In Mission Funding Alpha, the Pennsylvania Supreme Court recently held that the statute of limitations for a corporation to file a refund claim in Pennsylvania begins to run when the corporate tax return is due, not when the return is actually filed.
Background
The issue before the Pennsylvania Supreme Court was whether the three-year statute of limitations for a corporate taxpayer to file a refund claim begins when the tax is paid or when the annual return is filed. Corporations like Mission Funding Alpha that are subject to franchise taxes must pay estimated taxes at the end of every quarter. Any remaining franchise tax liability must be paid when the corporation files its annual return. If the corporation overpays its estimated taxes, it may file a refund claim. The refund claim, however, must be made within three years of “the actual payment of the tax.”
Mission Funding Alpha filed its Pennsylvania franchise tax return on September 19, 2008 – after the due date. It overpaid its estimated franchise taxes, however, so on September 16, 2011, Mission Funding Alpha filed a claim for refund with the Pennsylvania Board of Appeals. The Board of Appeals, however, dismissed the claim as untimely because it was filed more than three years after April 15, 2008, the due date for the return. Mission Funding Alpha appealed, arguing that the statute of limitations is three years from the date the return is filed.
Commonwealth Court Decision
The Commonwealth Court agreed with Mission Funding Alpha. The court held that whether a refund claim is timely depends on the meaning of “the actual payment of tax.” It explained that “the common and approved usage of the phrase ‘actual payment’ means the delivering of money in the acceptance and performance of an obligation.” The court noted that corporations must pay estimated taxes and make final payments of taxes due with their annual corporate returns. According to the court, a corporate taxpayer makes its “final” tax payment only when it files its annual return. Thus, the court reasoned that a corporation’s franchise tax liability is not established until it files its annual return and “the actual payment of the tax” does not happen until the annual return is field.
Supreme Court Decision
The Pennsylvania Supreme Court disagreed and reversed the Commonwealth Court. The Court explained that “the actual payment of the tax” happened on April 15, 2008, the date the tax was due and payable, and when the Pennsylvania Department of Revenue accepted Mission Funding Alpha’s estimated payments and credits for its 2007 liability. Importantly, the Court also held that, when a return is filed late, the triggering event for determining when the statute of limitations begins to run for a refund claim is not when the return is filed. Thus, the Court concluded that Mission Funding Alpha’s refund claim was not timely because the three-year refund period ended before the claim was filed on September 16, 2011.
Consequences
As a result of the Pennsylvania Supreme Court’s decision, the statute of limitations for refund claims in Pennsylvania is significantly different than many other states.
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