Business Privilege Tax can’t be collected on lease rental income
The Pennsylvania Commonwealth Court recently held in Fish et al. v. Township of Lower Merion, No. 1940 C.D. 2013, that a first class township cannot impose a business privilege tax under the Local Tax Enabling Act, calculated using gross receipts, on a landlord’s lease rental income within the township. The Court found that under Section 301.1(f)(1) of the Local Tax Enabling Act, local authorities do not have the power to levy, assess or collect “any tax on … leases or lease transactions.” The Court determined that such a tax would be invalid regardless of whether it was collected on monthly rental income or on annual gross receipts from rental income. The Court reached a different conclusion with respect to an annual registration fee charged on each rental property. The Court held that a lease falls within the definition of “business, trade, occupation or profession” as defined in the Local Tax Enabling Act, even though not specifically referenced in the definition. Therefore, the Township would be allowed to collect a registration fee under the Local Tax Enabling Act on the business activity of leasing property, but would not be allowed to levy a business privilege tax on the actual rental income from the business activity of leasing property.