Pennsylvania Commonwealth Court Holds that Statute of Limitations for Refund Claims Begins on Date When Tax Return was Filed
On December 10, 2015, the Commonwealth Court of Pennsylvania in Mission Funding Alpha v. Commonwealth, No. 313 F.R. 2012, held that the three-year statute of limitations for filing a refund claim begins on the date the tax return was actually filed and not on the due date of the tax return.
Mission Funding Alpha (MFA), a calendar-year taxpayer, filed its 2007 Pennsylvania Corporate Tax Report (PA RCT-101) on September 19, 2008, without having filed for an extension of time to file its tax return, and reported a total tax liability of $380,519. As of April 15, 2008, the due date of the corporate tax report, MFA’s estimated payments and carried forward tax credits totaled $462,297 for its 2007 tax year ($66,344 of foreign franchise tax and $314,175 of corporate net income tax), which resulted in an overpayment of $81,778 for its 2007 tax year.
MFA filed a petition for a refund of its overpaid tax with the Board of Appeals on September 16, 2011, which was more than three years after the original due date of the 2007 corporate tax report but less than three years from the date that MFA actually filed the 2007 corporate tax return. The Board of Appeals dismissed the refund petition as untimely, and the Board of Finance and Revenue sustained the decision of the Board of Appeals.
On appeal to the Commonwealth Court, MFA argued that because the tax to be paid was not known until its corporate tax return was filed, the September 19, 2008 filing date established its tax liability and its actual payment of the tax. On this basis, MFA asserted that its refund petition was timely filed within three years as required by the applicable Pennsylvania statute of limitations.
In agreeing with MFA, the court determined that it was required to interpret the phrase “actual payment of the tax” in Section 3003.1(a) of the Tax Reform Code, which provides in relevant part that “[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.” The court relied on statutory authority allowing it to consult definitions in statutes, regulations and the dictionary for guidance in interpreting the phrase “actual payment of the tax.” The court concluded that “the common and approved usage of the phrase ‘actual payment’ means the delivering of money in the acceptance and performance of any obligation, rather than the mere depositing of money on account for potential future use.”
To support further its conclusion, the court cited §403 of the Tax Reform Code, which generally provides that each corporation liable for tax is required “to pay estimated tax under section 3003.2 [of the Tax Reform Code] and to make final payment of tax due for the taxable year with the annual report required by this section.” The court relied on the distinction in the statute between estimated tax payments and the final payment of tax due to conclude that the legislature had made it clear that a corporation’s tax liability is not established until the corporation’s annual tax report is filed. In the court’s view, the Tax Reform Code expressly afforded corporate taxpayers the opportunity to make their final tax payments with their annual reports, after their tax liabilities are known. The court ultimately held that because the filing date of a corporate taxpayer’s annual report “is the date on which the corporation states and accepts to pay its tax liability,” the “actual payment of tax” cannot occur until the annual report is filed. Accordingly, the court reversed the decision of the Board of Finance and Revenue and allowed the refund claim to proceed.
The court recognized that its decision reflected a strict interpretation of the statute and that the legislature could have expressly provided that refund claims must be filed within three years of the tax return due date but did not do so. Corporate taxpayers should note that, as a result of this decision, the statute of limitations for filing refund claims is three years from the date of filing a corporate tax report. Taxpayers filing refund claims should carefully consider any denial of the claim for refund by the Department of Revenue on timeliness grounds given that the Department continues to deny claims based on its interpretation of the statute of limitations.