Court says no to residential leasing tax

On December 17, 2008, the Pennsylvania Supreme Court decided that local municipalities are not allowed to tax residential leases that are for one year or less. The municipalities relied on the Local Tax Enabling Act (“LTEA”), sometimes referred to as the “Tax Anything” Act, for authority because the language seemingly only precludes taxing transfers of real property by leases.

You can understand why certain communities (especially college communities) might want to tax short term residential leases – college students would provide a continuous stream of reliable income. In fact, the Supreme Court acknowledged that the argument made in favor of imposing such taxes had appeal.

However, the Court also recognized the extent of mischief that could result from such wide-spread taxation (this probably falls within the gambit of the Law of Unintended Consequences), and disallowed the tax. Instead of addressing the argument of whether or not a residential lease involved the transfer of real property, the Court analyzed whether the language of the LTEA was an exception (which benefits taxpayers) or an exemption (which benefits the municipality).

Prior decisions have interpreted the limiting language of the LTEA to be an exemption, and none of the parties offered a good argument why the Court should reverse itself. As an exception, the language is to be more broadly construed and the Court determined that a broad reading of the limiting language was more readily understood to exempt leases from taxation.

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Tags: court, LTEA, supreme

This entry was posted on Tuesday, December 30th, 2008 at 5:02 am and is filed under Legal Issues. You can follow any responses to this entry through the RSS 2.0 feed.