November 30, 2017 Pennsylvania Supreme Court holds statute of limitations for corporate tax refunds is three years from the original due date of a return On November 22, 2017, the Pennsylvania Supreme Court (Court) ruled in Mission Funding Alpha 1 that the "actual payment of the tax"2 — the date from which the statute of limitations begins to run to file a refund claim - occurred on the original due date of the return, not the date the taxpayer actually filed its return pursuant to an extension (or late without an extension), reversing the Commonwealth Court.3 Pennsylvania's claim for refund statute of limitations rules now differ significantly from those applied by many other states. Background In this case, the taxpayer was a calendar-year taxpayer that filed its 2007 Pennsylvania Foreign Franchise tax return late on September 19, 2008. Thereafter, it filed a refund petition on September 16, 2011, three days before the three-year anniversary date of the date it filed its return. The Pennsylvania Department of Revenue (Department) denied the petition, contending that the statutory phrase "actual payment of the tax" occurred on the original due date of the return, not the date the taxpayer actually filed the return. The Commonwealth Court held in favor of the taxpayer, reasoning that the phrase "actual payment" meant the "delivering of money in the acceptance and performance of an obligation, rather than the mere depositing of money on account for potential future use."4 Consequently, the Commonwealth Court concluded that the statute of limitations began to run on the date that the return was filed. The Department appealed this ruling. Supreme Court decision On appeal, the majority of the Court was "not persuaded by the Commonwealth Court's reasoning" and opted for a "more straightforward reading of the statutory language."5 Citing Black's Law Dictionary, the Court found that "payment" is the "[p]erformance of an obligation by the delivery of money … accepted in partial or full discharge of the obligation" and "actual" means "[e]xisting in fact; real … ."6 According to the Court, the taxpayer had paid sufficient amounts in estimated tax payments and also carried forward credits from its prior tax year so that its tax obligation was satisfied as of April 15, 2008 — the original due date of its return. Consequently, the Court held that MFA was required to file its refund petition within three years of the original due date of its return under the statute of limitations statute. The concurring opinion qualifies the Court's majority opinion as being "fact-sensitive" because the taxpayer's " … estimated tax payments were accepted and applied on the same date its tax report was required to be filed, the operative date for the calculation of the limitations period coincides with the due-date for filing the tax report (April 15, 2008)."7 The concurring opinion warns that the result in this case "is driven entirely by these particular facts, and different facts would yield different results."8 Implications The ruling in this case will significantly affect taxpayers seeking refunds of Pennsylvania corporate taxes. Because the Court upheld the Department's interpretation of the statute of limitations for filing refund claims, taxpayers must consider Pennsylvania's unique position, which differs from those in many other states when filing claims for refund. ———————————————
——————————————— 1 Mission Funding Alpha v. Commonwealth, No. 2 MAP 2016 (Pa. S. Ct. Nov. 22, 2017) (MFA II). 2 72 P.S. § 10003.1(a). 3 Mission Funding Alpha v. Commonwealth, No. 313 F.R. 2012 (Pa. Commw. Ct. Jan. 14, 2016) (MFA I). 4 MFA I, Slip Op. at p. 5. 5 MFA II, Slip Op. at 15. 6 Id. 7 MFA II, Concurring Slip Op. at 6; Justice Donohue's concurring opinion also disagreed with the Court majority's analysis, finding that " … the Tax Reform Code unmistakably distinguishes between the payment of tax and the filing of a tax report, such that 'payment' is in no way dependent on the filing of a tax report." Id. at 3. 8 Id. at 5. | |||||||||||
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