York City comes out on top in tax battle
In light of a recent state Supreme Court case involving York City and a freight brokerage company, the city and local tax bureau are trying to make sure utility companies are paying the taxes they're supposed to.
A civil case between the city and S&H Transportation regarding payment of the business privilege tax wound its way over the past several years to Pennsylvania's highest court, which decided the company was not exempt from paying the tax.
After a late-2011 audit found S&H hadn't been paying that tax for the previous four years, the city said the company owed it a total of $118,346.88 for those years, according to court documents. The company challenged that, saying it was exempt from paying that tax because the freight companies it dealt with used to have their rates set by the state Public Utility Commission.
The York County Court of Common Pleas judge ruled in the company's favor, saying it didn't have to pay.
But the city appealed up the court system, winning judgments in its favor at the state Commonwealth Court and then state Supreme Court levels. The state's high court ruled on May 25 that S&H indeed did have to pay the city business privilege tax, or BPT.
According to court documents, the court said that just because an industry used to be exempt because its rates were set doesn't mean it will be after it's deregulated.
So now the city solicitor's office and the York-Adams Tax Bureau are trying to make sure every company in similar situations that's supposed to pay the BPT is doing so, according to assistant city solicitor Jason Sabol.
As part of the ruling, the appeals courts sent the case back down to the Court of Common Pleas with the directive that it figure out how much money, if any, the company owes the city. That has not been decided yet.
S&H officials did not respond to multiple messages seeking comment.
The PUC: As the government agency's name suggests, the PUC regulates public utilities. One of its duties is to set the rates charged by providers of water, electricity and natural gas. It also provides further regulation over those industries as well as telecommunications and transportation, such as trucking services and taxi companies.
Those services that have set rates are tax-exempt, but the other ones, this case determined, aren't — that's the main takeaway from the state Supreme Court ruling.
Local officials have a hard time pinning down what the economic effects of the ruling will be because there's a great deal of uncertainty over who and what this case pertains to. Sabol said any additional revenue is a boon for the cash-strapped city, but this isn't likely to drastically change its economic fortunes.
"Is it a silver bullet? Absolutely not," he said. "But it's a piece of the puzzle."
The city anticipates receiving $3.2 million in total from the BPT and the mercantile tax this year, according to the 2016 budget. The budget document notes that number was calculated based on the amount received in past years.
Neither the city nor the tax bureau was willing to hazard a guess as to how many companies this ruling could apply to or how much money this could bring into the city or any of the approximately 10 other municipalities around the county that levy BPTs.
A Google search quickly brings up several companies involved with trucking that operate out of York City. One of them is York Transfer; its vice president, Lisa Jackson, was surprised by the question of whether her company paid BPT.
"Yes, I've been paying the business privilege tax," she said. She said it wouldn't make sense for her company not to pay it, as its rates aren't set.
Other work: Al Timko, the York-Adams Tax Bureau's executive director, took the ruling a step further, adding another wrinkle.
"I would think it would extend onto any public utility that does any work other than the regulated work," he said.
In plain terms, he's talking about companies that do have their rates set — water, natural gas or electric utilities, for example. Even though the revenue from providing those services would still be tax-exempt, money coming in from other work for which the rates aren't set might not be.
York Water Co. president Jeff Hines does not expect things to change for his company. He said the vast majority of his revenue comes from supplying people with water; that's done at a rate set by the PUC, so it has been and will continue to be exempt. He said his company doesn't pay BPT either, though, for other services it provides — work done if someone runs into a fire hydrant and damages the pipe, for example.
He said for those "sundries" his organization only charges what it costs, and he said he doesn't believe he needs to pay BPT on it.
"They can certainly look into (taxing that revenue)," he said. "But it’d be a pretty minimal number."
Met-Ed provides electricity, which is also done at a rate set by the PUC. Spokesman Scott Surgeoner said that's the only revenue Met-Ed receives, so he does not expect this to affect his company.
K.C. McCleary, the deputy director of the York-Adams Tax Bureau, said BPTs always have been "a bit of a gray area." He said the legislation from the 1960s that enabled municipalities to levy BPTs was vague.
"Most of the direction we have for collecting the BPT is case law" — like this situation, he said.
Sabol agreed, saying it'd probably take further cases to decide one way or the other about those other services for which rates aren't set but that are carried out by companies whose main revenue comes from a set-rate service.