G. Fish v. Twp of Lower Merion, Aplt.
128 A.3d 764
| Pa. | 2015Background
- Lower Merion Township imposes a general business privilege tax on persons doing business in the Township, calculated as a percentage of gross receipts, and requires business registration and annual returns.
- Three lessors (Fish, Hrabrick, Briskin) own real property in the Township and rent it under leases; the Township required each parcel be registered and rental income be taxed under the business privilege tax.
- Lessors sued for declaratory relief, arguing the Local Tax Enabling Act (LTEA) prohibits "any tax on ... leases or lease transactions," so the Township cannot tax rental income from leases.
- The trial court upheld the Township; the Commonwealth Court (en banc) reversed, holding the LTEA’s lease prohibition bars application of a business privilege tax to businesses whose sole income is rent.
- The Supreme Court granted review to decide whether the LTEA’s prohibition on taxing leases precludes applying a general business privilege tax to landlords whose only income is lease/rental receipts.
Issues
| Issue | Plaintiff's Argument (Lessors) | Defendant's Argument (Township) | Held |
|---|---|---|---|
| Whether LTEA §301.1(f)(1)’s ban on "any tax on ... leases or lease transactions" prohibits applying a general business privilege tax to businesses whose sole income is rent | The phrase "any tax" and Lynnebrook’s construction mean the statute bars any tax measured by lease consideration, so the business privilege tax (measured by rental receipts) is effectively a tax on leases and is prohibited | The Township: privileges and transactions are distinct; the tax is on the privilege of doing business (not on leases) and precedent (Dale, Gilberti) allows taxing privileges even when measured by transactional gross receipts | Court held the LTEA does not bar application of the general business privilege tax to landlords whose only income is rent: privileges and transactions are distinct and §301.1(f)(1) does not extend to taxes on privileges related to leases |
| Whether a tax’s label may be disregarded when its practical operation makes it a tax on leases | Lessors: substance over form; courts look to practical operation, so a privilege tax computed solely from lease income is de facto a prohibited lease tax | Township: label matters because LTEA authorizes taxing privileges; absence of statutory language barring taxes on privileges related to leases distinguishes this case from Lynnebrook | Court acknowledged practical-operation inquiry but concluded here the ordinance is a general privilege tax (not targeted at leases) and therefore permissible; it reaffirmed Lynnebrook forbids taxes directly targeted to leases |
Key Cases Cited
- Lynnebrook & Woodbrook Assocs., L.P. v. Borough of Millersville, 963 A.2d 1261 (Pa. 2008) (held ordinance imposing flat tax directly on residential lease transactions was prohibited by LTEA)
- Dale & Dale Design & Dev., Inc. v. School Dist. of Scranton, 741 A.2d 186 (Pa. 1999) (upheld city business privilege tax on contractor whose activity involved statutorily excepted construction because tax was on privilege of doing business)
- Gilberti v. City of Pittsburgh, 511 A.2d 1321 (Pa. 1986) (distinguished privilege taxes from transaction taxes; subjects are separate)
- Cheltenham Twp. v. Cheltenham Cinema, Inc., 697 A.2d 258 (Pa. 1997) (upheld business privilege tax on theatre with mixed receipts; suggested in dictum that a business deriving solely from an excepted transaction might escape liability)
- Fischer v. City of Pittsburgh, 118 A.2d 157 (Pa. 1955) (interpreted manufacturing exception language and consequences for taxing privileges related to manufacturing)
- Shelly Funeral Home, Inc. v. Warrington Twp., 57 A.3d 1136 (Pa. 2012) (reaffirms that courts assess tax validity by practical operation rather than label)