No Need for “Base of Operations” Within Municipality in Order for Contractor to be Subject to Business Privilege Tax
V.L. Rendina, Inc. v. City of Harrisburg, 938 A.2d 988 (Pa. 2007)
In this case, a plurality of the Pennsylvania Supreme Court held that a municipality may apply its business privilege tax to the gross receipts from construction work performed within its borders regardless of whether the contractor maintained a “base of operations” within the municipality. Reversing a Commonwealth Court decision in favor of the construction company, the majority focused on whether the company’s activities in Harrisburg fell within the definitive of “business” contained in the City’s tax ordinance.
Rendina was the general contractor for the construction of an office building in Harrisburg. Rendina’s principal place of business was located outside of the City. During the project, Rendina leased and maintained a job trailer office at the site for use in connection with the Project. That trailer contained a telephone and it was listed as the address of the company on its application for a business and mercantile license. The City and local school district levied a business privilege and mercantile tax on Rendina calculated on the value of the work performed within the City’s boundaries. Rendina paid the tax under protest and sought a refund from the local tax board. The requested refund was denied by the tax board and by a Court of Common Pleas. Rendina appealed to the Commonwealth Court which reversed, holding that Rendina’s jobsite trailer did not constitute a “base of operations” within the City as was required by the Pennsylvania Supreme Court’s decision in Gilberti v. City of Pittsburgh, 511 A.2d 1321 (Pa. 1986) and thus a refund should have been granted. In Gilberti, the Court found that a taxpayer’s maintenance of an in-city base of operations from which it directed extra-territorial activities was a sufficient condition to permit taxation of such activities, so long as they were attributable to the operational base.
In Rendina, the Supreme Court distinguished Gilberti and held that it does not follow that the existence of an office is a necessary condition for the taxation of business activities that occur wholly within the taxing municipalities boundaries. The only thing that is necessary is that the business activities sought to be taxed are of the type authorized by the Local Tax Enabling Act (the “LTEA”) (53 P.S. §6902) and the local business privilege tax. The Supreme Court held that the activities carried on by Rendina in constructing the office building were clearly subsumed in the definition of “business” under the local tax ordinances. The Court noted that there is no need to have a “base of operations” located in the Municipality in order for the Municipality to levy a business privilege tax.
This decision places additional burdens on contractors in Pennsylvania insofar as it exposes them to local taxes in hundreds of municipalities across the Commonwealth regardless of whether they have any “base of operation” in the municipality.