Quantcast

Pennsylvania net loss carryover unconstitutional in Nextell case, high state court says

PENNSYLVANIA RECORD

Thursday, November 21, 2024

Pennsylvania net loss carryover unconstitutional in Nextell case, high state court says

Law money 01

HARRISBURG – The Pennsylvania Supreme Court on Oct. 18 said that taxes figured in the case of Nextel Communications violated the Pennsylvania Constitution.

The court’s ruling could have far-reaching consequences for other taxpayers and other taxable years, but for now applies to Nextel, the State and the year 2007.

The state high court said the situation had created different classes of taxpayers unfairly and reiterated an earlier decision by the Commonwealth Court in December 2015, which also found the Net Loss Carryover (NLC provision) of the Pennsylvania Revenue Code was in the case of Nextel unconstitutional.

An NLC deduction is a tax deduction taken for a time period when a company reports more allowable tax deductions that it has in taxable income.

Nextel Communications, a mobile telecommunication and wireless service operator, a subsidiary of Sprint Corp., challenged the tax laws for its 2007 year. The NLC deduction was limited to the greater of 12.5 percent of the taxpayer’s taxable income, or a $3 million flat deduction, the opinion states.

The high court concluded that taxpayers with taxable income of more than $3 million could not reduce their net income tax liability to zero and owed some income tax where other taxpayers with $3 million or less in taxable income could reduce their liability to zero.

The court decision called for an end to the inequity by striking down the fixed dollar limit amount ($3 million) and retaining the percentage (12.5 percent).

Supreme Court Justice Max Baer said the NLC provision of the state tax code regarding Nextel had violated the Uniformity Clause of the Pennsylvania Constitution, and that doing away with the $3 million flat deduction would remedy the situation.

“The NLC deduction as written creates two classes of similarly situated taxpayers and treats them disparately solely on the basis of the value of property involved (i.e. taxable income), thereby violating the Uniformity Clause,” Baer stated in his opinion.

The Supreme Court reversed a Commonwealth Court order directing the state to refund Nextel $3.9 million saying the company was not entitled to such an award as it had not made an overpayment of corporate income taxes.

More News