Nextel Asks Pennsylvania Supreme Court to Rehear Case

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Leslie A. Pappas

Nextel Communications of the Mid-Atlantic Inc. wants a do-over.

The Sprint Corp. subsidiary has asked the Pennsylvania Supreme Court to rethink an Oct. 18 tax case decision that found unconstitutional a flat-dollar cap on net loss carryover deductions as applied to Nextel in 2007—yet didn’t award a refund. The Supreme Court found the flat dollar cap part of the provision violated the state’s uniformity clause and severed it from the remainder of the statute, leaving the percent cap in place ( Nextel Commc’ns of the Mid-Atlantic, Inc. v. Commonwealth , Pa., No. 6 EAP 2016, application for reargument filed 11/1/17 ).

The court should reconsider the case and consolidate it with RB Alden Corp. v. Commonwealth, a similar case recently appealed from the state Commonwealth Court that involves the NOL dollar cap for tax year 2006, Nextel said in a Nov. 1 application for reargument.

“They’ve asked for a redetermination by the court because they think the court has erred in its opinion,” Vito A. Cosmo Jr., a CPA and a State and Local Tax practice managing director at Grant Thornton LLP in Philadephia, told Bloomberg Tax.

The case matters to thousands of Pennsylvania corporate taxpayers that take advantage of the state’s deduction on net operating losses. While recently passed budget legislation eliminates the dollar cap going forward, the Nextel decision could still impact businesses that have tax appeals pending. It could also impact the bottom line for recent tax years that fall within the state’s three-year statute of limitations. Businesses could see either refunds or tax assessments from authorities, depending on the ultimate outcome of the case.

The Nextel decision creates “an irreconcilable conflict” in remedy if it is applied to the RB Alden case, Nextel said in its application. Since Pennsylvania’s tax statue in 2006 only contained a flat-dollar limit on deduction of net losses, striking it down would give RB Alden an unlimited deduction for that year.

“Hundreds of appeals are pending the outcome of this Nextel case,” the filing said. “It is important, therefore, that taxpayers have clear guidance from this Court—especially as this guidance relates to severability.”

Percentage Cap

Nextel is challenging the part of the court’s decision that severed a $3 million cap on deduction of net loss carryovers from the rest of the Pennsylvania statute, Cosmo said.

The state’s net loss carryover deduction provision in Pennsylvania’s Revenue Code for tax year 2007 capped the amount of losses a corporation could carry over from prior years to the greater of $3 million or 12.5 percent of its income. Nextel argued that the statute violated the uniformity clause, since the dollar limit allowed most companies with net loss carryovers reduce their taxable income to zero, while large companies like Nextel were bound by the percentage limit and thus had to pay tax.

The Supreme Court’s decision—striking the dollar cap, but leaving the percentage cap in place—reversed the Commonwealth Court’s unanimous November 2015 decision, which declared the entire statute unconstitutional and ordered that Nextel be awarded a $3.9 million refund.

‘Contradiction’ in Decisions

The filing “makes sense,” said David J. Shipley, a partner at McCarter & English LLP, who wrote a friend-of-the-court brief on behalf of the Council On State Taxation in the Nextel case.

“There is a contradiction between the decision in Nextel and RB Alden,” Shipley told Bloomberg Tax. In Nextel, the remedy was to strike the fixed dollar limitation on carryovers, meaning that every taxpayer would be subject to a percentage cap. Yet when the same remedy is applied to RB Alden, the result would be that no taxpayer is subject to any cap.

“I think this one is probably going to require some consideration by the court,” Shipley said. “When RB Alden is heard, it makes sense to have Nextel there. The consistency of the remedies needs to be addressed.”

It’s unclear whether or when the Court will accept the case, practitioners said.

The court could say that each case stands alone, or that Nextel had the chance to argue about remedies but chose not to, Michael J. Semes, a principal in the national tax department of Ernst & Young LLP in Philadelphia, told Bloomberg Tax in an email.

The “overarching point is that I’m not aware of the Pennsylvania Supreme Court ever granting reargument in a tax case,” Semes said, “and they have issued other decisions that were similarly subject to Monday morning quarterback types of arguments.”

To contact the reporter on this story: Leslie A. Pappas in Philadelphia at

To contact the editor responsible for this story: Cheryl Saenz at

For More Information

Text of the filing is at

Copyright © 2017 Tax Management Inc. All Rights Reserved.

Request Daily Tax Report: State