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Nextel Communs. of the Mid-Atlantic, Inc. v. Commonwealth

Supreme Court of Pennsylvania

April 5, 2017, Argued; October 18, 2017, Decided

No. 6 EAP 2016


 [*734]   [**685]  JUSTICE TODD

In this direct appeal, we are called upon to determine whether the "net loss carryover" provision of the Pennsylvania Revenue Code for tax year 2007 ("NLC")1 — which restricted the amount of loss a corporation could carry over from prior years as a deduction against its 2007 taxable income to whichever is greater, 12.5% of the corporation's 2007 taxable income or $3 million — violates Article 8, Section 1 of the Pennsylvania Constitution  [*735]  ("the Uniformity Clause").2 We affirm the Commonwealth Court's holding that the NLC, as applied to Appellee, Nextel Communications ("Nextel"), violates the Uniformity Clause. However, we also find that the portion of the NLC which creates the violation — the $3 million flat deduction — may be severed from the remainder of the statute, while still enabling the statute to operate as the legislature intended. Thus, we reverse the order of the Commonwealth Court eliminating any caps on net loss deductions [***2]  for tax year 2007; and, correspondingly, we reverse its direction to Appellant, the Pennsylvania Department of Revenue ("Department"), to refund $3,938,220 to Nextel, which was the amount of its 2007 net income tax payment to the Commonwealth.

I. Procedural History

Nextel, which is incorporated in the state of Delaware, is a provider of various mobile telecommunication services. In 2007, Nextel earned $45,053,282 in taxable income on its business activities in the Commonwealth. Under the NLC, Nextel was entitled to deduct from its 2007 taxable income the net losses it sustained in prior tax years in the amount of $3 million or 12.5% of its 2007 taxable income, whichever total was greater. In 2007, Nextel had a cumulative net loss dating from the tax year 1997 of $150,636,792.3 Because 12.5% of Nextel's 2007 taxable income amounted  [**686]  to $5,631,660, and, hence, was greater than $3 million, Nextel claimed the 12.5% amount as a net loss deduction, thereby reducing its taxable income for 2007 to $39,421,622. Under the corporate net income tax rate of 9.9%,4 Nextel's total tax liability to the Commonwealth on this adjusted income was $3,938,220, which Nextel paid to the Department.

 [*736]  Thereafter, [***3]  Nextel filed a refund claim with the Department's Board of Appeals for the full amount of its 2007 tax payment, claiming, inter alia, that the NLC violated the Uniformity Clause of the Pennsylvania Constitution by capping the amount of its prior net loss that it could carry over into tax year 2007 at 12.5% of its taxable income. This claim was denied by the Board on the basis that it did not have the legal authority to address a constitutional challenge. Nextel then petitioned the Board of Finance and Revenue, again claiming its entitlement to a refund and asserting the right to carry over all prior net losses for use as a deduction without limitation.5 The Board of Finance and Revenue denied the petition and rejected Nextel's constitutional argument, noting that it was not empowered to pass on questions of a taxing statute's validity under our constitution, but, rather, could only apply the law as it was written.

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642 Pa. 729 *; 171 A.3d 682 **; 2017 Pa. LEXIS 2456 ***


Subsequent History: US Supreme Court certiorari denied by Nextel Communs. of the Mid-Atlantic, Inc. v. Pa. Dep't of Revenue, 138 S. Ct. 2635, 201 L. Ed. 2d 1030, 2018 U.S. LEXIS 3660 (U.S., June 11, 2018)

Prior History:  [***1] Appeal from the Judgment of the Commonwealth Court entered on December 30, 2015 at No. 98 F.R. 2012.

Nextel Communs. of the Mid-Atlantic, Inc. v. Commonwealth, 129 A.3d 1, 2015 Pa. Commw. LEXIS 520 (Pa. Commw. Ct., Nov. 23, 2015)


exemption, taxation, carryover, refund, classification, disparate, unlimited, quantity, as-applied, casinos, facial, unequal, dollar, inheritance, threshold, railroad, remainder, violative, shoulder, join, void

Civil Procedure, Appeals, Standards of Review, De Novo Review, Constitutional Law, Congressional Duties & Powers, Spending & Taxation, Case or Controversy, Constitutionality of Legislation, Inferences & Presumptions, Tax Law, Income Taxes, Corporations & Unincorporated Associations, Imposition of Tax, Limitations on Taxation, Governments, Legislation, Severability