Several taxpayers are challenging the Department’s broad interpretation of the telecommunications gross receipts tax in cases pending at Commonwealth Court. These cases could result in refund opportunities for other telecommunications companies.
Pennsylvania’s gross receipts tax on telecommunications services is imposed on receipts from landline and cell phone "messages."7 However, the Department of Revenue has been imposing this tax not only on receipts from actual messages, but also on a wide variety of other receipts. For example, the Department has been assessing tax on receipts from equipment sales and rentals, installation and repair services, directory assistance services, and on charges for the unlimited use of private lines. Taxpayers are challenging these assessments in several cases currently pending in the Pennsylvania Commonwealth Court. In all of these cases, the taxpayers are arguing that imposing the tax on any receipts other than those from per-message charges goes beyond the statute. The outcome of these cases could impact all telecommunications service providers with activities in Pennsylvania.
Briefs have already been filed in the lead case, and oral argument is currently scheduled for May. If any of the taxpayers in the pending cases prevail, other telecom providers could be entitled to significant refunds.
Takeaway: To protect their rights, telecom providers that have paid the gross receipts tax on any receipts other than per-message charges should be filing refund claims. Taxpayers that were assessed and are taking a wait-and-see approach to the cases currently pending at Commonwealth Court must also make sure they have raised and preserved all issues in their own appeals so they are well-positioned, regardless of the outcome in the pending cases.