Mission Funding Alpha v. Commonwealth, Aplt.

[J-28-2017]
IN THE SUPREME COURT OF PENNSYLVANIA
MIDDLE DISTRICT
SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.
MISSION FUNDING ALPHA, : No. 2 MAP 2016
:
Appellee : Appeal from the Order of the
: Commonwealth Court at No. 313 FR
: 2012 dated January 14, 2016, exited
v. : January 15, 2015, overruling the
: Commonwealth's exceptions and
: entering judgment of the December 10,
COMMONWEALTH OF PENNSYLVANIA, : 2015 order that reversed the decision of
: the Board of Finance and Revenue
Appellant : dated March 27, 2012 and exited on
: March 30, 2012 at No. 1118798.
:
: ARGUED: May 9, 2017
OPINION
JUSTICE DOUGHERTY DECIDED: November 22, 2017
We consider the Commonwealth Court’s decision that the three-year tax refund
period specified in Section 3003.1(a) of the 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
1
After the Department applied all tax credits and estimated payments to the 2007 Tax
Year liability, an $81,778 overpayment remained ($462,297 minus $380,519), which the
Department transferred to the 2008 Tax Year. Stipulation of Facts at ¶¶16, 18. The
Department did not charge appellee any interest from the due date of April 15, 2008 to
the actual Report filing date of September 19, 2008. Id. at ¶20.
[J-28-2017] - 2
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 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
2
Appellee sought a refund based on adjustments to capital stock value and
apportionment as well as special apportionment and multiform/unrelated asset
treatment.
3
Appeals taken from the Board of Finance and Revenue to the Commonwealth Court
lie in that court’s appellate jurisdiction; however, review is de novo in nature as no
record is certified from the Board. Tool Sales & Serv. Co. v. Com., 637 A.2d 607, 610
(Pa. 1993). The court considers facts jointly stipulated by the parties. “Any final order
of the Commonwealth Court entered in an appeal from a decision of the Board of
Finance and Revenue [is] appealable to the Supreme Court, as of right….” Wirth v.
Com., 95 A.3d 822, 829 n.5 (Pa. 2014), quoting 42 Pa.C.S. §723(b).
[J-28-2017] - 3
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.
4
At times, the parties and the court refer to statutes or case law from other jurisdictions
— or from Pennsylvania in other contexts — where the term “tax return” is utilized
instead of “tax report.” 72 P.S. §7332(a) (taxpayer liable to pay personal income tax
shall file a “tax return”); 26 U.S.C.S. §6011(a) (any person liable for any tax imposed
shall make a “return”). We note the terms are used interchangeably at times, but the
relevant provisions of the Commonwealth’s Tax Code governing the corporate tax
liability at issue here refers to “reports.” Corporate taxpayer reports are submitted on
Form RCT-101 –– PA Corporate Tax Report.
[J-28-2017] - 4
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 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
5
The court also addressed the quarterly estimated taxes a corporate taxpayer is
required to pay pursuant to Section 3003.2. 72 P.S. §10003.2. The court noted “total
tax” is defined as: “[t]he total tax liability of the taxpayer for the tax period including the
tax reported by the taxpayer and settled, resettled or assessed by the department.”
Mission Funding Alpha, 129 A.3d at 618, citing 72 P.S. §10003.2(b)(6). The court
observed Section 3003.2(i) requires the Department to enter a credit upon the
taxpayer’s account whenever the amount shown as due on the annual report is less
(continued…)
[J-28-2017] - 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 payment of the tax’ cannot occur until the annual report is filed.” Id. (emphasis in
original). The court opined if the General Assembly intended for refund petitions to be
filed within three years of April 15 following the applicable tax year, rather than within
three years of when the taxpayer knows its actual tax liability, which is the annual report
filing date, it would have expressly stated the same. Id. Accordingly, the court held
appellee’s refund petition was timely because it was filed within three years of the filing
of appellee’s 2007 Report, and ordered the matter remanded for further proceedings on
the merits of appellee’s refund petition. Id. After exceptions were overruled and
judgment was entered in favor of appellee, this direct appeal by the Commonwealth
followed.
(…continued)
than the amount paid to the Department and such credit is subject to immediate refund.
The court reasoned these provisions demonstrate the General Assembly “made clear
that a corporation’s tax liability is not established until [its] annual report is filed.” Id. at
619.
[J-28-2017] - 6
The question presented to this Court is: “[w]here a taxpayer pays the tax on the
date it is due but does not file its annual report until several months later, does the
three-year refund period commence on the date the tax was paid, rather than the date
that the annual report was filed?” Appellant’s Brief at 4.
The Commonwealth argues the meaning of “actual payment of the tax” as used
in Section 3003.1(a) should be determined from the ordinary meaning of the words as
illuminated by their use elsewhere in the statute. The Commonwealth asserts the term
“payment” and its cognates are used throughout the Tax Code (as well as the Fiscal
Code) to denote the delivery of money to the Department, rather than the filing of an
annual corporate tax report. Appellant’s Brief at 12, citing 72 P.S. §10003.2(c)(2)
(“[e]stimated tax shall be paid as follows:…Payment of estimated stock and franchise
tax shall be made in equal installments…), and 72 P.S. §707 (every corporation must
“compute and pay” franchise tax). The Commonwealth notes Section 3003.2(c)(2) of
the Tax Code directs that after a corporation’s estimated payments have been made,
any remaining tax “shall be paid” when its annual report is due “without reference to any
extension of time” for filing the report itself.
The Commonwealth further notes the Fiscal Code specifically provides if a
taxpayer obtains an extension to file a report, the extension does not extend the date
that tax is due and payable. Id. at 13, citing 72 P.S. §805 (“taxes…due the
Commonwealth shall be due and payable upon the dates the reports or returns thereof
are required by law to be made, and no extension of time for the filing of any report or
return granted by the department, shall extend the date any tax or bonus shall be due
and payable….”). The Commonwealth observes interest on unpaid taxes is keyed to
the date the taxes are due and payable until paid. Id., citing 72 P.S. §7403(c) (amount
of all taxes not paid on or before April 15, shall bear interest as provided in section 806
[J-28-2017] - 7
of the Fiscal Code from date they are due and payable until paid); 72 P.S. §806 (“All
taxes due the Commonwealth shall bear simple interest from the date they become due
and payable until paid…. The payment of interest, as aforesaid, shall not relieve any
person from any of the penalties, commissions or additional tax prescribed by law for
neglect or refusal to furnish timely returns or reports to the Department of Revenue, or
to pay any claim due to the Commonwealth from such person.”). The Commonwealth
argues if the legislature intended the time for filing a refund to commence upon filing the
annual tax report, it would have stated so as it did in Section 407.3(a), which provides
the Department may assess a tax “within three years after the date the [tax] report is
filed.” 72 P.S. §7407.3(a). Thus, the Commonwealth contends the payment of tax is
entirely distinct from the filing of an annual report and where those two events do not
occur simultaneously, the three-year refund period runs from the date the tax is due.
The Commonwealth also argues City of Philadelphia v. City of Philadelphia Tax
Review Board ex rel Keystone Health Plan East, 132 A.3d 946 (Pa. 2015) (Keystone) is
on point. In that case, the taxpayer filed a report and later an amended report following
an audit by the Internal Revenue Service (IRS) that revealed the taxpayer had
understated its deductions and, thus, overstated its net income. The taxpayer sought a
refund arguing the refund period ran from the date of its amended report. Section 19-
1703(1)(d) of the Philadelphia tax code permits the filing of refund petitions within three
years from the date of payment or the due date, whichever is later. PHILADELPHIA CODE
§19-1703(1)(d).6 This Court found the Philadelphia tax code provision was
6
Section 19-1703(1)(d) provides:
Every petition for refund of moneys collected by the Department on or after
January 1, 1980, for or on behalf of the City or the School District of
Philadelphia, including but not limited to any tax, ... shall be filed with the
Department within 3 years from the date of payment to the City or the
School District of Philadelphia or the due date, whichever is later.
(continued…)
[J-28-2017] - 8
unambiguous and concluded an interpretation that the refund period ran from the filing
of the tax report would insert words where they do not appear. Id. at 952. The Court
also concluded Section 19-1703(1)(d) is a statute of repose and the period to request a
refund began upon payment by the taxpayer. Id. at 953. According to the
Commonwealth, Section 3003.1(a) is similarly unambiguous and because the provision
does not mention reports but ties the refund period to payment, the period for seeking a
refund in this case began to run when appellee paid its tax on April 15, 2008.
The Commonwealth also asserts the Commonwealth Court erred by ignoring the
plain language of the statute and instead concluding the filing of an annual corporate tax
report is the same thing as actually paying tax. According to the Commonwealth, the
Tax Code repeatedly treats payment and the filing of a report as two different events,
even though the events may occur simultaneously. Appellant’s Brief at 16, citing 72
P.S. §10003.1(c)(2) (franchise tax is to be paid on April 15 “without regard to any
extension of time for filing” annual report). Additionally, the Commonwealth contends
the Commonwealth Court misapprehended the dictionary definition of “payment,” which
properly is defined as “the delivery of money…accepted in partial or full discharge of an
obligation.” Appellant’s Brief at 17, quoting Black’s Law Dictionary at 1243.
Specifically, the “acceptance” referenced in the definition is not the taxpayer’s
acceptance of its obligation to file an annual report, but rather the Department’s
acceptance of the taxpayer’s money, which in this case occurred no later than April 15,
2008. The Commonwealth asserts there is no difference between the language of the
Philadelphia tax ordinance –– “within three years from the date of payment” –– and the
language of Section 3003.1(a), because both the Tax Code and the Philadelphia tax
(…continued)
PHILADELPHIA CODE §19-1703(1)(d) (emphasis added).
[J-28-2017] - 9
ordinance tie the start of the refund period to payment. The Commonwealth further
argues that, as neither Section 3003.1(a) of Tax Code nor Philadelphia’s Section 19-
1703(1)(d) mentions tax “reports,” the date on which a taxpayer files its report is
irrelevant to determining the refund period.
The Commonwealth insists the Commonwealth Court erred in stating that
Section 3003.1 as a tax statute must be strictly construed against the Commonwealth.
The Commonwealth notes because the refund statute is not ambiguous and does not
impose a tax, the courts are not required to strictly construe it against the
Commonwealth. Appellant’s Brief at 19-20, citing Keystone, 132 A.3d at 953-54 (only
ambiguous provisions that impose tax must be construed in favor of taxpayer and
refund provisions are to be strictly construed against taxpayer). The Commonwealth
also argues whether the taxpayer knows the actual amount of its tax liability when it
makes payments is irrelevant because the refund period, as a statute of repose, is
governed by the payment date and not by the discovery rule. Id., citing Keystone, 132
A.3d at 953 (“we conclude [Section] 19-1703(1)(d) is a statute of repose”). The
Commonwealth relies upon DaimlerChrysler Corp. v. Com., 885 A.2d 117 (Pa. Cmwlth.
2005), aff’d , 927 A.2d 201 (Pa. 2007) (DaimlerChrysler), which involved
DaimlerChrysler’s claim for a refund of sales tax paid by the original purchasers of
defective vehicles the manufacturer was required to buy back under the Pennsylvania
Lemon Law. The Commonwealth Court concluded the refund period specified in
Section 3003.1(a) began to run when the consumer paid the tax at the time of
purchase, even though this meant that some of DaimlerChrysler’s refund claim rights
expired before the right to request a refund even accrued. DaimlerChrysler, 927 A.2d at
201. Thus, the Commonwealth concludes appellee’s knowledge of its overpayment and
[J-28-2017] - 10
refund rights is irrelevant to the running of the refund period, because the period
commenced upon payment of the tax.
Finally, the Commonwealth notes the legislature amended Section 3003.1 in
1997 to add the “actual payment of the tax” language and create a single refund period
for all taxes even when paid in installments.7 Appellant’s Reply Brief at 7-8. The
Commonwealth denies the 1997 amendment was intended to change the triggering
event from payment to the filing of the annual report. The Commonwealth rejects
appellee’s reliance upon various federal court cases for the contrary proposition
because the language of the federal tax statute, which contemplates a refund based
upon allegedly erroneous assessments by the IRS Commissioner, is substantially
different from Pennsylvania’s statute, which does not require action by a taxing official
as a pre-condition to a refund claim. The Commonwealth notes appellee’s estimated
payments are not segregated or otherwise maintained in escrow by the Department,
and therefore appellee has improperly characterized the estimated payments as mere
deposits that do not trigger the refund period.
Appellee responds the Commonwealth Court properly determined the “actual
payment” of tax occurred only when its tax liability was established by the filing of its
2007 Report and its money on deposit was applied against the established tax liability.
Appellee relies upon various federal cases holding estimated payments are not
“payments of taxes” for purposes of starting the refund limitation period and the
7
Previously, Section 503 of the Fiscal Code provided the limitations period for refund
petitions, and required a taxpayer to file a petition for refund “within two years of the
payment of which refund is requested.” In 1985, the limitations period was moved to
Section 3003.1 of the Tax Code, and provided a petition for refund must be filed “within
three years of the payment of which a refund is requested.” Act of July 1, 1985, P.L. 78,
72 P.S. §10003.1. In 1997, Section 3003.1 was amended to its current language ––
providing for a refund “within three years of actual payment of the tax.” Act of May 7,
1997, P.L. 85, 72 P.S. §10003.1.
[J-28-2017] - 11
payment of taxes does not occur until the taxpayer’s liability is defined. Appellee’s Brief
at 7-10, citing, inter alia, Rosenman v. United States, 323 U.S. 658, 661-62 (1945)
(installment payments on estimated tax are held not as taxes duly collected, but as
deposits made in the nature of cash bond for payment of taxes thereafter found to be
due; tax obligation is not defined until government issues an assessment).
Appellee also relies upon Calvert Distillers Corp. v. Bd. of Fin. & Revenue, 63
Dauph. 312 (Dauph. Cnty. 1952) (Calvert I), aff’d, 103 A.2d 668 (Pa. 1954) (Calvert II)
to support the proposition that “actual payment of tax” is different from the mere transfer
of money to the Commonwealth.8 Appellee explains the Calvert I court noted the
language of Fiscal Code Section 503 –– which then required that a petition for refund be
filed “within two years of the payment for which refund is requested” –– was in direct
contrast to the federal tax statute which provided a taxpayer may request a refund
“within four years next after the payment of such tax….” 63 Dauph. Cnty. at 315-16
(emphasis added). Appellee asserts the Calvert I court’s conclusion that the taxpayer
was entitled only to refund of payments made within two years of the filing of the refund
petition but not any installments paid before that time indicates the legislature’s
omission of the phrase “of such tax” in Section 503 signified that Pennsylvania’s time
limit on tax refund petitions hinged on the date monies were paid –– regardless of
whether the definite tax liability had been established –– because the limitations period
began to run anew at the time of each installment payment. Appellee’s Brief at 12.
8
The taxpayer in Calvert sought a refund in 1951 of taxes it erroneously paid in two
installments, in 1946 and 1949. 63 Dauph. Cnty. at 313-14. The Board of Finance and
Revenue awarded a refund of the 1949 payment only, relying on the two-year statutory
refund limitations period. Id. at 314. Both the Dauphin County Court of Common Pleas
(which exercised jurisdiction over all tax appeals at that time), and this Court (which had
jurisdiction over direct appeals from the common pleas court), affirmed. Calvert I, 63
Dauph. Cnty. at 322-23; Calvert II, 103 A.2d 668.
[J-28-2017] - 12
Appellee further argues the legislature’s amendment of Section 3003.1 in 1997
established a new statutory time limit for filing refund petitions; appellee posits by
eliminating the phrase “within [two or] three years of the payment of which a refund is
requested” and substituting the phrase “within three years of actual payment of the
tax” in Section 3003.1, the General Assembly intended the state’s taxing scheme
should be more like the federal taxing scheme interpreted in Rosenman. Under
appellee’s theory, “actual payment of the tax” has a well-settled, peculiar meaning in the
law, i.e., applying money against a definite tax liability established by filing a tax return
or report, and therefore, the Commonwealth Court’s decision to commence the refund
period from the time appellee filed its 2007 Report was consistent with federal
precedent.
Appellee also distinguishes Keystone, arguing that case did not turn on the date
of “actual payment of the tax.” Appellee asserts the language of the Philadelphia tax
ordinance — which requires the filing of a refund petition with three years from “date of
payment or the due date” — is distinguishable from the Pennsylvania Tax Code, which
starts the refund period at “actual payment of the tax.” Appellee argues the
Commonwealth improperly equates the tax due date (April 15) with the “actual payment”
of tax, which it views as the filing of the Report. Appellee asserts Section 403(b)
requires a corporation to make “final payment of tax due…with the annual report…” and,
thus, “actual payment of tax” does not occur until tax liability is established, i.e., when
the annual tax report is filed. Appellee contends the Commonwealth Court properly
recognized Section 3003.2(b)(6) defines “total tax” as the tax “reported by taxpayer,”
and therefore, payment of tax cannot be made (and a refund cannot be sought) until the
tax report establishes the actual amount of tax owed.
[J-28-2017] - 13
Appellee also argues the Commonwealth Court’s decision in this case is
consistent with its earlier decision in DaimlerChrysler. According to appellee, the sole
issue before the court in DaimlerChrysler was whether the taxpayer’s due process rights
were violated by enforcement of the three-year statute of limitations that expired before
the right to refund accrued. Appellee asserts there was no question when the refund
period began to run, i.e., when the purchaser paid a definite amount of money against a
definite sales tax at the time the car was purchased and registered. Appellee maintains,
in this case, its “actual payment” of tax occurred when its money on deposit was applied
against a definite tax liability as established by the filing of its Report in September
2008.
Additionally, appellee argues the Commonwealth Court’s statutory interpretation
is proper because if the three-year refund clock starts anew each time a quarterly
estimated installment payment is put on “deposit,” there are at least four separate dates
to track in addition to credit from the prior year, attributable to several estimated
payments, thus resulting in unnecessary complexity. Appellee further asserts the
Commonwealth’s statutory interpretation causes unwarranted ambiguity because it
treats the total of the estimated payments as a lump sum, making it impossible to
determine which estimated payment is attributable to the tax liability described in an
annual report for purposes of determining when the refund period starts. Appellee also
rejects the use of the payment due date of April 15 as the start of the refund period
because this would result in two refund periods if the taxpayer paid some tax on or
before April 15 and a final payment with its annual report some time later.
Finally, appellee observes the Commonwealth Court’s decision is supported by
law from other jurisdictions. Appellee’s Brief at 27-28, citing Hanna Min. Co. v.
Limbach, 20 Ohio St. 3d 3, 4, 484 N.E.2d 691, 692 (1985) (Ohio Supreme Court held
[J-28-2017] - 14
refund period begins when tax return is filed, not from date taxpayer remits estimated
payments); N.J. Stat. Ann. §54:49–14(a) (refund petition to be filed within four years of
“payment of any original or additional tax”); Tax Briefs, N.J. STATE TAX NEWS, Vol.
33, No. 4, at 9–10 (date of payment for purposes of starting refund limitations period is
date return is filed).9
This appeal presents a legal question of statutory interpretation and, accordingly,
our standard of review is de novo and our scope of review is plenary. Dechert LLP v.
Com., 998 A.2d 575, 579 (Pa. 2010). Our goal in interpreting a statute is to ascertain
and effectuate the intent of the legislature. 1 Pa.C.S. §1921(a). Further, every statute
must be construed, if possible, to give effect to all of its provisions. Id. Provisions of a
statute are to be construed in the context in which they appear and with reference to
other pertinent provisions. Consulting Eng’rs Council of Pennsylvania. v. State
Architects Licensure Bd., 560 A.2d 1375, 1377 (Pa. 1989). Generally, the best
indication of the General Assembly’s intent is the plain language of the statute. Dechert
LLP, 998 A.2d at 579.
The parties have advanced different interpretations of the phrase “actual
payment of tax” as used in Section 3003.1(a) for purposes of defining the start of the
refund period. The Commonwealth Court acknowledged “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.” Mission Funding Alpha, 129 A.3d at 618 (emphasis added).
9
The Pennsylvania Institute of Certified Public Accountants filed an amicus brief in
support of appellee, arguing (1) the date of the payment of the tax is the date that
monies are applied against a tax liability shown on a tax report; and (2) any other date is
unworkable, ambiguous and unfair and inconsistent with neighboring state and federal
law.
[J-28-2017] - 15
The Commonwealth requests that we adopt the ordinary meaning of the words and
conclude “payment” and its cognates are used throughout the Tax Code and Fiscal
Code to mean the delivery of money to the Department. Appellee urges this Court to
ignore the plain language of Section 3003.1 of the Tax Code and conclude — like the
Commonwealth Court ultimately did despite its recognition of common usage — that the
phrase “actual payment of tax” has a different and special meaning in the law. Appellee
argues “actual payment of tax” does not mean the transfer of money from a taxpayer to
the Department in satisfaction of a tax liability, but rather the filing of an annual report
detailing a taxpayer’s specific tax liability. We decline to adopt such an interpretation.
As we have noted, Section 3003.1(a) states, in pertinent part, “[e]xcept 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.” Section 3003.2 of
the Tax Code provides, in relevant part:
(a) The following taxpayers are required to pay estimated tax:
****
(2) Every corporation subject to the capital stock and franchise tax
imposed by Article VI of this act…shall make payments of estimated
capital stock and franchise tax during its taxable year as provided herein.
(c) Estimated tax shall be paid as follows:
****
(2) Payment of estimated capital stock and franchise tax shall be made in
equal installments on or before the fifteenth day of the third, sixth, ninth
and twelfth months of the taxable year. The remaining portion of the
capital stock and franchise tax due, 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.
[J-28-2017] - 16
72 P.S. §10003.2(a)(2), (c)(2) (emphasis added). These two provisions reveal the
payment of tax and the filing of a tax report are distinct acts, although these acts may
occur simultaneously.
At the same time, Section 403 provides, in relevant part:
(a) It shall be the duty of every corporation, liable to pay tax under this
article, on or before April 15, 1972, and each year thereafter, to transmit to
the department, upon a form prescribed by the department, an annual
report…of net income taxable under the provisions of this article.
* * * *
(b) It shall be the duty of each corporation liable to pay tax under this
article to pay estimated tax under section 3003.2 and to make final
payment of tax due for the taxable year with the annual report required by
this section.
(c) The amount of all taxes, imposed under the provisions of this article,
not paid on or before the times as above provided, shall bear
interest…from the date they are due and payable until paid,….
72 P.S. §7403(a), (b), and (c).10
The Commonwealth Court construed the phrase “actual payment” for purposes
of defining the triggering event that starts the refund period by considering dictionary
definitions of “payment” and “actual” and by examining the language of Section 403(b)
and (c) of the Tax Code. Section 403(b) imposes a duty on corporate taxpayers to pay
estimated tax under Section 3003.2 by that date and to make final payment of tax due
for the taxable year with the annual report. Section 403(c) provides unpaid taxes shall
bear interest from the date they are due until paid. The court concluded “actual
payment” means the delivering of money in the acceptance and performance of an
obligation, rather than the mere depositing of money, and thus the date on which the
10
In 2016, Section 403(a) was amended to allow a corporation to file its report on or
before thirty days after its return to the federal government is due. Act of July 9, 2016,
P.L. 270, 72 P.S. §7403(a). The above-quoted language was the operative language in
2008, when appellee made the payments for the 2007 Tax Year at issue here.
[J-28-2017] - 17
corporation states and accepts its tax liability by filing an annual report is the date of
“actual payment” of tax. Mission Funding Alpha, 129 A.3d at 617-19.
We are not persuaded by the Commonwealth Court’s reasoning and instead find
a more straightforward reading of the statutory language is appropriate. Black’s Law
Dictionary defines “payment” as “[p]erformance of an obligation by the delivery of
money…accepted in partial or full discharge of the obligation.” Black’s Law Dictionary
at 1309. Black’s Law Dictionary defines “actual” as “[e]xisting in fact; real….” Id.,
quoting Black’s Law Dictionary at 40. The obligation at issue here is appellee’s
statutorily mandated duty to pay foreign franchise tax on or before April 15, 2008. 72
P.S. §10003.2(c)(2); 72 P.S. §403(b). Notably, appellee’s obligation to pay the foreign
franchise tax did not arise only when it ascertained its final tax liability. Appellee was
actually obligated by statute to pay the foreign franchise tax on or before April 15, 2008,
regardless of whether it had ascertained its final liability and filed its annual report. 72
P.S. §10003.2(c)(2); 72 P.S. §403(b); 72 P.S. §805.
In this case, because appellee paid its estimated tax in sufficient amounts and
also carried forward credit from the prior tax year, the Department deemed appellee’s
tax obligation satisfied as of April 15, 2008, despite the fact it had not yet filed its annual
report. The Commonwealth Court’s interpretation that this “payment” did not start the
refund period clock ignores the language of Section 3003.2(c)(2). Subsection (c)(2) is
unequivocal: any portion of the franchise tax that remains due after payment of the
estimated payments “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(c)(2). The language of subsection (c)(2) thus qualifies the language of
Section 403(b) providing that the taxpayer shall make payment of final tax with the
annual report, and thereby specifically instructs the tax is due and payable on April 15
[J-28-2017] - 18
regardless of whether a taxpayer files a tax report. See also 72 P.S. §805 (amount of
all taxes due the Commonwealth “shall be due and payable upon the dates the reports
or returns…are required by law to be made, and no extension of time for the filing of any
report or return granted by the department, shall extend the date any tax…shall be due
and payable….”).
Notwithstanding this straightforward interpretation of statutes intended to be read
together, appellee — like the Commonwealth Court — insists “actual payment of tax” is
a peculiar term of art with a special meaning. Appellee relies upon Rosenman, 323
U.S. at 661, for the premise estimated tax payments are mere deposits and not “actual
payments of tax” that trigger the refund period. In Rosenman, the relevant federal
refund provision provided a claim for a refund of a tax “alleged to have been
erroneously or illegally assessed or collected must be presented to the Commissioner
within three years next after the payment of such tax.” 323 U.S. at 661. In 1934, to
prevent the imposition of interest on unpaid estate taxes, the taxpayer paid estimated
tax under protest prior to filing the estate’s final return in 1935. Following an audit of the
estate, the IRS issued a deficiency assessment against the estate in 1938, which was
satisfied through application of the estimated payments and other payments. In 1940,
the taxpayer filed a claim for refund based on further deductions and the IRS denied the
claim because the tax had been collected in 1934, more than three years prior to the
refund claim. Throughout this period, the IRS held the money in a segregated account.
The U.S. Supreme Court concluded because the federal government held the payment
in a special account, did not pay overpayment interest on the estimate payments, and
did not consider the payment of estimated tax as “taxes duly collected,” the estimated
payment was “merely a ‘deposit.’” Id. at 662. The High Court determined the 1940
refund claim was timely because the action complained of was the deficiency
[J-28-2017] - 19
assessment and until that occurred in 1938 there was no illegal or erroneous
assessment.
Unlike the federal government, the Department is required to pay interest on
overpayments of estimated tax and, as noted by the Commonwealth, estimated tax
payments are not held in separate accounts by the Department. 72 P.S. §806.1(a)(2)
(interest on overpayments of tax shall be paid and overpayments of estimated tax are
“deemed to have been overpaid on the last day prescribed for filing the final return or
report”); Appellant’s Reply Brief at 10 (appellee’s remittances to Department were not
maintained in any special “escrow” or “suspense” accounts). Thus, under Pennsylvania
law, the Department deems estimated tax payments to be “taxes duly collected” as of
the report filing due date — in this case April 15, 2008 — and not mere deposits. Given
the differences between federal and Pennsylvania law, Rosenman is inapposite.11
Appellee’s reliance on Calvert I and II is similarly misplaced. At the time those
cases were decided, Section 503 of the Fiscal Code provided petitions for refund “must
be filed with the board within two years of the payment of which refund is requested.”
Calvert II, 103 A.2d at 670. In 1951, the taxpayer sought a refund of all the franchise
tax installment payments made in 1946 and a sum paid in 1949 following settlement
and resettlement of its 1946 tax year liability. The trial court held the taxpayer could
recover only the sum paid in 1949 because the refund petition was filed more than two
years after the 1946 installment payments. The court opined the language of Section
503 did not allow a taxpayer to recover “an entire tax erroneously paid…so long as one
11
The taxing provision at issue in Rosenman has since been superseded and the U.S.
Supreme Court has itself cast doubt on the continuing validity of the Rosenman Court’s
reasoning given the existence of a “deemed paid” provision in the current federal tax
code. Baral v. United States, 528 U.S. 431, 437-38 (2000) (remittance by taxpayer of
estimated income tax, and remittance by taxpayer’s employer of withholding tax, were
“paid” on the due date of petitioner’s income tax return).
[J-28-2017] - 20
or more payments on account thereof were made within” two years of the time the
refund was sought. Calvert I, 63 Dauph. Cnty. at 322-23 (“By using the word ‘payment’
the legislature clearly disclosed its intention to distinguish between ‘payment’ and
‘tax.’”). In other words, the statutory language meant each installment payment had its
own refund period. This Court agreed and observed if the General Assembly intended
there to be a single refund period for the entire tax the statute would have required that
refund petitions be filed “within two years of the last payment of the tax of which refund
is requested.” Calvert II, 103 A.2d at 670 (emphasis in original). Notably, the current
refund period is triggered upon “actual payment of the tax” and, as this language
substantially conforms to the hypothetical language suggested by the Calvert II Court
for a single refund period for the entire tax paid, appellee’s reliance on these cases for
its position the triggering event is the filing of a report is unavailing.
Moreover, although appellee claims the 1997 amendment to Section 3003.1 was
intended to bring Pennsylvania in line with federal precedent that a tax is only “paid”
when the amount is ascertained by the filing of a tax return, we read the substitution of
“actual payment of tax” as the clear expression of the General Assembly’s intent to
provide taxpayers with the ability to request a refund of any tax overpayments in a
single petition filed within three years of the date on which the Department applied funds
submitted by the taxpayer in full satisfaction of its tax liability.12
Nor does Hanna Mining support the Commonwealth Court’s contrary reading. In
that Ohio case, the relevant statute required a refund application to be filed “within three
12
Our research reveals Department policy is consistent with such an interpretation; all
payments of tax, including prepayments and estimated payments, are deemed by the
Department to have been paid on the due date for the filing of the annual report.
Weintraub, Stewart M., Pennsylvania Tax Handbook, §16-13:1 at 979 (2017). See also
72 P.S. §806.1(a)(2) (“Any amount overpaid as estimated tax…shall be deemed to have
been overpaid on the last day prescribed for filing the final return…”).
[J-28-2017] - 21
years from the date of the illegal or erroneous payment of the tax.” Ohio Rev. Code
§5733.12. The Ohio Supreme Court reasoned because the tax commissioner is given
three years from the date a final franchise tax report is filed to assess additional taxes it
would be inequitable to require taxpayers to keep track of multiple limitations periods
based on estimated installment payments and, therefore, taxpayers “who timely remit
their final reports and who timely remit the tax due in estimated payments should not be
denied a full three-year period to seek a refund of the final tax due.” Hanna Mining, 20
Ohio St. 3d at 5. The court also held the refund period for installment payments of
estimated tax begins to run “at the time the annual corporation report is timely filed or
should have been filed, whichever is earlier.” Id. at 6. Thus, under Hanna Mining the
statute of limitations for a refund based on a late filed report does not begin to run on
the report filing date or the payment date, but rather on the statutory due date. Thus the
court’s reasoning in Hanna Mining actually undermines appellee’s position; using the
rationale of that case, the statutory due date triggering the refund period in this case
would be April 15, 2008.
Appellee’s reliance upon New Jersey tax procedure is similarly unavailing. In
New Jersey, a “taxpayer, at any time within four years after the payment of any original
or additional tax assessed against him” may file a claim for a refund. N.J.S.A. §54:49-
14a. However, the relevant regulation provides the “four-year statute of limitations
period for filing a claim for refund commences to run from the later of the payment of
tax…or from the filing of the final return…The due date of the return is deemed the
payment date if filing and payment are made prior to the due date.” N.J. Admin. Code
§18:7-13.8(a). The Pennsylvania Tax Code does not have a similar regulation allowing
the limitations period to begin upon filing of the report if filing does not coincide with
payment; the General Assembly could have included such a term had it intended the
[J-28-2017] - 22
triggering act to be the filing of the annual report rather than the due date for that
report. See, e.g. 72 P.S. §7407.3 (“Tax may be assessed within three years after the
date the report is filed.”); 72 P.S. §7348(a) (“The amount of any tax imposed by this
article shall be assessed within three years after the return is filed.”). We decline to
supply such language where the legislature chose not to include it. Burke ex rel. Burke
v. Indep. Blue Cross, 103 A.3d 1267, 1274 (Pa. 2014) (“[W]e are mindful of the precept
that courts cannot insert words into a statute. Thus, we may not, under the guise of
statutory construction, simply rewrite [the statute].”).
Additionally, accepting either the Commonwealth Court’s or appellee’s
interpretation of “actual payment of tax” would render nonsensical another provision in
the statutory scheme — Section 3003.1(d) — and we must avoid such a result. See,
e.g., 1 Pa.C.S. §1922(1) (in ascertaining General Assembly’s intent we presume it did
not intend a result that is absurd or unreasonable); 1 Pa.C.S. §1922(2) (courts should
presume General Assembly intends the entire statute to be effective and certain).
Section 3003.1(d) provides: “In the case of amounts paid as a result of an assessment,
determination, settlement or appraisement, a petition for refund must be filed with the
department within six months of actual payment of the tax.” 72 P.S. §§10003.1(d).
Under Section 3003.1(d), when a taxpayer files a petition for refund, the refund period
begins upon payment of the tax liability as reflected in the Department-issued
assessment, determination, settlement or appraisement. The taxpayer’s obligation to
pay tax arises from action taken by the Department and the calculation of final tax
liability by the taxpayer and filing of a tax report are not implicated. Therefore,
appellee’s assertion the phrase “actual payment of tax” means upon the filing of a
corporate tax report makes no sense in the context of a refund request following the
payment of tax pursuant to an assessment, determination, settlement or appraisement.
[J-28-2017] - 23
Further, “[a] voluntary payment of taxes can be subsequently recovered by a
taxpayer only as a statute provides.” Calvert II, 103 A.2d at 669; Philadelphia Gas
Works ex rel. City of Philadelphia v. Com. , 741 A.2d 841, 846 (Pa. Cmwlth. 1999), aff'd
sub nom., 757 A.2d 360 (Pa. 2000) (refund of voluntarily paid tax is matter of legislative
grace). Where, as here, a statute provides a remedy, the directions of the statute must
be strictly pursued to obtain the remedy. 1 Pa.C.S. §1504. 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.” Philadelphia Gas Works, 741 A.2d at 846;
Fed. Deposit Ins. Corp. v. Bd. of Fin. & Revenue, 84 A.2d 495, 498 (Pa. 1951) (“[N]o
doubt the legislature considered that to allow refunds [years after tax was paid] would
create great uncertainty in the budgetary planning and fiscal affairs of the
Commonwealth.”). Compliance with the time limitation in the Tax Code is “an absolute
condition to obtaining a refund.” Id. See also Bethlehem Steel Co. v. Bd. of Fin. &
Revenue, 244 A.2d 767 (Pa. 1968) (“Equitable principles cannot vary the statutory
requirement and we lack the power to alter the explicit language of the statute.”).
Accepting either the Commonwealth Court’s or appellee’s interpretation would allow a
taxpayer to delay indefinitely the filing of its annual report and, then, even after the late
filing, seek a refund of tax (plus interest) accepted as paid long ago — and most likely
already allocated and spent by the Commonwealth. We cannot support such a reading
given that the refund limitations period is intended in part to protect budgetary
certainty.13 Fed. Deposit Ins. Corp., 84 A.2d at 498.
13
In her dissenting opinion Justice Mundy states our decision will preclude taxpayers
from exercising their right to choose to file their taxes late. Dissenting Slip Op. at 4. We
note the language of Section 3003.2(c) is mandatory –– requiring that remaining
franchise tax due “shall be paid upon the date the corporation’s annual report is
required to be filed….” No language in either Section 3003.2 or Section 7403
(continued…)
[J-28-2017] - 24
We reiterate the object of statutory construction “is to ascertain and effectuate
the intention of the General Assembly.” Walker v. Eleby, 842 A.2d 389, 400 (Pa. 2004),
citing 1 Pa.C.S. §§1903(a), 1921(b). “The clearest indication of legislative intent is
generally the plain language of a statute.” Id.; 1 Pa.C.S. §1903 (“[w]ords and phrases
shall be construed according to rules of grammar and according to their common and
approved usage…”). Thus, if the language of a statute is clear and unambiguous, a
court must read its provisions in accordance with their plain meaning and common
usage. After our careful review of the language employed in both the Tax Code and the
Fiscal Code and based on the facts before us here, we hold “the actual payment of the
tax” for purposes of determining when the refund period begins is the act of transferring
money or credits by the taxpayer to the Department, and the Department’s acceptance
of the money or credits in full satisfaction of tax liability. In this matter, the “actual
payment of tax” occurred on April 15, 2008, the date tax was due and payable, and
when the Department accepted appellee’s estimated tax payments and credits as
payment for its 2007 Tax Year liability. We further hold the filing of the annual report —
when it takes place after the due date as happened here — is not the triggering event
for determining whether a refund petition was timely filed. We therefore conclude
appellee’s refund petition was not timely filed because the three-year tax refund period
began to run on April 15, 2008, and expired prior to the September 16, 2011 filing date.
Accordingly, the order of the Commonwealth Court is reversed and the matter is
remanded for reinstatement of the decision of the Board of Appeals.14
(…continued)
authorizes allowing a taxpayer to unilaterally extend the refund period relating to the
payment of taxes, which as noted supra, is an act distinct from the filing of a tax report.
14
We recognize appellee has forwarded an alternative argument that we should treat
its petition for refund as a petition for credit; according to appellee, the three year refund
period is not applicable to a petition for credit. Appellee’s Brief at 28-29. The
(continued…)
[J-28-2017] - 25
Jurisdiction relinquished.
Chief Justice Saylor and Justices Baer and Wecht join the opinion.
Justice Donohue files a concurring opinion.
Justice Mundy files a dissenting opinion.
Justice Todd did not participate in the consideration or decision of this case.
(…continued)
Commonwealth argues appellee waived this claim by failing to request a credit when it
filed its petition for refund. Appellant’s Reply Brief at 14, citing Board of Appeals
Petition Form. The Commonwealth also notes that whether a taxpayer seeks a refund
or credit it must nevertheless file a petition within the time specified. Id. at 14-15, citing
Philadelphia Gas Works, 741 A.2d at 847 (Section 247 of Tax Code, 72 P.S. §7247,
does not provide separate time limitations for request for refund and request for credit
and Board of Finance and Revenue has discretion to either give refund of taxes paid or
credit taxpayer’s account). Before the Commonwealth Court, the parties stipulated
“[t]he sole issue in this appeal is whether [appellee] timely filed a Petition for Refund
with the Board of Appeals, pursuant to 72 P.S. §10003.1(a).” Stipulation of Facts ¶6.
The parties further stipulated “[i]f this [c]ourt determines that [appellee’s] Petition for
Refund was not timely filed with the Board of Appeals, then the decision of the Board of
Appeals and Board of Finance and Revenue shall be sustained and [appellee] may not
pursue any claim of relief with respect to its 2007 Tax Year Franchise Tax liability.” Id.
at ¶29. Moreover, appellee did not make this alternative argument regarding a “petition
for credit” before the Board of Appeals or the Board of Finance and Review, and the
Commonwealth Court did not reach it. Accordingly, we consider it waived and do not
address it.
[J-28-2017] - 26