November 3, 2003
FOR IMMEDIATE RELEASE
Pennsylvania Supreme Court Determines that Credit for Tax Erroneously Paid to Vendors Should be Allowed in Audit.
The Pennsylvania Supreme Court in McNeil-PPC, Inc. v. Commonwealth of
Pennsylvania, No. 99 MAP 2002, October 22, 2002, ruled that auditors
are required to issue determinations for the correct amount of tax, including
credits for overpayments of tax paid to vendors.
The Pennsylvania Department of Revenue ("Department") performed a sales
and use tax audit on McNeil-PPC ("McNeil") for the period October 1, 1991
through December 31, 1994. The Department performed a detail examination
of approximately 780,000 purchases that were made during the audit period.
The auditor told McNeil that overpayments of tax on non-taxable purchases
would reduce any underpaid amounts. McNeil agreed to two extensions of the
three-year limitations period so that the Department could complete the
audit.
McNeil relied on the auditor's statement about including overpayments of
tax paid to vendors, so they did not present the auditor with a schedule
or file a refund claim on these items. The Department assessed a deficiency,
and did not include credits for tax that McNeil paid directly to vendors.
McNeil filed a timely petition for reassessment with the Board of Appeals,
which reduced the assessment for exempt items included, but did not provide
adjustments for the overpayment of tax paid to vendors.
McNeil filed a petition with the Board of Finance & Review ("Board") requesting
an adjustment for the overpayment of tax and included a detail schedule
of these items. The Board denied the petition stating that the request for
refund was not made within the three-year period prescribed by Pennsylvania
Statue Annotated § 253(a). McNeil filed exceptions with the Commonwealth
Court, which was denied on the grounds that McNeil should have been aware
of the provisions that they were responsible for filing refund claims within
the appropriate time period.
McNeil ultimately appealed to the Pennsylvania Supreme Court contending
that the Department is responsible for determining the "proper amount" of
tax during the course of an audit and should include credits for overpayments
of tax. The Court agreed with McNeil and ruled that once an audit is in
progress it is not necessary to file a refund claim for the overpayment
of tax. It is the duty of the auditor to determine the correct amount of
tax, which would, include any overpayment of tax paid.
If you have any questions regarding this case, please call James Trester,
Principal at Ryan & Company, at 972.934.0022. Mr. Trester can also be reached
by e-mail.
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