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GOLDSTEIN v. PITTSBURGH SCHOOL DISTRICT
Factual and Procedural Background
H.W. Goldstein, trading as Anchor Distributing Company, appealed deficiency mercantile tax assessments including interest and penalties imposed by the School District of Pittsburgh and the City of Pittsburgh. The corporation, Anchor Distributing Company, was dissolved on April 30, 1949, and Goldstein acquired its assets and continued operations individually. Both the corporation and Goldstein as an individual were subject to mercantile tax provisions enacted by the School District and City, which required self-assessment and filing of tax returns based on annual gross business. The corporation filed a tax return for the prior calendar year in March 1949. After dissolution, Goldstein failed to file a new individual return as required and did not apply for a refund due to the corporation. In March 1950, Goldstein paid taxes based on business done both individually and by the corporation in the prior year. On August 30, 1950, deficiency assessments including interest and penalties were made against him for 1949 and 1950. The court below sustained defendants’ preliminary objections and dismissed Goldstein’s appeals. Goldstein then appealed to the Superior Court of Pennsylvania.
Legal Issues Presented
- When does the mercantile tax become due for purposes of imposing interest and penalties: at the time the return is filed or from the date of deficiency assessment notice?
- Whether a taxpayer can set off a refund due from a predecessor corporation against a tax deficiency owed to the municipality.
- Whether imposition of penalties and interest prior to notice of deficiency constitutes a denial of due process.
- Whether the taxing authorities have authority to make an assessment after the expiration of the year in which the tax was due.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Com. v. Southern Pa. Bus Co., 339 Pa. 521, 15 A.2d 375 | Interest on self-assessing taxes runs from the date of filing the return, not from the date of deficiency assessment. | The court relied on this precedent to hold that the tax liability and interest begin at the time the return is filed, rejecting appellant's argument that interest and penalties run only from notice of deficiency. |
| Bindley v. Pittsburgh, 64 Pa. Super. 371 | No setoff allowed of municipal indebtedness against tax debts. | The court cited this case to reject appellant’s claim for setoff of a refund against the tax deficiency. |
| Com. v. Gerlach, 347 Pa. 385, 32 A.2d 410 | Same principle as Bindley regarding setoff in tax matters. | Supported the court’s refusal to allow setoff of municipal indebtedness. |
| Fox's Appeal, 112 Pa. 337, 4 A. 149 | Authority to impose penalties for nonpayment or withholding information. | Supported the court’s affirmation of penalties as part of the tax obligation. |
| Leopold Tax Assessment Case, 118 Pa. Super. 158, 179 A. 904 | Penalties are additional sums added to tax for delay in payment and become part of the tax. | Reinforced the court’s view that penalties are valid and integral to tax enforcement. |
| Hamilton v. Lawrence, 109 Pa. Super. 344, 167 A. 509 | Penalties as part of tax obligation for delayed payment. | Applied to support imposition of penalties. |
| Appeal of the City of Titusville, 108 Pa. 600 | Penalties become part of the tax due to delay. | Affirmed penalty imposition. |
| Callery's Appeal, 272 Pa. 255, 116 A. 222 | Good faith of taxpayer is not a defense to penalty imposition. | Used to reject appellant’s good faith argument. |
| Com. v. Perkins, 342 Pa. 529, 21 A.2d 45 | Constitutionality of interest and penalty rates imposed on delinquent taxes. | Validated the interest and penalty rates charged in this case as not excessive. |
| Schmuck v. Hartman, 222 Pa. 190, 70 A. 1091 | Assessment of state tax after expiration of year in which tax was due is void unless statutory authority exists. | The court applied this to distinguish personal property taxes requiring assessments from self-assessing mercantile taxes, affirming validity of late assessments here. |
| Curtis's Estate, 134 Pa. Super. 364, 3 A.2d 980 | Statutory authority for late assessments in personal property tax cases. | Referenced to explain statutory context for assessment timing. |
| Allegheny County Personal Property Tax Assessment Cases, 349 Pa. 651, 37 A.2d 498 | Requirement of assessment by taxing authorities before tax becomes delinquent for personal property tax. | Distinguished from self-assessing mercantile taxes in this case. |
| Com. v. McKean County, 200 Pa. 383, 49 A. 982 | Validity of self-assessment in taxation. | Supported the court’s acceptance of self-assessment for mercantile taxes. |
| Com. v. Delaware Div. Canal Co., 123 Pa. 594, 16 A. 584 | Self-assessment validity. | Reinforced the principle of self-assessment. |
| Com. v. Lehigh Valley R. R. Co., 104 Pa. 89 | Self-assessment principle. | Affirmed self-assessment validity. |
| Turco Paint Varnish Co. v. Kalodner, 320 Pa. 421, 184 A. 37 | Self-assessment in taxation. | Supported the court’s reasoning regarding self-assessment. |
Court's Reasoning and Analysis
The court analyzed the timeline and legal framework governing the mercantile tax imposed by the School District and City, both of which were self-assessing taxes requiring the taxpayer to compute and file returns. The corporation filed a return for business done in the prior calendar year, but upon its dissolution, appellant failed to file a new individual return as required. The court held that the tax became due at the time the return was filed, thus interest and penalties properly accrued from that date, not from the later date of deficiency assessment notice. The court rejected appellant’s argument that interest and penalties should run only from the date of notice, relying on precedent that self-assessing taxes fix liability at the time of return filing.
The court further held that the appellant’s claim for setoff of a refund assigned from the corporation against the tax deficiency was invalid because the taxing authorities had no notice of the assignment and because there is no statutory authority permitting setoff of municipal indebtedness in tax matters. The court emphasized that the corporation and appellant were separate entities and that the refund was paid only after notice of assignment was given.
Regarding penalties, the court affirmed the authority to impose them for nonpayment or improper withholding of information, noting penalties become part of the tax due to delay. The appellant’s good faith was not a defense to penalty imposition. The court explained that allowing otherwise would encourage procrastination and inaccurate returns, undermining tax enforcement. The interest and penalty rates were found not excessive and constitutional.
Finally, the court distinguished mercantile taxes as self-assessing, unlike personal property taxes which require assessment by taxing authorities. It held that assessments made after the year in which the tax was due were valid for the mercantile tax, relying on statutory and case law supporting self-assessment. The court affirmed the orders dismissing appellant’s appeals.
Holding and Implications
The orders of the Court of Common Pleas of Allegheny County dismissing Goldstein’s appeals from deficiency mercantile tax assessments including interest and penalties are affirmed.
The court’s decision confirms that for self-assessing mercantile taxes, the tax liability and associated interest and penalties become fixed at the time the return is filed, not merely upon notice of deficiency. It rejects setoff claims against municipal tax debts and upholds the imposition of penalties regardless of taxpayer good faith. The ruling underscores the validity and enforceability of self-assessment tax regimes and clarifies that assessments made after the year of tax liability are permissible under such systems. No new precedent was established beyond affirming existing legal principles as applied to the facts of this case.
Taxation — Mercantile license tax — Corporation — Individual — Time when tax is due — Self-assessment — Interest and penalties — Deficiency assessment — Refund due corporation — Set-off — Constitutional law — Due process.
1. Where it appeared that a corporation was dissolved on April 30, 1949, and plaintiff acquired its assets and continued operations in his independent capacity; that as a wholesale dealer the corporation and plaintiff were subject to a resolution adopted by the defendant school district and an ordinance enacted by defendant city, each of which imposed a tax on annual gross business transacted, requiring the taxable to compute his own tax and to file a return; that the corporation filed a tax return in March, 1949, predicated upon the business done the preceding calendar year; that upon dissolution of the corporation plaintiff failed to file, as required, an independent return required for a new business, nor did he apply for a refund due the corporation; that in March, 1950, he paid school and city taxes based upon a taxable business done by him as an individual, and by the corporation during the prior calendar year; that on August 30, 1950, deficiency assessments were made against plaintiff for the years 1949 and 1950, including interest and penalties; and that it was not until the deficiency assessments were made that notice was given the taxing authorities that plaintiff was entitled to a refund as an assignee of the corporation; it was Held that (1) the tax became due when the return was filed and interest and penalties were properly added as of such date, not merely from the date the deficiencies were determined; (2) in the circumstances, plaintiff's contention that the imposition of interest and penalty was inequitable because the taxing authorities had money belonging to him almost sufficient to cover the additional assessments was without merit; (3) the fact that plaintiff acted in good faith was not for consideration of the appellate court; (4) the interest rates and penalties were not excessive; (5) the imposition of interest and penalties for a period before notice of the tax deficiency did not constitute a deprivation of property without due process of law; and (6) the mercantile taxes involved did not require the taxing authorities to make an assessment; they were self-assessing taxes.
2. In an action for taxes, set-off of an indebtedness of a municipality to the tax debtor will not be allowed.
3. Penalties may be imposed for nonpayment of taxes or improperly withholding information as to the size or extent of the taxpayer's estate.
4. A penalty is in effect an additional sum added to the tax for delay in payment and becomes a part thereof.
5. The purpose of charging interest and imposing penalties for nonpayment is to encourage and enforce full and prompt payment of taxes.
6. Self-assessment in taxing is valid.
Argued November 20, 1951.
OPINION BY RENO, J., March 18, 1952:
H.W. Goldstein, trading as Anchor Distributing Company, appealed from deficiency mercantile tax assessments including interest and penalties made against him by the School District of Pittsburgh and the City of Pittsburgh. The two appeals were consolidated and the facts agreed upon by stipulation. The court below dismissed both appeals and its orders will be affirmed.
Appellant had been the majority shareholder of the Anchor Distributing Company. The corporation was dissolved on April 30, 1949, and appellant acquired its assets and continued operations in his individual capacity. As a wholesale dealer in electrical appliances, the corporation and appellant were subject to provisions of the Mercantile Tax Resolution adopted and the Regulations promulgated by the School District pursuant to the Act of June 20, 1947, P. L. 745, 24 P. S. § 582.1 et seq. and Ordinance No. 488 enacted by the City of Pittsburgh under the Act of June 25, 1947, P. L. 1145, 53 P. S. § 2015.1 et seq.
The School District Act and City Ordinance both impose a tax on annual gross business transacted, the former at the rate of one-half mill and the latter one mill on the dollar. The provisions of each are similar. They are self-assessing taxes requiring the taxable to compute his own tax and file a return with the treasurer on the same form.
The corporation filed a tax return in March, 1949, predicated upon the volume of business done the preceding calendar year. Upon dissolution of the corporation appellant failed to file an individual return required for a new business nor did he apply for a refund. In March, 1950, he paid school and city taxes based upon the taxable business done by him as an individual, and the corporation during the prior calendar year. He concedes the change to an individual proprietorship constituted a new business and a new mercantile tax return should have been filed in his individual name within forty days after commencing such business, viz. on or before June 9, 1949. Furthermore, the tax due on March 15, 1950, admittedly should have been based upon the gross taxable business done in May, 1949, (the first month of business transacted by him individually) multiplied by the number of months he engaged in business in such license year.
The tax paid the School District was $1666.76 and that paid the City $3333.52.
The tax paid the School District was $744.00 and that paid the City $1488.01.
Section 6(d) of the City Ordinance and Article 4(a) 2 of the School District's Regulations.
Section 5(c) of the City Ordinance and Article 5(a)2 of the School District's Regulations.
On August 30, 1950, deficiency assessments were made against appellant for the years 1949 and 1950 for $1210.75 and $2421.51 (exclusive of penalties and interest) due the school and city authorities respectively. The amounts of the deficiencies are not questioned. However, appellant contends (1) any penalties and interest run only from August, 1950, when he was notified of the deficiency assessment; (2) the amount of the tax refund assigned him by the corporation should be set off against the tax due; (3) any penalty imposed for a period prior to notice of the deficiency assessment is unconstitutional as a denial of due process to a taxpayer who acted in good faith; and (4) there is no authority for the tax collector to make an assessment against a taxpayer after the expiration of the year in which the tax was due.
This argument was not raised in the court below. However if the taxing authorities lacked the power to assess a tax after the year in which such tax should have been assessed and paid, Schmuck v. Hartman, 222 Pa. 190, 70 A. 1091, a fortiori interest and penalties for such period could not be imposed. The two problems are so interwoven we consider the point as basic and fundamental to the issue. Capristo v. Gross, 133 Pa. Super. 61, 1 A.2d 575.
1. Section 9(b) of the City Ordinance provides if "the tax is not paid when due in each year, interest at the rate of six per centum (6%) per annum on the amount of said tax, and an additional penalty of one per centum (1%) of the amount of the unpaid tax for each month or fraction thereof during which the tax remains unpaid shall be added and collected." The pivotal issue is when the tax becomes due. The time for payment is the date the return is filed. Section 7 and Article 4(c). However, appellant argues interest and penalty thereon can run only from the date of notice of the deficiency assessment. Com. v. Southern Pa. Bus Co., 339 Pa. 521, 15 A.2d 375, involved a similar question regarding the Capital Stock Tax Act of April 8, 1937, P. L. 239, 72 P. S. § 1871, also a self-assessing tax. Interest was charged from the date the return was filed although a deficiency assessment was made subsequent thereto. The majority opinion squarely answers appellant's argument and holds that at the time the tax was paid the corporation's liability was fixed and interest runs from that time, not merely from the date the deficiency was agreed upon.
Article 9(a) of the School District's Regulations contains a similar provision. Penalties and interest aggregate $643.58.
The amount of the tax must be fixed so that the taxpayer may know with certainty what amount he is required to pay, otherwise it would be inequitable to charge him with interest. Where the taxpayer in good faith enlists the aid of the courts to determine whether he is exempt from the tax law, harsh penalties or unusual interest rates for delinquent payments during pendency of the action should not be charged. Fidelity-Philadelphia Trust Co. v. Hines, 337 Pa. 48, 10 A.2d 553.
In Southern Pa. Bus Co., supra, the Capital Stock Tax Act provided all taxes and bonuses were due and payable the date the return was filed where Section 7 of the City Ordinance merely provides for payment of the amount of tax shown as due. The difference is without distinction. The Ordinance requires the taxpayer making the return to certify to the correctness thereof by affidavit. Section 6(a). He alone possesses all the facts upon which a complete and correct return can be based. The computation of the tax is purely mathematical. Interest and penalties accrue not by reason of the deficiency assessment but by virtue of the taxing acts and caused by failure to make a complete and correct return in accordance therewith.
Article 8(a) of the School District Ordinance does not aid appellant. It involves suit for collection by the treasurer of the tax, penalty or interest and provides: . . . "For this purpose, the due date of the amount of tax computed and reported on a return is the date of filing such return; and the due date of any amount of deficiency of tax, not computed or reported in a return properly filed, is the date in which the City Treasurer makes an assessment of the deficiency by notice thereof sent to the taxpayer." (Emphasis added.) Obviously suit could not be instituted until the taxpayer was notified of a deficiency and opportunity given to make payment. And for the purposes of suit the due date of the deficiency tax would necessarily be the date of notice but does not relieve liability for payment of the full tax on the date the return was filed or prevent the running of interest from such date.
2. Appellant's argument that imposition of interest and penalty is inequitable and unconscionable as the taxing authorities had monies belonging to him almost sufficient to cover the additional assessments fails for two reasons. There was no notice of the assignment from the corporation to appellant, and there is no statutory authority for a set off against a municipality.
The tax refunds due appellant when he acquired the corporation's assets were $1117.17 (school) and $2222.34 (city) and the net tax deficiency (excluding interest and penalties) was $99.58 (school) and $199.16 (city).
The taxing authorities were not apprised of the fact that appellant had acquired the assets of the predecessor corporation and as its assignee entitled to a refund. The corporation and appellant are two separate and distinct entities. It was not until August, 1950, when the deficiency assessment was made that notice of the assignment was given and the refund paid appellant.
Furthermore, in an action for taxes, set off of an indebtedness of a municipality to the tax debtor will not be allowed. Bindley v. Pittsburgh, 64 Pa. Super. 371; Com. v. Gerlach, 347 Pa. 385, 32 A.2d 410.
3. The right to impose penalties for non-payment of taxes or improperly withholding information as to the size or extent of the taxpayer's estate can no longer be doubted. Fox's Appeal, 112 Pa. 337, 4 A. 149; Leopold Tax Assessment Case, 118 Pa. Super. 158, 179 A. 904. It is in effect an additional sum added to the tax for delay in payment and becomes a part thereof. See Hamilton v. Lawrence, 109 Pa. Super. 344, 167 A. 509, and Appeal of the City of Titusville, 108 Pa. 600. The fact that appellant acted in good faith, is not for our consideration. Callery's Appeal, 272 Pa. 255, 116 A. 222.
To accept appellant's argument would have the practical effect of encouraging procrastination, inaccuracy and carelessness by providing no greater penalty for improper tax returns and payments than the running of simple interest. The purpose of charging interest and imposing penalties for non-payment is to encourage and enforce full and prompt payment of taxes. The interest rates and penalties charged here were not excessive. Com. v. Perkins, 342 Pa. 529, 21 A.2d 45, where the interest penalty of 12% was declared constitutional.
The imposition of interest for the period prior to the notice of the tax deficiency does not constitute a deprivation of property without due process of law since the full and correct tax was due the date the return was filed. Com. v. Southern Pa. Bus Co., supra. If a subsequent audit reveals a deficiency requiring the city treasurer to make an additional assessment, the taxpayer may appeal his ruling to the proper court, as appellant has done.
Section 8(b) of city ordinance.
4. In Schmuck v. Hartman, supra, it was decided that unless sanctioned by statute an assessment of a state tax on personal property after the expiration of the year in which it ought to have been assessed and the taxable ought to have paid it is void. The Schmuck case followed Williamson's Estate, 153 Pa. 508, 26 A. 246, and Moneypenny's Estate, 181 Pa. 309, 37 A. 589. More recently the same statute, as amended, was considered in Curtis's Estate, 134 Pa. Super. 364, 3 A.2d 980, (affirmed 335 Pa. 414, 6 A.2d 283) and Leopold's Tax Assessment Case, supra, which are to the same effect. See also Allegheny County Personal Property Tax Assessment Cases, 349 Pa. 651, 37 A.2d 498. However, the personal property tax required that the taxable's property be assessed first by the taxing authorities before collection. Consequently, until so assessed the tax was not delinquent and interest and penalties do not accrue. The mercantile taxes here involved do not require the taxing authorities to make the assessment; they are self-assessing taxes. The validity of self-assessment in taxation has long been recognized. Com. v. Southern Pa. Bus Co., supra; Com. v. McKean County, 200 Pa. 383, 49 A. 982; Com. v. Delaware Div. Canal Co., 123 Pa. 594, 16 A. 584; Com. v. Lehigh Valley R. R. Co., 104 Pa. 89; Turco Paint Varnish Co. v. Kalodner, 320 Pa. 421, 184 A. 37.
The Personal Property Tax Act of June 17, 1913, P. L. 507 was subsequently amended by the Act of June 12, 1931, P. L. 544, authorizing the taxing authorities to assess taxes for five years immediately preceding the year of assessment. Erie County v. Sterling, 319 Pa. 568, 181 A. 505.
Orders affirmed.
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