general administrative tax appeal statute of 72 P.S. § 9704(b).  For any questions regarding the BF&R guidance, please call the BF&R at 717-787-2974 or email the BF&R at bfr@patreasury.gov.


On November 16, 2017, the Pennsylvania Department of Revenue (“Department”) issued Corporation Tax Bulletin 2017-01 in order to clarify the Department’s stance on the net operating loss deduction.  The Department will revise its forms and procedures to implement the Pennsylvania Supreme Court’s decision in Nextel Communications of the Mid-Atlantic, Inc. v. Commonwealth of Pennsylvania, Dkt. No. 6 EAP 2016 (10/18/2017), which found that the $3 million cap on the net operating loss deduction (“NOL”) violated the Uniformity Clause of the Pennsylvania Constitution. The decision left in place the portion of the statute that limits the NOL deduction at 12.5% of taxable income for the 2007 tax year at issue.

On November 1, 2017, Nextel filed an Application for Reargument with the Court regarding the appropriate remedy to apply to the 2007 tax year. Accordingly, while this NOL issue remains open, the Department is taking a proactive approach to provide clarity to corporate taxpayers. Taxpayers are therefore advised that the flat-dollar cap on the NOL, currently at $5 million, will not be available for taxable years beginning in 2017 and thereafter. However, the NOL limitation of 30% of taxable income will continue to be effective for taxable years beginning in 2017.

Please contact a member of the McNees SALT Group if you have questions regarding the Pennsylvania NOL deduction or the Nextel case.


In an opinion released today, the Pennsylvania Supreme Court found the Commonwealth’s 2007 net loss carryover cap scheme–which limited the amount of loss a taxpayer cold carry over to 12.5% or $3 million, whichever was greater–unconstitutional. Nextel Communications of the Mid-Atlantic, Inc. v. Commonwealth of Pennsylvania, No. 6 EAP 2016 (October 18, 2017). The taxpayer in Nextel had argued that the statute was unconstitutional “as applied” to its situation, and had requested a refund of nearly $4 million.


The Court held that the cap, found in 72 P.S. §7401(3)4.(c)(1)(A)(II), had the effect of creating different effective tax rates and classifications in violation Article 8, Section 1 of the Pennsylvania Constitution, commonly known as the “Uniformity Clause.” The Court agreed with Nextel’s argument that the cap allowed “smaller” taxpayers to use deductions up to the $3 million limit that would result in no tax liability if the taxpayer had $3 million or less of income. On the other hand, the cap scheme would not permit the same treatment of large taxpayers with income of over $3 million. The “smaller” taxpayer base with 98.8% of all Pennsylvania taxpayers in 2007. As a result of this differential treatment, the Court found the cap unconstitutional.


The Court then turn its attention to the remedy. Nextel had argued that the only appropriate remedy would be for the court to award it the requested refund. The Court undertook a “severability analysis” which is required when addressing an “as applied” rather than “facial” challenge to a statute. Ultimately, the Court disagreed with Nextel’s remedy argument and instead severed the flat $3 million piece of the cap from the statute. Nextel was denied its requested $4 million refund.


The ramifications of this case are many and will severely impact small businesses that have heretofore relied on the flat dollar piece of the cap to offset most, if not all of their income. This will likely result in the General Assembly revisiting this topic to address important concerns like that one in a constitutionally permissible way. We will keep you updated on developments springing from this decision.

On October 13, 2017, the Pennsylvania Department of Revenue issued Sales and Use Tax Information Notice 2017-01, which is intended to help taxpayers engaged in timbering operations as a business operation and vendors selling property or services to such taxpayers.  Last year the General Assembly, under Act 84 of 2016, amended Article II of the Tax Reform Code of 1971 to exclude from sales and use tax the purchase or use of tangible personal property or taxable services predominately used directly in timbering operations, effective July 1, 2017.  The DOR’s Information Notice is intended to clarify the property or services that are considered to be directly used in timbering operations and therefore excluded from sales and use tax.

The term “timbering” is statutory defined under  72. P.S. § 7201(K)(8)(b), (o)(4)(b)(ii) as including the business enterprise of producing or harvesting trees from forests, woodlots or tree farms for the purpose of the commercial production of wood, paper, or energy products derived from wood by a company primarily engaged in the business of harvesting trees.  The term does not include the harvesting of trees for the purpose of clearing land for access roads, but includes all operations prior to the transport of the harvested product necessary for:

  • Removal of timber or forest products from the site;
  • In-field processing of trees into logs or chips;
  • complying with environmental protection and safety requirements applicable to the harvest of forest products;
  • loading of forest products onto highway vehicles for transport to storage or processing facilities; and
  • postharvest site reclamation including those activities necessary to improve timber growth or ensure natural or direct reforestation of the site.

The DOR provided a non-exhaustive list of the property and services that do or do not qualify for the timbering exclusion.  Those that do qualify are as follows:

  • Machinery and equipment used to harvest logs and trees, or to transport the harvested product to the log landing site, including but not limited to : axes; shovels; chainsaws or manual saws; forwarders; harvester-processors; feller-bunchers; mulchers/masticators; brush cutters; shovel loggers; skidders; brush piling shovels’ brush-rake piling cats; log loader attachments and yarders (truck/trailer-mount, small swing, mobile, tower, etc.); cable yarding carriage; swing machines; loaders; heavy-lift and aerial truck helicopters.
  • Lighting equipment and supplies used to light timbering operations.
  • Machinery and equipment used to process harvested trees and logs at the roadside log landing site, including but not limited to:  tracked log loaders, sorters, shovels and processers; tree delimbers and log cutters; on-site wheel log loaders; delimber/debarker/chipper machines; grinders to convert waste wood into useable wood biomass.
  • Machinery and equipment used to transport production personnel or equipment during the timbering operation, other than motor vehicles required to be registered under the Vehicle Code, including but not limited to utility helicopters or utility trailers.
  • Machinery, equipment, and materials used in postharvest site reclamation, including but not limited to: fertilizer hopper tanks or trailers used to haul or transport fertilizer; hydro-seeder trailers; dozers or graders; fill; fertilizer; seedlings; grass seed; shrubs; stone; concrete; soil nutrients.
  • Machinery, equipment , and supplies designed and used to control, abate, or prevent air, water, or noise pollution generated in the timbering operation, regardless of whether the pollutants are recycled or used in any manner.
  • Property used to test and inspect the timber products during actual timbering operations or before the product is loaded onto highway vehicles for transport away from the timbering site.
  • Wrapping equipment and supplies, including internal packing materials and returnable containers, used in packaging which passes to the ultimate consumer.
  • Property which is used directly in research activities, provided that the object of the research is the production of a new or improved product or method of producing a product.
  • Machinery and equipment used for environmental or safety requirements, other than motor vehicles required to be registered under the Vehicle Code, including but not limited to:  protective devices worn by production personnel in their work such as harnesses, gloves, goggles, etc.; firefighting water tanks; fire dozers; slip-on fire pumpers and forwarders; fire trailers; fire-retardant bombers and lead airplanes.
  • Replacement or repair parts (e.g., motors, belts, screws, bolts, cutting edges, air filters or gears)  which are installed and become an integral part of machinery or equipment directly used in timbering operations.
  • Operating supplies (e.g. fuel, gasoline, oil, lubricants, paint and compressed air) which are actively and continuously used in the operation of directly used machinery and equipment.
  • Maintenance or repair services to machinery or equipment directly used in timbering operations.

Purchases that do not qualify for the timbering exclusion:

  • The following services: lobbying services; adjustment, collection, or credit reporting services; secretarial or editing services; disinfecting or pest control services, or building maintenance or cleaning services; employment agency services; help supply services; lawn care services; self storage services.
  • Motor vehicles required to be registered under the Vehicle Code, regardless of their purpose.  This includes, but is not limited to:  water tenders; fire trucks and water tankers; fertilizer hopper trucks; trucks or motor vehicles used to transport production personnel; line spool trucks; low boy trucks; pilot cars.
  • Replacement or repair parts (e.g., motors, belts, screws, bolts, cutting edges, air filters or gears)  or operating supplies (e.g., fuel, gasoline, oil, lubricants, paint and compressed air)  for vehicles required to be registered under Vehicle Code.
  • Materials,  supplies, or equipment used to construct, reconstruct, alter, remodel, service, repair, maintain, or improve real estate or real estate structures, even though they may house or otherwise contain equipment or machinery used directly in timbering operations.  This includes, but is not limited to:  dozers; excavators; dump trucks; graders; compactors used to compact subgrade and rock surfacing; backhoes and ditch hoes: rock crushers and conveyors; loaders; rock drills; bridge cranes.
  • Machinery, equipment, tools or supplies used to support, clean, service, fuel, repair, or perform maintenance upon directly used machinery or equipment, including but limited to: chain, hoists, tire spreaders, welding equipment, drills, sanders, wrenches, paint brushes and sprayers, oilers, absorbent compounds, dusting compounds, air blowers, wipers, trailers, or tankers.
  • Property used in timbering recordkeeping and other administrative or managerial work, including but not limited to:  office furniture; supplies and equipment; textbooks and other educational materials; books and records; supplies used to record the quality or quantity of work in production, goods in storage, the flow of work, or the results of inspection; property used to instruct workers in routing work or in other production activities.
  • Property used in advertising harvested products for sale, in marketing or transporting the products to a market or to customers, in selling the products, or for the exhibition of harvested products.
  • Property used for personal comfort, convenience or use of employees.
  • Property including machinery, equipment, fuel, or power used for building ventilation buildings, general illumination, air conditioning and other space cooling, space heating and similar purposes.  However, such property may qualify if it is established that the use of the property bears an active causal relationship to the timbering operation.
  • Property used to transport personnel or to collect, convey or transport the property, and storage facilities or devices used to store the property, prior to the actual timbering operation.
  • Property used for waste handling and disposal of pollutants other than in the course of timbering operations, unless the property is used for postharvest site reclamation including those activities necessary to improve timber growth or ensure natural or direct reforestation of the site.
  • Property which is used after the harvested product is loaded onto highway vehicles for transport away from the harvesting site, including but not limited to log loaders and other machinery or equipment used at timber mills or production facilities, and wood transport machines used to deliver harvested product from the timbering site to other locations such as long and short log trucks or trailers, chip van trucks, log railcars, cargo ships or barges.
  • Property which is used for the purpose of clearing land for access roads, including but not limited to:  dozers; excavators; dump trucks; graders; compactors used to compact subgrade and rock surfacing; backhoes and ditch hoes; rock crushers and conveyors; loaders; rock drills; bridge cranes.

The Department also notes that a purchaser of property directly used in timbering operations should complete a Pennsylvania Exemption Certificate (REV-1220) in order to forego paying sales and use tax on the purchase.

Please contact the author of this article or another member of the McNees SALT Group if you have questions regarding what machinery, equipment, supplies or services fall within the “timbering” exclusion under Pennsylvania’s sales and use tax.

We are writing to update you on the status of budget negotiations in the Pennsylvania General Assembly that no longer includes the potential storage tax that we wrote about earlier this week but does include a new hotel tax. The idea of a hotel tax developed rapidly from closed door negotiations and caught the hotel and tourism industries by surprise.  As indicated in our McNees Client Alert and media coverage, there was a proposed storage tax in a revenue proposal circulating earlier in the week.  The opposition to this tax voiced significant concern about the broadly written language that would be detrimental to the logistics and warehousing industry as well as economies in Pennsylvania.  As a result, the idea lasted no more than a few days because there was not enough support for the revenue plan.  It came apart by Tuesday afternoon.  


After it emerged, the hotel tax idea and related revenue plan moved fast yesterday and was included in an omnibus amendment to the Tax Code.   Today House leaders continue their work to secure support to pass the new revenue plan including this hotel tax.  However, we expect this tax proposal to receive significant opposition much like the warehousing tax.  So, its future remains unseen. Meanwhile, expanded gambling remains part of the House revenue package. It is not clear if the Governor supports the hotel tax and other items in the revenue package.  


We are monitoring developments in the capitol today and will be reviewing language of the amendment to the Tax Code as well as other pieces of legislation that will be filed with respect to the budget. Please contact us should you have any questions. 



Urgent Alert from the McNees Wallace and Nurick Government Relations and State and Local Tax Groups

The Pennsylvania General Assembly continues to battle over revenue sources while the state remains without a complete state budget. And when it seems impossible, things actually continue to worsen with the House and Senate scheduled sessions to begin this afternoon. Over the weekend, the idea of a storage tax was discussed and it now seems to be more of a reality than a week ago.  And this tax is allegedly to replace a Marcellus Shale production tax.  This means the new targets for tax revenue are those who provide and use warehousing services and storage of items (“items” as defined by the proposed language seems to encompass almost anything) as well as anyone in the logistics business.  In essence, this tax would impose a 6% sales tax and have broad and expensive impact on almost every business. And the idea appears to be moving quickly through the capitol.


As covered in the media, the Pennsylvania General Assembly approved a budget spending bill without revenue sources at the end of June, and Governor Wolf allowed it to become law without his signature. Since then, lawmakers have fought over how to come-up with the $2.2 billion to pay for it.  Recently, the Republican-controlled Senate passed a revenue package that included more than $500 million in new taxes, including an extraction tax on shale gas drillers, new and increased taxes on consumer utilities such as electric, natural gas, telephone and expansion of the sales tax to online retailers. Also, the Senate plan would borrow against the tobacco settlement fund and include revenue from expanded gambling. Governor Wolf supported the Senate plan.


Most recently, the Senate rejected the House GOP’s no-new tax revenue plan that relied heavily on fund transfers and the sale of future tobacco settlement fund payments. Similar to the Senate plan, it included revenue from expanded gambling. Last week, it was expected that a conference committee process would begin soon.  This would be the most recent effort to settle the differences and write a new revenue bill.  However, the chambers and parties within them have strong positions on what should and should not be included for raising revenue.


The now fast moving issue that arose on Friday night during budget discussions in the Pennsylvania General Assembly involves a Storage Tax.  And, as of today, there remains uncertainty as to whether or not the language is written to reflect the intent of the tax.  This potential tax has been raised before during this year and in prior years under prior governors, but it was eventually pulled from the table.  However, it is now alive again and during a time of critical need for resolution on how to find revenue to support the already passed spending plan.  At this juncture, we believe there are a number of legislators opposed to the idea, including many in the south central caucus.  However, the idea appears to have enough support that it continued to be discussed through the weekend with potential for momentum beginning on Monday.


If this tax is passed, it will have a significant and expensive impact on many Pennsylvania businesses.   The draft language is very concerning because it appears to impact all businesses that provide warehousing and storage space as well as those who pay for storage space and warehousing services in PA.  Also significant is that it provides full discretion to the Commonwealth to implement, and, we expect the Department of Revenue to apply it very broadly in order to raise much needed revenue.


Some have argued in the past that a broad storage tax will result in layoffs and storage and distribution businesses closing and selecting other states to establish their business.  Others argue that a storage tax would result in consumers being double taxed when they purchase goods at the store and also when distribution centers pass along the storage tax to their consumers.  And, this tax would work against any efforts the Commonwealth or municipalities within it make to attract businesses to locate or expand in Pennsylvania because competing states could immediately look at least “6% cheaper” for doing business.  For example, it does not seem logical that Amazon, which is looking for a second headquarters in North America, would even consider a proposal from the Commonwealth if this tax is a reality and applicable to their business.


Clearly this will be very detrimental to the warehouses and trucking hubs that line Interstates as well as their clients.    In fact, this could affect the national supply chain that some argue already exists in Pennsylvania’s warehouse industry.  And, we expect it will also be very bad for business in the energy, gas industries such as refineries, those who are wet gas midstream operators and/or in the business of ordinary storage of gasoline, etc. as well as increase costs for Pennsylvania’s agriculture industry and food distributors.


Please contact us should you wish to discuss in detail.  We believe time is of the essence as the General Assembly works on closing the gap between its spending plan and funding sources.   We recognize the challenges for the state to find revenue. But we also know our clients and the challenges they already face with increased costs of doing business in PA.  McNees Wallace & Nurick’s Government Relations and State and Local Tax practice groups are working to help clients who oppose a storage tax.  Please contact us should you have interest in talking with legislators regarding the impact of a storage tax on your business.

On September 22, 2017, Judge Idee Fox of the Philadelphia Court of Common Pleas issued orders quashing the Philadelphia School District’s 2017 reverse assessment appeals for lack of uniformity. At oral argument on September 8, 2017, Judge Fox ruled from the bench, using the recent July 5, 2017 Pennsylvania Supreme Court’s decision in Valley Forge Towers Apartments et al. v. Upper Merion Area School District, 163 A.3d 962 (Pa. 2017) as a guide, that the school district violated the uniformity clause of the Pennsylvania Constitution by only appealing commercial properties and not appealing any of the under-assessed single-family residential properties in the city for the tax year 2017.

Philadelphia was the first big arena for the Valley Forge Towers uniformity analysis to be used and the Philadelphia commercial property owners are glad to see that the court correctly applied the Supreme Court’s analysis in finding that the school district discriminated against commercial property owners by only filing 140 reverse assessments appeals on 140 of the largest commercial properties in the City of Philadelphia. All of the other school districts in Pennsylvania that have been for years systematically filing reverse assessment appeals only on commercial properties within their taxing districts should be on notice that similar rulings are on the horizon. Going forward, commercial property owners should be requesting extensive discovery regarding the school districts policies and procedures for selecting properties to appeal, and which properties were reviewed and ultimately appealed by the school district.

The Valley Forge Towers decision and the Philadelphia Court of Common Pleas ruling have now given commercial property owners the long awaited tools needed to successfully fight these school district reverse assessment appeals.

If you are subject to a school district initiated assessment appeal, please make sure your rights are protected by contacting Paul R. Morcom (717-237-5364) or Randy Varner (717-237-5464), who represent property owners in school district reverse assessment appeals throughout Pennsylvania’s 67 counties.

Please join the McNees SALT Group on October 20, 2017 at the Hollywood Casino in Grantville, Pennsylvania for “A Day on Sales and Use Tax for Pennsylvania Businesses.”  Full Agenda Here  The seminar, which will begin at 8:30 a.m. with breakfast and conclude at 4:25 p.m., will feature two distinguished guest speakers, Lauren A. Zaccarelli, Chair of the Department of Revenue Board of Appeals, and Karen M. Gard, Acting Chief Deputy Attorney General, Tax Litigation Unit.  The price of the seminar, which includes, breakfast, lunch, cocktail hour, electronic course manual and CPE credits is only $99!


McNees State and Local Tax team members Randy L. Varner and Paul R. Morcom will be presenters for the Pennsylvania Bar Institute’s seminar, “Local, State and Federal Taxes Affecting Real Estate Transactions.”  This seminar will be held on September 8th in Mechanicsburg with simulcast locations across the Commonwealth.  The seminar will also be presented in Philadelphia on September 27th.  For more information go to http://catalog.pbi.org/store/seminar/seminar.php?seminar=96602.  Randy and Paul are co-authors of the Pennsylvania Bar Institute treatise, “Assessment Law and Procedure in Pennsylvania,” the leading authority on Pennsylvania property tax law for over 20 years.



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

Armstrong                               Lebanon

Beaver                                     Lycoming

Bedford                                  McKean

Blair                                        Mercer

Bradford                                 Mifflin

Cameron                                  Montour

Carbon                                    Northumberland

Centre                                     Perry

Clarion                                    Pike

Clearfield                                Potter

Clinton                                    Schuylkill

Columbia                                 Snyder

Crawford                                Somerset

Cumberland                            Sullivan

Elk                                           Susquehanna

Forest                                      Tioga

Fulton                                      Union

Greene                                     Venango

Huntingdon                             Warren

Jefferson                                 Washington

Juniata                                     Wayne

Lackawanna                            Westmoreland

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 (717-237-5364) or Randy Varner (717-237-5464) to help you timely appeal those properties.