A Pennsylvania corporate income taxpayer could deduct freight and delivery charges from gross receipts before calculating a city’s business privilege and mercantile tax. This decision by the Pennsylvania Supreme Court in favor of the taxpayer, a freight broker, allowing for the deduction of the city’s business privilege and mercantile tax, reversed a trial court decision. Several justices penned dissenting and concurring opinions.
Facts and Issue
The freight broker received money from its customers for arranging the shipment of commercial goods with freight carriers on the customers’ behalf. The freight broker deducted its commission from this money and remitted the remainder to the freight carriers to pay the carrier’s shipping fees. Under the state’s Local Tax Enabling Act (LTEA), municipalities cannot "levy, assess and collect a mercantile or business privilege tax on gross receipts or part thereof which are: . . . (ii) charges advanced by a seller for freight, delivery or other transportation for the purchaser in accordance with the terms of a contract of sale." The city’s regulation excludes from taxation of a business’s gross receipts any "[f]reight delivery or transportation charges paid by the seller for the purchaser."
The court found that under the above provision of the LTEA, the freight broker was not a "seller" because it was not selling goods. Further, the monies paid to it by its customers for services rendered were taxable gross receipts under the city regulation and were subject to the tax. However, the court found that the wording of the city’s BPT regulation permits the exclusion of shipping costs paid by a seller for a purchaser at any time, whereas the LTEA exclusion requires a seller to advance the shipping costs to a purchaser under the terms of a sale contract (meaning the shipping costs must be paid before shipping occurs). As a result, the court held that the freight broker could exclude from gross receipts the delivery costs it was paid by shippers who bought its services. S & H Transport, Inc. v. City of York, Pennsylvania Supreme Court, No. 8 MAP 2018, July 17, 2019; reversing Pennsylvania Commonwealth Court, No. 242 C.D. 2017, 2017 Pa. Commw. Unpub. LEXIS 737, October 5, 2017