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Oct. 12 — Striking Pennsylvania’s cap on the carryover of net operating losses as unconstitutional wouldn’t prevent local governments from imposing other types of taxes, Nextel said in a brief to the state’s Supreme Court ( Nextel Commc’ns of the Mid-Atlantic, Inc. v Commonwealth , Pa., No. 6 EAP 2016, response brief filed 10/7/16 ).
The brief was filed Oct. 7 after the Pennsylvania House of Representatives’ Republican caucus told the court in August that invalidating the cap on the deduction for corporate income taxes would “open a Pandora’s Box” for other types of taxation, and could “raise questions about the ongoing ability of local governments to raise revenue at fixed rates.”
Nextel argued that the caucus “exaggerates the impact of the Commonwealth Court’s decision.”
The brief was filed little more than a week after the Pennsylvania Supreme Court ruled that a tax on slot machine revenue violated the uniformity clause of the state’s constitution—a ruling attorneys said improves the chances that Nextel will win its case.
The Commonwealth court’s en banc panel ruled 7-0 in November 2015 that the state discriminated against Nextel in 2007 by imposing a $3 million carryover cap on operating losses. The cap prevented Nextel from reducing its taxable income to zero as thousands of other Pennsylvania taxpayers with prior-year losses were able to do.
Despite the court’s attempt to limit the remedy only to Nextel for the year 2007, the ruling has already been applied in other cases. In June, the court referenced the decision when ruling on RB Alden Corp. v. Commonwealth, finding that a $2 million net operating loss cap in 2016 was also unconstitutional.
Since 2006, Pennsylvania has capped the amount of net operating losses that businesses may apply to their taxable income to either a flat dollar amount or a percentage of income. In 2007, Pennsylvania’s law limited the amount of net losses a company could carry over to $3 million or 12.5 percent of income, whichever was larger. The current cap is the larger of $5 million or 30 percent of taxable income.
To contact the reporter on this story: Leslie A. Pappas in Philadelphia at LPappas@bna.com
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