Recent Decision on Imposing a Business Privilege Tax

Contributed by Irving S. Firman

The Commonwealth Court has rendered a significant decision regarding ability of municipalities to impose a business privilege tax on the gross receipts generated by real estate leases.  The Pennsylvania Commonwealth Court, in a 5-2 decision, held that the Local Tax Enabling Act (“LTEA”) bars taxing jurisdictions from imposing business privilege taxes on gross receipts from leases.  Fish, Hrabick and Briskin v. Township of Lower Merion, No. 1940 C.D. 2013 (September 19, 2014).

The LTEA provides the authority and limitations for all taxing jurisdictions other than the City of Philadelphia to impose taxes.  While the LTEA generally allows for the imposition of a tax on the privilege of operating a business, the LTEA expressly excludes the power to impose tax “on. . . leases or lease transactions.”  In Fish, the township argued that its tax was actually imposed on the privilege of doing business in the township and not a direct tax on leases.  The Commonwealth Court rejected this argument and held that the LTEA prohibits “‘any tax’ on ‘leases and lease transactions’” regardless of the how the tax is labeled.  In reaching its conclusion, the Court interpreted the LTEA to completely prohibit the taxation of real property leases.

As a result, receipts from real property leases may not be taxed.  Lessors who have paid business privilege tax to local municipalities in the past three years should review the local ordinances and potentially file requests for refunds.  Generally, the statute of limitations for business privilege tax appeals is three years pursuant to the Local Taxpayer Bill of Rights; however, it is necessary to review the ordinance and any regulations of the taxing jurisdiction to confirm timing questions.

Please note that the Fish decision has been appealed to the Pennsylvania Supreme Court.  It can take a significant period of time for the Supreme Court to decide if they wish to hear the matter and potentially many months longer for a final decision to be rendered.  At this point it is difficult to predict which way the Supreme Court would decide if the case an appeal is granted.

If you have questions regarding your specific property, please feel free to contact Irv Firman at