Pennsylvania Tax Changes - October 2024
Week Of 09.30.2024
Pennsylvania Property Tax Ruling:
- Tax Exemptions Not Automatic: The Pennsylvania Supreme Court ruled that property tax exemptions are not automatic. This means that taxpayers must actively prove their property is eligible for an exemption.
- Taxing Body's Authority: The court affirmed that taxing bodies have the authority to impose taxes on all property unless the taxpayer can demonstrate that their property is exempt.
- Charter School Case: The court reversed a lower court's decision in favor of a charter school that argued its property was automatically exempt from local taxation. The court stated that the charter school failed to prove its exemption and did not properly challenge the effective date of the exemption.
This ruling is important because it clarifies the process for claiming property tax exemptions in Pennsylvania. Taxpayers should be aware that they have the burden of proof to establish their eligibility for an exemption.
Pennsylvania Supreme Court Upholds Tax on Net Gains from Like-Kind Exchanges
The Pennsylvania Supreme Court has upheld a tax on net gains from like-kind exchanges of real property. This means that taxpayers in Pennsylvania must pay income tax on the gains from these exchanges at the time of the exchange, not when the property is eventually sold.
Here's a breakdown of the ruling:
- Taxpayers' Argument: Taxpayers argued that they should be able to defer paying taxes on these gains until the property is sold, similar to how federal income tax (FIT) allows for deferrals under IRC Section 1031.
- Court's Decision: The Pennsylvania Supreme Court disagreed, stating that the Pennsylvania Tax Reform Code of 1971 (TRC) does not allow for tax deferrals on like-kind exchanges. The TRC defines income differently than the FIT, and the court ruled that the taxpayers' method of accounting could not incorporate unique principles from the FIT into the Pennsylvania Tax Code.
This decision confirms that Pennsylvania's tax laws on like-kind exchanges differ from federal law, and taxpayers must recognize and pay taxes on gains from these exchanges immediately.
The Pennsylvania Department of Revenue has announced that no Public Utility Realty Tax Act (PURTA) surcharge will be imposed in 2025.
This means that utilities will not have to pay the surcharge on their gross receipts for the tax year beginning January 1, 2025.
Pennsylvania has passed a law allowing counties to impose a fee of up to $250 on properties sold for delinquent taxes or mortgage foreclosure. This fee must be collected from the buyer at the time of the sale as a condition of conveying title to the property. The fee does not apply to property sold to a nonprofit entity, land bank, government entity, or to a property acquired by the Pennsylvania Housing Finance Agency.
Week of 09.30.2024
Pennsylvania Property Tax—Pennsylvania Supreme Court held that property tax exemptions are not self-executing.
The Pennsylvania Supreme Court reversed the order of the commonwealth court and reinstated the trial court's dismissal of the taxpayer's complaint seeking a refund of property taxes that were collected by the school district. The taxpayer contended that property owned by charter schools is presumed to be exempt and immune from local taxation and as a result, the taxpayer had no obligation to prove its property was entitled to a tax exemption. The supreme court held that a taxing body has the statutory authority and obligation to impose a tax on all property, and the taxpayer had the burden to establish that the property was exempt from taxation because tax exemptions are not self-executing. Further, since the taxpayer did not request the board of assessment appeals to refund the taxes it paid before its properties were granted tax exempt status, or challenge the effective date of that exemption, the supreme court held that the taxpayer was not entitled to revisit these waived claims in a nunc pro tunc appeal. (Circle of Seasons Charter School v. Northwestern Lehigh School District, Pa. S. Ct., Dkt. No. 99 MAP 2022, 09/26/2024.)
Pennsylvania Supreme Court Upholds Tax on Net Gains from Like-Kind Exchanges
In a consolidated appeal, the Pennsylvania Supreme Court has affirmed the Pennsylvania Commonwealth Court and the Board of Finance and Revenue's orders sustaining the Department of Revenue's reassessments of personal income tax on the taxpayers' gain from like-kind exchanges. The Pennsylvania Supreme Court held that net gains from the exchange of real property are taxable in Pennsylvania at the time of the exchange rather than when the property is sold. (Pearlstein v. Commw., Pa. S. Ct., Dkt. No. 21 MAP 2023, 09/26/2024; Slogoff v. Commw., Pa. S. Ct., Dkt. No. 22 MAP 2023, 09/26/2024; Pearlstein v. Commw., Pa. S. Ct., Dkt. No. 23 MAP 2023, 09/26/2024.)
Background. The taxpayers, partners in several real estate purchasing and development partnerships who use the federal income tax (FIT) method of accounting, had contended that net gains on like-kind exchanges should be taxed when the property is sold since such deferrals are permitted under IRC § 1031.
Holding. The Pennsylvania Supreme Court held that the Department rebutted the presumption that the FIT method of accounting clearly reflects income with regard to like-kind exchange deferral because, unlike IRC § 1031, the Pennsylvania Tax Reform Code of 1971 (TRC) does not permit tax deferrals on net gains from like-kind exchanges of real property. The Pennsylvania Supreme Court held that the taxpayers' method of accounting, though regular and generally accepted, cannot incorporate unique principles of the IRC into the Pennsylvania Tax Code, particularly where they are inconsistent with the plain language of the TRC defining income. Furthermore, the TRC in the relevant year did not explicitly establish an exception or deferral principle for net gains from like-kind exchanges.
Pennsylvania Business Tax Rates—No Pennsylvania PURTA surcharge imposed in 2025.
The Pennsylvania Department of Revenue has published the Public Utility Realty Tax Act (PURTA) surcharge rate of 0 mills, effective for the tax year beginning January 1, 2025. The surcharge, when imposed, is paid on each dollar of a utility's gross receipts, other than gross receipts from providing mobile telecommunications services and telephone or telegraph messages transmitted in interstate commerce. (Notice: Public Utility Realty Tax Act; Surcharge Rate for Tax Year Beginning January 1, 2025, Pa. Bulletin Doc 24-1358, Vol. 54, No. 38, 09/21/2024.)
Pennsylvania Property Tax Pennsylvania authorizes counties to impose fee on properties sold for delinquent taxes.
L. 2024, S149 (Act 48), effective 09/06/2024, amends the Real Estate Tax Sale Law to allow counties to impose a fee of up to $250 on properties sold for delinquent taxes or mortgage foreclosure conducted in the calendar year beginning not less than 90 days after the effective date of the ordinance. The fee must be collected at the time of the sale from the buyer as a condition of conveying title to the property. The fee cannot be applied to property sold for delinquent taxes to a nonprofit entity, land bank, government entity or to a property acquired by the Pennsylvania Housing Finance Agency.
Pennsylvania Public Utilities Tax—No Pennsylvania PURTA surcharge imposed in 2025.
The Pennsylvania Department of Revenue has published the Public Utility Realty Tax Act (PURTA) surcharge rate of 0 mills, effective for the tax year beginning January 1, 2025. The surcharge, when imposed, is paid on each dollar of a utility's gross receipts, other than gross receipts from providing mobile telecommunications services and telephone or telegraph messages transmitted in interstate commerce. (Notice: Public Utility Realty Tax Act; Surcharge Rate for Tax Year Beginning January 1, 2025, Pa. Bulletin Doc 24-1358, Vol. 54, No. 38, 09/21/2024.)
Week of 09.30.2024
Pennsylvania Property Tax—Pennsylvania Supreme Court held that property tax exemptions are not self-executing.
The Pennsylvania Supreme Court reversed the order of the commonwealth court and reinstated the trial court's dismissal of the taxpayer's complaint seeking a refund of property taxes that were collected by the school district. The taxpayer contended that property owned by charter schools is presumed to be exempt and immune from local taxation and as a result, the taxpayer had no obligation to prove its property was entitled to a tax exemption. The supreme court held that a taxing body has the statutory authority and obligation to impose a tax on all property, and the taxpayer had the burden to establish that the property was exempt from taxation because tax exemptions are not self-executing. Further, since the taxpayer did not request the board of assessment appeals to refund the taxes it paid before its properties were granted tax exempt status, or challenge the effective date of that exemption, the supreme court held that the taxpayer was not entitled to revisit these waived claims in a nunc pro tunc appeal. (Circle of Seasons Charter School v. Northwestern Lehigh School District, Pa. S. Ct., Dkt. No. 99 MAP 2022, 09/26/2024.)
Pennsylvania Supreme Court Upholds Tax on Net Gains from Like-Kind Exchanges
In a consolidated appeal, the Pennsylvania Supreme Court has affirmed the Pennsylvania Commonwealth Court and the Board of Finance and Revenue's orders sustaining the Department of Revenue's reassessments of personal income tax on the taxpayers' gain from like-kind exchanges. The Pennsylvania Supreme Court held that net gains from the exchange of real property are taxable in Pennsylvania at the time of the exchange rather than when the property is sold. (Pearlstein v. Commw., Pa. S. Ct., Dkt. No. 21 MAP 2023, 09/26/2024; Slogoff v. Commw., Pa. S. Ct., Dkt. No. 22 MAP 2023, 09/26/2024; Pearlstein v. Commw., Pa. S. Ct., Dkt. No. 23 MAP 2023, 09/26/2024.)
Background. The taxpayers, partners in several real estate purchasing and development partnerships who use the federal income tax (FIT) method of accounting, had contended that net gains on like-kind exchanges should be taxed when the property is sold since such deferrals are permitted under IRC § 1031.
Holding. The Pennsylvania Supreme Court held that the Department rebutted the presumption that the FIT method of accounting clearly reflects income with regard to like-kind exchange deferral because, unlike IRC § 1031, the Pennsylvania Tax Reform Code of 1971 (TRC) does not permit tax deferrals on net gains from like-kind exchanges of real property. The Pennsylvania Supreme Court held that the taxpayers' method of accounting, though regular and generally accepted, cannot incorporate unique principles of the IRC into the Pennsylvania Tax Code, particularly where they are inconsistent with the plain language of the TRC defining income. Furthermore, the TRC in the relevant year did not explicitly establish an exception or deferral principle for net gains from like-kind exchanges.
Pennsylvania Business Tax Rates—No Pennsylvania PURTA surcharge imposed in 2025.
The Pennsylvania Department of Revenue has published the Public Utility Realty Tax Act (PURTA) surcharge rate of 0 mills, effective for the tax year beginning January 1, 2025. The surcharge, when imposed, is paid on each dollar of a utility's gross receipts, other than gross receipts from providing mobile telecommunications services and telephone or telegraph messages transmitted in interstate commerce. (Notice: Public Utility Realty Tax Act; Surcharge Rate for Tax Year Beginning January 1, 2025, Pa. Bulletin Doc 24-1358, Vol. 54, No. 38, 09/21/2024.)
Pennsylvania Property Tax Pennsylvania authorizes counties to impose fee on properties sold for delinquent taxes.
L. 2024, S149 (Act 48), effective 09/06/2024, amends the Real Estate Tax Sale Law to allow counties to impose a fee of up to $250 on properties sold for delinquent taxes or mortgage foreclosure conducted in the calendar year beginning not less than 90 days after the effective date of the ordinance. The fee must be collected at the time of the sale from the buyer as a condition of conveying title to the property. The fee cannot be applied to property sold for delinquent taxes to a nonprofit entity, land bank, government entity or to a property acquired by the Pennsylvania Housing Finance Agency.
Pennsylvania Public Utilities Tax—No Pennsylvania PURTA surcharge imposed in 2025.
The Pennsylvania Department of Revenue has published the Public Utility Realty Tax Act (PURTA) surcharge rate of 0 mills, effective for the tax year beginning January 1, 2025. The surcharge, when imposed, is paid on each dollar of a utility's gross receipts, other than gross receipts from providing mobile telecommunications services and telephone or telegraph messages transmitted in interstate commerce. (Notice: Public Utility Realty Tax Act; Surcharge Rate for Tax Year Beginning January 1, 2025, Pa. Bulletin Doc 24-1358, Vol. 54, No. 38, 09/21/2024.)