DelGaizo v. Commonwealth
23 A.3d 610
Pa. Commw. Ct.2011Background
- Taxpayers challenged Section 307.10(b) of the Tax Reform Code, prohibiting carryover of losses by Pennsylvania S-corporation shareholders, for the 2004 tax year.
- This Court decided DelGaizo v. Commonwealth (DelGaizo I) upholding the constitutionality of the provision and distinguishing S- and C-corporation shareholders.
- Taxpayers sought review under Pa. R.A.P. 1571(i), arguing the provision violates the Uniformity Clause and the Equal Protection Clause.
- Taxpayers alleged the decision in DelGaizo I erred by not treating S- and C-corporation shareholders as similarly situated for tax purposes.
- The underlying facts involve S-corporation MLEA, Inc., where Taxpayers attempted to carry over 2002–2003 losses to offset 2004 income.
- This opinion affirms the Board of Finance and Revenue’s assessments and overrules Taxpayers’ exceptions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 307.10(b) violates the Uniformity Clause. | DelGaizo contends S- and C-corporation shareholders are similarly situated. | DelGaizo I correctly distinguished shareholders by corporate form, justifying differential treatment. | No; statute passes the uniformity analysis. |
| Whether § 307.10(b) violates the Equal Protection Clause. | Taxpayers argue the law punishes S-corp shareholders without a valid state purpose. | Legitimate distinctions between S- and C-corporations justify the treatment of shareholders. | No; classifications are reasonably related to legitimate objectives. |
| Whether the Court in DelGaizo I erred in treating shareholders as not similarly situated. | Taxpayers urge re-evaluation of shareholder reach based on non-existent profits. | Court properly analyzed pass-through taxation and corporate-level taxation differences. | No; DelGaizo I correctly found non-similarity of situatedness. |
Key Cases Cited
- Tool Sales & Serv. Co. v. Bd. of Fin. & Revenue, 536 Pa. 10 (Pa. 1993) (uniformity/equal protection analysis in tax classifications)
- DelGaizo v. Commonwealth, 8 A.3d 429 (Pa.Cmwlth. 2010) (DelGaizo I; upheld § 307.10(b) and distinguished S- vs C-corporations)
- Scott Electric Co. v. Commonwealth, 692 A.2d 289 (Pa.Cmwlth. 1997) (concerning tax treatment distinctions and standing of shareholders)
- Wolff v. Director of Revenue, 791 S.W.2d 390 (Mo. 1990) (used as comparative authority on tax classifications)