The Pennsylvania Commonwealth Court ruled yesterday that the Pennsylvania net operating carryover deduction limitation is unconstitutional. The taxpayer, RB Alden Corp, is entitled to a 100% offset of its corporate net income tax.
The Court overruled all of the Commonwealth’s exceptions to the Court's June 15, 2016 decision, concluding that, consistent with Nextel, the $2 million net loss carryover deduction limitation set forth in section 401(3)4.(c)(1)(A)(I) of the Code violates the Uniformity Clause of the Pennsylvania Constitution as it applies to RB Alden, entitling RB Alden to a 100% offset of its corporate net income tax. As a result, RB Alden owes zero tax to the Commonwealth for Fiscal Year 2006.
Note: The Nextel case is currently pending before the Pennsylvania Supreme Court. Oral arguments were heard April 5, 2017. Nextel Commc'ns of the Mid-Atlantic, Inc. v. Pennsylvania, No. 98 F.R. 2012, 2015 BL 384486 (Pa. Commw. Ct., Nov. 23, 2015) During the year in the Nextel case (2007), the cap was $3 million or 12.5% of taxable income.
Pennsylvania's current cap is $5 million or 30% of taxable income, whichever is larger.