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“Court Upholds Pennsylvania’s One-Way Road To Market-Based Sourcing”

August 10, 2020

Article by Jennifer Karpchuk on “Court Upholds Pennsylvania’s One-Way Road To Market-Based Sourcing”

Tax Court State

In an article published on August 10, 2020 in Tax Notes State, Philadelphia-based Shareholder Jennifer Karpchuk discusses the Synthes v. Commonwealth of Pennsylvania case where Synthes filed its returns and paid tax based on a costs of performance (COP) interpretation of the statute. Later, Synthes asked for a refund during a COP year based on the DOR’s interpretation.

“In Pennsylvania, state tax cases appealed from the board levels are sent to Commonwealth Court, where the Office of Attorney General represents the commonwealth — with the DOR acting as its client,” explains Karpchuk. “At Commonwealth Court, all parties agreed that Synthes had established its entitlement to the refund if the department’s interpretation of the statute was correct.”

Karpchuk further explains that, “there are still cases pending at the Commonwealth Court in which taxpayers are challenging the DOR’s COP interpretation. If Synthes is not appealed, it is still likely that other taxpayers waiting in the pipeline will continue to challenge the department’s position and, from an adverse Commonwealth Court decision, appeal the issue to the Pennsylvania Supreme Court.”

Karpchuk advises “out-of-state taxpayers in particular should be aware of the department’s interpretation when conducting business in Pennsylvania. Moreover, Pennsylvania taxpayers with sales of intangibles out of state should review their sourcing and consider whether there is a refund opportunity as a result of the Commonwealth Court’s decision upholding the DOR’s interpretation of the statute.”

To read the full article, subscribers may click here.