Court Opinion

ID: 4965939
Source: CourtListenerOpinion
Date Created: 2021-09-24 16:17:44.398614+00
Date Added: 2024-06-11T08:16:09.067150
License: Public Domain

DISSENTING OPINION BY
Judge McCullough.
The Petitioner, Robert J. Marshall, Jr. (Marshall), a nonresident taxpayer, has filed a dozen exceptions to the Majority’s decision to impose the Pennsylvania personal income tax (PIT) on his failed investment in a single property real estate limited partnership. The consequence of the Majority’s decision is that Marshall will be compelled to pay PIT on his pro rata share of a discharge, through foreclosure, of non-recourse limited partnership debt totaling $2.6 billion, over two billion of which is accrued interest of exceptionally high and compounded rates (the original principal amount of the subject purchase money mortgage was $308 million). It is noteworthy that Marshall’s total investment in this failed enterprise was $143,000 for an ownership interest of 0.151281%, which, owing to the Majority’s decision, means that Marshall has “an amount realized” of about $4 million.
The Majority remands only for the purpose of ascertaining the adjusted basis to be offset this amount realized in order to recalculate the Department of Revenue’s initial imposition of $165,055.25 of PIT (consisting of principal, interest and penal*295ties) against Marshall for the 2005 tax year. It is noted from the foregoing that Revenue’s assessment of PIT was well in excess of the total of Marshall’s investment and upon remand, will likely be so again.
The rationale for the Majority’s decision, which is reiterated in its denial of all of Marshall’s exceptions, is that, by virtue of the foreclosure of the property, “Marshall is in the same position he would have been had the Partnership sold the property in 2006 for $2,628,497,551.” (Slip op. at 10.) The fact of the matter is that the property was not sold and Marshall is not in the same position as he would be if it had been — he has completely lost his investment. Had the property sold for this amount, Marshall would have received a return of about $4 million on his investment and, hence, he would have ample funds to pay the PIT, the imposition of which, under those circumstances, would be without dispute.
Moreover, basing its rationale on the supposition of a sale of the property for more than $2.6 billion is unrealistic given that the property was purchased by the Partnership for $860 million and the figure used by the Majority is derived only from the roll-up of excessive and compounded interest charges into the principal amount of the purchase money mortgage note. There is nothing in the record to suggest that the property was worth anywhere near $2.6 billion, or for that matter, that even the original purchase price could have been recovered.
I dissented from the Majority’s original decision in this matter, Marshall v. Commonwealth, 41 A.3d 67 (Pa.Cmwlth.2012), and in so doing detailed the reasons. While those reasons will not be reiterated at length here, they are nonetheless incorporated into this dissent as well. Suffice it to say, I disagree with the Majority’s denial of all of the exceptions to its decision because that decision relies on non-binding decisions of the United States Supreme Court (CIR v. Tufts, 461 U.S. 300, 103 S.Ct. 1826, 75 L.Ed.2d 863 (1983)) and the Eighth Circuit (Allan v. Commissioner of Internal Revenue, 856 F.2d 1169 (8th Cir.1988)), both of which interpret provisions of the federal Internal Revenue Code that are distinct from the PIT, and departs from the clear language of the PIT statute applicable here, as well as the economic reality of the situation. As such, the Majority’s decision contravenes the cardinal precepts of statutory construction set forth in 1 Pa.C.S. § 1921(b) (when words of a statute are clear and free from all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing its spirit) and in 1 Pa.C.S. § 1928(b)(3) (provisions imposing taxes shall be strictly construed). The Majority’s decision also departs from the logic adhered to by this Court in Commonwealth v. Rigling, 48 Pa.Cmwlth. 303, 409 A.2d 936 (1980), i.e., a substance over form approach to tax cases that takes into consideration the economic realities of the situation.
The Majority’s decision seeks to plug what Revenue claims would otherwise be a “huge hole” in the PIT. Whether such a hole would or would not exist if the PIT were applied in accordance with its terms obviously depends upon one’s perspective, but it is not the role of the courts of this Commonwealth to correct the perceived mistakes of the General Assembly in matters of taxation, at least not in the first instance. See Clifton v. Allegheny County, 600 Pa. 662, 969 A.2d 1197 (2009).
I also believe that Marshall, as a nonresident taxpayer, has been treated differently than resident taxpayers who invested in the Partnership and unconstitutionally so pursuant to the Uniformity Clause of Article VIII, section 1 of the Pennsylvania Constitution.
*296Accordingly, I would grant Marshall’s exceptions to the Majority’s decision which challenge: (1) application of the language in Section 103.13 of Revenue’s Regulations relating to “conversion of property into cash or other property”; (2) the interpretation of Section 103.13 of the Regulations to include the outstanding purchase money mortgage within the amount realized; (3) the Majority’s conclusion that Rigling and Commonwealth v. Columbia Steel & Shafting Co., 83 Pa. D. & C. 326 (Dauphin 1951), exceptions dismissed, 62 Dauph. 296 (Dauphin 1952), do not compel a different result; (4) the failure to apply the tax benefit rule; (5) the application of Tufts and Allan to this case; (6) the Majority’s conclusion that it applied the PIT uniformly as to nonresidents and residents in this case; (7) the reliance on Tax Bulletin 2005-02 relating to intangibles to conclude that the application of the PIT as a result of the foreclosure did not -violate either the U.S. or Pennsylvania Constitutions; (8) the Majority’s decision to remand for purposes of recalculating the PIT; and (9) the Majority’s affirmance of the order of the Board of Finance and Revenue.