Mission Funding Alpha v. Commonwealth

• Decision Date: 22 November 2017
• Docket Number: No. 2 MAP 2016,2 MAP 2016
• Citation: 173 A.3d 748
• Parties: MISSION FUNDING ALPHA, Appellee v. COMMONWEALTH of Pennsylvania, Appellant
• Court: Pennsylvania Supreme Court

173 A.3d 748

MISSION FUNDING ALPHA, Appellee
v.
COMMONWEALTH of Pennsylvania, Appellant

No. 2 MAP 2016

Supreme Court of Pennsylvania.

Argued: May 9, 2017
Decided: November 22, 2017

Paul Evan Melniczak, Esq., Kyle Oliver Sollie, Esq., Reed Smith LLP, for Appellee.

Bruce Richard Beemer, Esq., John G. Knorr III, Esq., Neil Patrick McConnell, Esq., Pennsylvania Office of Attorney General, Joshua D. Shapiro, Esq., Carol L. Weitzel, Esq., PA Office of Attorney General, for Appellant.

Jeffrey T. McGuire, Esq. Cipriani & Werner, P.C., for Amicus Curiae The Pennsylvania Institute of Certified Public Accountants.

SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.

OPINION

JUSTICE DOUGHERTY

We consider the Commonwealth Court's decision that the three-year tax refund period specified in Section 3003.1(a) of the

173 A.3d 750

Tax Reform Code of 1971 (Tax Code), 72 P.S. § 10003.1(a), begins to run on the date the corporate taxpayer files its annual tax report. We hold the Commonwealth Court erred in so holding under the circumstances of this case, and therefore reverse and remand.

Appellee, Mission Funding Alpha, is a calendar-year taxpayer that conducted business in the Commonwealth of Pennsylvania during the year ending December 31, 2007 (2007 Tax Year), and pursuant to Section 602(b)(1) of the Tax Code, was subject to the Pennsylvania Foreign Franchise Tax. 72 P.S. § 7602(b)(1) (requiring foreign entities to pay franchise tax annually). The relevant statutes require that corporate taxpayers such as appellee make installment payments of franchise taxes throughout the year, and that "the remaining portion of...the franchise tax, if any, shall be paid upon the date the corporation's annual report is required to be filed without reference to any extension of time for filing such report." 72 P.S. § 10003.2(a)(2), (c)(2). In this case, appellee's annual tax report (the Report) was due to be filed on or before April 15, 2008. 72 P.S. § 707 (entities liable to pay franchise tax required to file annual report on or before fifteenth of April and to pay franchise tax at the time of making the report); 72 P.S. § 7403(a) (corporation liable to pay tax on or before April 15 shall file annual report); 72 P.S. § 7601(b) (requiring entities to file franchise tax report annually). As of April 15, 2008, appellee had timely remitted to the Pennsylvania Department of Revenue (the Department) quarterly estimated payments totaling $430,000 for its 2007 Tax Year liability. Stipulation of Facts ¶ 10. A $32,297 credit overpayment was also carried forward for appellee's 2007 Tax Year liability. Id. at ¶ 11. Thus, as of April 15, 2008, appellee's estimated payments and deposited credits totaled $462,297. Id. at ¶ 12.

Without first seeking an extension of time to file its Report after the due date of April 15, 2008, appellee filed it late—on September 19, 2008—reporting a $66,344 franchise tax liability and a $314,175 corporate net income tax liability for a total tax liability of $380,519. Id. at ¶¶ 8, 13, 14. The Department accepted appellee's reported franchise tax liability and imposed a $913 late-filing penalty because appellee had not requested a filing extension and had not filed its Report by the due date of April 15, 2008. Id. at ¶ 19.¹ On September 16, 2011, appellee filed a petition for refund with the Board of Appeals, seeking a refund of the entire amount of its reported 2007 franchise tax liability ($66,344).² The Board of Appeals dismissed the petition as untimely, stating it was filed more than three years after the payment date of April 15, 2008. Board of Appeals Op. at 1. See 72 P.S. § 10003.1(a) (petition for refund must be filed "within three years of actual payment of the tax, interest or penalty"). Appellee then appealed to the Board of Finance and Revenue, arguing its refund petition was timely because the time to file a petition did not begin to run until its tax was defined or deemed paid, which did not occur until appellee filed its 2007 Report on September 19, 2008. The Board of Finance

173 A.3d 751

and Revenue affirmed the decision of the Board of Appeals, concluding although appellee paid $66,344 in franchise tax for 2007 on the due date of April 15, 2008, the refund petition was filed more than three years after that due date, and therefore was untimely. Board of Finance and Revenue Op. at 3 (refund petition filed "more than three years after the April 15, 2008, tax payment and report filing due date, or 153 days late").

Appellee appealed to the Commonwealth Court.³ Appellee argued the applicable statute of limitations for a refund claim is three years from the date of payment of tax but a tax is not deemed "paid" until amounts are applied to a definite tax liability. According to appellee, even if estimated payments or installment payments are made, the "date of payment" for purposes of calculating a refund claim period means the date a report or return is filed.⁴ Appellee's Petition for Review, at 5–6, citing Trevelyan v. United States, 219 F.Supp. 716 (D. Conn. 1963) (remittances made prior to determination of taxpayer's actual liability do not constitute payment of a tax for purpose of commencing limitations period on refund claims). Appellee further contended such interpretation is consistent with the statute of limitations for assessments, which is three years from the date a report is filed. Id. at 5, citing 72 P.S. § 7407.3 ("Tax may be assessed within three years after the date the report is filed."). Appellee insisted its petition for refund was timely filed because it filed its petition on September 16, 2011, less than three years after the date of payment which did not actually occur until September 19, 2008, when it filed its Report. Id.

The Commonwealth Court en banc agreed with appellee and reversed the Board of Finance and Revenue. Mission Funding Alpha v. Com., 129 A.3d 614 (Pa. Cmwlth. 2015). The court initially observed Section 3003.1(a), which authorizes refund petitions, provides:

For a tax collected by the Department of Revenue, a taxpayer who has actually paid tax, interest or penalty to the Commonwealth or to an agent or licensee of the Commonwealth authorized to collect taxes may petition the Department of Revenue for refund or credit of the tax, interest or penalty. Except as otherwise provided by statute, a petition for refund must be made to the department within three years of actual payment of the tax, interest or penalty.

Id. at 616–17, quoting 72 P.S. § 10003.1(a) (emphasis added). The court posited that in order to determine whether a refund petition was timely, it was required to interpret the undefined statutory phrase "actual payment of tax." Id. at 617. The

173 A.3d 752

court looked to various dictionaries to define the phrase "actual payment of tax," reasoning:

According to Black's Law Dictionary(9th ed. 2009), "payment" is the "[p]erformance of an obligation by the delivery of money ... accepted in partial or full discharge of an obligation." Id. at 1243 (emphasis added). Merriam–Webster's Collegiate Dictionary(11th ed. 2004) defines "payment" as "the act of paying...: something that is paid: PAY[.]" Id. at 910 (emphasis added). Black's Law Dictionary defines "actual" as "[e]xisting in fact; real ...." Id. at 40 (emphasis added). According to Merriam–Webster's Collegiate Dictionary, "actual" means "existing in [f]act and not merely potentially[.]" Id. at 13 (emphasis added).

Id. at 617–18 (emphases in original). The court concluded "the common and approved usage of the phrase ‘actual payment’ means 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." Id. at 618. The court noted Section 403(b) of the Tax Code requires corporations to pay estimated tax and to make final payment of tax due with the annual corporate tax report, and Section 403(c) provides the amount of taxes not paid on or before the time as specified by statute shall bear interest from the date they are due and payable until paid. Id. at 618, citing 72 P.S. § 7403(b), (c). Therefore, according to the court, a corporate taxpayer makes its "final" tax payment only upon filing its annual report. Id. at 618, citing 72 P.S. § 7403(b) (taxpayer has duty "to make final payment of tax due for the taxable year with the annual report").⁵

Based upon its reading of these statutes, the court reasoned the General Assembly intended that a corporation's franchise tax liability is not established until its annual report is filed and, although appellee's taxes and Report were due on April 15, the Tax Code permits a taxpayer the opportunity to make a final tax payment whenever it files its annual report, which may be filed after tax liabilities are definitively known, albeit subject to interests and penalties. Id. at 619, citing, inter alia, 72 P.S. §§ 7403(c) - (d) (penalties shall be assessed for failure to make a report) and 7410 (penalties shall be imposed for failure to file report or maintain records). The court concluded "[b]ecause it is clear that a corporate taxpayer's annual report filing date is the date on which the corporation states and accepts to pay its tax liability, we hold that ‘actual...