RB Alden Corp. v. Com.
73 F.R. 2011
Pa. Commw. Ct.Sep 12, 2017Background
- RB Alden (Taxpayer) sold part of a partnership interest, realizing a $29.9 million capital gain and claimed it owed no Pennsylvania CNIT for FY2006.
- Taxpayer argued the gain was nonbusiness income, should be excluded from apportionment (multiformity/unrelated-assets), should be sourced to New York for the sales factor, and could be excluded under the tax-benefit rule; it also challenged a $2 million cap on net loss carryover as violating the Pennsylvania Uniformity Clause.
- The Board of Finance and Revenue denied Taxpayer relief; this Court (June 15, 2016) agreed the gain was business income and rejected the tax-benefit rule but held the $2 million net-loss carryover limitation unconstitutional as applied to Taxpayer, directing the Department to recalculate CNIT without that cap.
- Both the Commonwealth and Taxpayer filed exceptions to the June 15, 2016 decision; the Commonwealth primarily contested the Uniformity Clause holding and the remedy, while Taxpayer excepted to factual findings on the tax-benefit rule (later rendered moot).
- This opinion (Sept. 12, 2017) overruled the Commonwealth’s exceptions and dismissed Taxpayer’s exceptions as moot, leaving the prior relief (no cap on Taxpayer’s net loss carryover for FY2006) intact.
Issues
| Issue | Taxpayer's Argument | Commonwealth's Argument | Held |
|---|---|---|---|
| Classification of gain as business vs. nonbusiness income | Gain from sale of partnership interest is nonbusiness income (Section 401(3)2.(a)(1)(D)) | Gain is business income subject to PA tax | Court: Gain is properly business income; Taxpayer’s nonbusiness claim rejected |
| Multiformity/unrelated-assets doctrines and sourcing | Gain excluded from apportionable base under multiformity/unrelated-assets; sales proceeds sourced to NY | Doctrines inapplicable; income is apportionable to PA | Court: Rejected Taxpayer’s multiformity/unrelated-assets and NY-sourcing arguments |
| Tax-benefit rule / basis adjustments | Prior partnership loss deductions gave no tax benefit, so must be added back to basis under tax-benefit rule, eliminating CNIT | Tax-benefit rule not applicable to state CNIT context; deductions unrelated to capital gain | Court: Declined to adopt tax-benefit rule for CNIT in this case; related exceptions rendered moot by Uniformity ruling |
| Uniformity Clause challenge to $2M net-loss carryover cap | Cap creates unequal treatment (effective tax-rate disparity); violates PA Uniformity Clause as applied | Cap is rational, serves legitimate fiscal purpose; Nextel not controlling; relief should be limited or prospective | Court: Cap violates Uniformity Clause as applied to Taxpayer; Commonwealth’s exceptions overruled; Taxpayer entitled to uncapped deduction for FY2006 (reducing tax to zero) |
Key Cases Cited
- R.B. Alden Corporation v. Commonwealth, 142 A.3d 169 (Pa. Cmwlth. 2016) (prior decision addressing classification and Uniformity Clause issue)
- Mt. Airy #1 LLC v. Pennsylvania Department of Revenue, 154 A.3d 268 (Pa. 2016) (Uniformity Clause analysis regarding disparate effective tax burdens)
- Glatfelter Pulpwood Co. v. Commonwealth, 61 A.3d 993 (Pa. 2013) (treatment of business/nonbusiness income and related doctrines)
- Commonwealth v. ACF Industries, Inc., 271 A.2d 273 (Pa. 1970) (discussed in prior cases on multiformity/unrelated-assets doctrines)
- In re Cope's Estate, 43 A. 79 (Pa. 1899) (longstanding principle that monetary value alone is not a permissible tax classification)