Pennsylvania (Philadelphia): Overpayment of Tax cannot be Refunded, But Taxpayers Allowed a Credit
By KPMG's Washington National Tax practice | Nov. 25, 2013
On November 18, 2013, the Pennsylvania Commonwealth court affirmed Tax Board and trial court rulings, addressing overpayments of Philadelphia’s Business Privilege Tax (now renamed the Business Income and Receipts Tax) as a result of IRS adjustments to federal taxable income. The City of Philadelphia imposes a business tax based on gross receipts and net income. The starting point of the net income component is often federal taxable income. In 2003 and 2004, the taxpayers paid their estimated tax prior to the April 15 deadlines, but received extensions to file both their federal income tax and BPT returns. In February of 2009, the taxpayers underwent an IRS audit which resulted in a reduction of their federal taxable income, upon which their BPT was based. In March of the same year, the taxpayers filed amended 2003 and 2004 BPT reflecting their reduced taxable income for those years.
The City acknowledged the taxpayers’ overpayments, but denied refunds based on the fact that the refund claims were not timely filed within the three-year statute of limitations. The court, agreeing with the Board and trial court, ruled that the plain language of the Philadelphia Code requires that refund petitions be filed within three years of the date when the payments were due or made, whichever is later. The taxpayers did not meet either of these deadlines. The IRS decreasing the taxpayers’ federal taxable income did not create an extension to file refund claims for overpayment of the BPT. Although the taxpayers did not receive a refund, the court agreed that the taxpayers were entitled to credits to the extent the overpayments identified on the amended returns resulted from estimated payments. A three-year statute of limitations applies to refunds, however, in the court’s view there is no deadline for when credits can be awarded for overpayments of estimated tax. For more information on City of Philadelphia v. City of Philadelphia Tax Review Board to the use of Keystone Health Plan East, Inc., et al, please contact Howard Sklaroff at (267) 256-2891.
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