Quest Diagnostics Venture, LLC v. Commonwealth

• Decision Date: 09 June 2015
• Docket Number: No. 782 F.R. 2012,782 F.R. 2012
• Citation: 119 A.3d 406
• Court: Pennsylvania Commonwealth Court
• Parties: QUEST DIAGNOSTICS VENTURE, LLC, Petitioner v. COMMONWEALTH of Pennsylvania, Respondent.

119 A.3d 406

QUEST DIAGNOSTICS VENTURE, LLC, Petitioner

v.COMMONWEALTH of Pennsylvania, Respondent.

No. 782 F.R. 2012

Commonwealth Court of Pennsylvania.

Argued Feb. 11, 2015.

Decided June 9, 2015.

Margaret C. Wilson, Somerville, NJ, for petitioner.

Neil P. McConnell, Harrisburg, for respondent.

BEFORE: DAN PELLEGRINI, President Judge, BONNIE BRIGANCE LEADBETTER, Judge, RENÉE COHN JUBELIRER, Judge, ROBERT SIMPSON, Judge, MARY HANNAH LEAVITT, Judge, P. KEVIN BROBSON, Judge, and ANNE E. COVEY, Judge.

OPINION BY Judge BONNIE BRIGANCE LEADBETTER.

Quest Diagnostics Venture, LLC (Quest) petitions for review of the order of the Board of Finance and Revenue that affirmed the decision of the Board of Appeals dismissing, as untimely, Quest's petition seeking a refund of the Pennsylvania capital stock tax (franchise tax) paid for the tax year 2007.

Quest questions (1) whether its amended report filed for the tax year 2007 should be treated as a petition for refund timely filed under Section 3003.1(a) of the Tax Reform Code of 1971 (Tax Reform Code), Act of March 4, 1971, P.L. 6, as amended, added by Section 14 of the Act of July 1, 1985, P.L. 78, 72 P.S. § 10003.1(a) ; (2) whether the Department of Revenue (Department) exceeded its legislative powers in promulgating the regulations governing petitions filed with the Board of Appeals and amended reports filed with the Department; and, (3) whether the Department was precluded from raising the timeliness of Quest's petition for refund under equitable principles and under Section 202 of the Taxpayers' Bill of Rights, Act of December 20, 1996, P.L. 195, as amended, 72 P.S. § 3310–202. We conclude that Quest's petition for refund was properly dismissed as untimely. Accordingly, we affirm.

As required by Rule 1571(f) of the Pennsylvania Rules of Appellate Procedure, Pa. R.A.P. 1571(f), the parties submitted a Stipulation of Facts (Stipulation) and exhibits, which reveal the following facts on the issue of jurisdiction to consider Quest's petition for refund. As a limited liability company providing clinical diagnostic laboratory testing services, Quest is subject to the Pennsylvania franchise tax. Quest's PA Corporate Tax Report (PA RCT–101) for the tax year 2007 was due on or before April 15, 2008. On April 15, 2008, Quest obtained a six-month extension to file a PA RCT–101 from the Department and paid franchise tax for the tax year 2007 in the amount of $513,651 by way of credit transfer and electronic payments. On October 15, 2008, Quest filed a PA RCT–101, reporting that its franchise tax liability for the tax year 2007 was $513,651.

On October 12, 2010, Quest attempted to file an amended tax report for the tax year 2007 by filing a PA RCT–101 with a handwritten notation, “Amended Return,” on top of each page. On October 15, 2010, Quest filed a correct form, PA RCT–101–X (Amended PA Corporate Tax Report), reporting that its franchise tax liability for the tax year 2007 was $33,171 with the tax due amount of “-$480,480” ($33,171–$513,651 paid on April 15, 2008). Exhibit C to the Stipulation.¹

On March 23, 2011, an employee in the Department's Taxing Division informed Quest that the 2007 original tax report filed on October 15, 2008 had been selected for review.² He asked Quest to submit a copy of the 2007 federal income tax return and all supporting schedules. On the same day, an employee in the Department's Processing Division informed Quest that the amended report was incomplete due to missing pages of 3, 5 and 6. On April 12, 2011, the Department received a copy of Quest's 2007 federal tax return and the missing pages of the amended report. On June 3, 2011, the Department's corporation tax officer, Randall Sarvey, entered a comment in the Department's internal note system, stating that the large decrease in Quest's tax liability was the “result of correcting history of earnings for deduction for materially participating partners.” Exhibit I. Another employee, Greene, thereafter entered a comment agreeing with Sarvey's comment. On August 2, Sarvey entered another comment, stating that per his supervisor “JN,” Quest was not qualified for the proposed deductions and that the earlier comments in the internal note system should be ignored. Id.

On February 14, 2012, Quest sent the Department a letter, stating that it had been informed of the Department's decision to reject the deduction claims made in the amended report. Quest included additional information for the Department's consideration. On February 21, 2012, Sarvey informed Quest that the Department's decision to reject the 2007 amended report was appropriate. He enclosed a list of petitions, including a petition for refund, that may be available to Quest for filing. The Department accepted the amount of franchise tax reported in Quest's 2007 original report and did not issue a tax assessment.

On February 21, 2012, Quest filed a petition for refund with the Board of Appeals. The Board dismissed the petition as untimely under Section 3003.1(a) of the Tax Reform Code which requires a petition for refund to be filed within three years after the actual payment of tax. Quest challenged the dismissal by filing another petition for refund with the Board of Finance and Revenue which determined that the Board of Appeals correctly dismissed the untimely petition for refund for lack of jurisdiction. Quest's appeal to this Court followed.³

The parties stipulated that if called to testify, the manager of Quest's tax compliance unit, Brigida Palladino, would testify that Sarvey told her in August and October 2011 that the 2007 amended report was under review. On February 7, 2012, Sarvey told her that the 2007 amended report was rejected. The director of Quest's affiliate, Hong Donaldson, would testify that she called Sarvey on February 7, 2012 and was told that he would review additional information submitted by Quest, but that the Department's position would unlikely change. Palladino and Donaldson would further testify that they do not remember being advised by the Department that the 2007 amended report did not constitute a petition for refund or that the filing of the 2007 amended report would not toll the time period for filing a petition for refund. They also do not remember being advised by the Department of Quest's appeal rights before February 21, 2012. The exhibits submitted by the parties include a transcript of Sarvey's deposition testimony taken on May 29, 2014 (Exhibit M).⁴

A refund of voluntarily paid tax is a matter of legislative grace. Phila. Gas Works v. Commonwealth, 741 A.2d 841, 846 (Pa.Cmwlth.1999), aff'd, 562 Pa. 621, 757 A.2d 360 (2000). Section 3003.1(a) of the Tax Reform Code 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. [Emphasis added.]

Where, as here, a statute provides a remedy, the directions of the statute must be strictly pursued to obtain the remedy. Section 1504 of the Statutory Construction Act of 1972, 1 Pa.C.S. § 1504 ; Cnty. of Dauphin v. City of Harrisburg, 24 A.3d 1083, 1090 (Pa.Cmwlth.2011).

The time limitation in a tax statute must “be strictly enforced to prevent any uncertainty in the budgetary planning and fiscal affairs of the Commonwealth.” Phila. Gas Works, 741 A.2d at 846. Compliance with the time limitation in the Tax Reform Code is “an absolute condition to obtaining a refund.” Id. Section 3003.1(a) of the Tax Reform Code is a statute of repose that extinguishes entitlement to a tax refund upon expiration of the three-year time period set forth therein; it is not a statute of limitations that runs from the time of an injurious occurrence or discovery of such occurrence. DaimlerChrysler Corp. v. Commonwealth, 885 A.2d 117, 121 (Pa.Cmwlth.2005), aff'd per curiam, 592 Pa. 612, 927 A.2d 201 (2007). Consequently, a petition for refund filed beyond the three-year time period in Section 3003.1(a) is time-barred. DaimlerChrysler Corp. v. Commonwealth, 592 Pa. 612, 927 A.2d 201, 203–04 (2007) (Saylor, J., concurring).⁵ The petitioner has the burden of establishing the timeliness of the petition for refund. Section 2705 of the Tax Reform Code, added by Section 28 of the Act of October 18, 2006, P.L. 1149, 72 P.S. § 9705 ; 61 Pa.Code § 7.14(b)(1).

Quest paid franchise tax for the tax year 2007 on April 15, 2008. The three-year time period for filing a petition for refund, therefore, expired on April 15, 2011, and its entitlement to a tax refund was “completely extinguishe[d]” on that date. Bellefonte Area Sch. Dist. v. Workmen's Comp. Appeal Bd. (Morgan), 156 Pa.Cmwlth. 304, 627 A.2d 250, 252 (1993), aff'd, 545 Pa. 70, 680 A.2d 823 (1994). Hence, Quest's petition for refund filed on February 21, 2012, more than ten months after the expiration of the three-year time period, was time-barred.

While acknowledging that the three-year time period for filing a petition for refund expired on April 15, 2011, Quest argues that its amended report filed on October 15, 2010 should be treated as a timely filed petition for refund. According to Quest, the amended report contained substantial information required for a petition for refund. Quest's attempt to equate the amended report with a petition for refund must be rejected under the relevant provisions of the Tax Reform Code and the Department's regulations.

A petition for refund must contain statements of (1) the tax type and tax periods, (2) the amount of the tax that the taxpayer claims to have been overpaid and (3) the basis of the taxpayer's refund claim. Section 2703(a)(2) of the Tax Reform Code, added by Section 28 of the Act of October 18,...