Amicable solution sought in mercantile tax dispute
Joe Thurby said he would pay Laurel Highlands School District’s mercantile tax if he thought it was fair and legal. In the meantime, he is leading a charge to come up with some type of amicable solution rather than go to court over delinquent taxes a Pittsburgh attorney is trying to collect from him and others on behalf of Central Tax Bureau of Pennsylvania Inc., the school district and North Union and South Union townships.
“I’m not against the mercantile tax. I’ve paid that tax since it was enacted. For 49 years, I’ve been in business. I paid that tax until 1996, when it was declared unconstitutional,” said Thurby.
The owner of Thurby Lincoln Mercury in North Union Township, he talked recently about the tax and his position on its validity. He said the tax on retail and wholesale business is simply not being applied evenly, since it excludes the service industry, and he also doubts efforts are being made to collect from all those who would potentially owe the tax, anyway.
“I don’t mind paying as long as everybody else pays,” he said.
An ongoing issue
The subject of delinquent mercantile taxes has been brewing behind the scenes since it surfaced at budget time last summer, when school officials went to court to get special permission to float a $2.97 million bond to pay off outstanding debts from the 2001-2002 fiscal year.
The board voted in June to have solicitor Gary Frankhouser bring them names of potential special counsel that could help with collection of $400,000 to $800,000 in delinquent taxes; however, they took no further action until October, when the board voted to hire the Law Office of Ira Weiss in Pittsburgh as special counsel, at the request of Central Tax. North Union and South Union townships’ supervisors subsequently followed along with the school board and agreed to share proportionately in Weiss’ costs as well as any of the recovered tax revenue.
Board President Edward S. George, who cast the lone no vote, spoke out that he did not want to hire special counsel when the school district already had a tax agency for collections. He asked his fellow board members in November to reconsider hiring Weiss and at least talk first to the people who owed the tax.
In February, they agreed to talk. Thurby, accompanied by Lawrence Filiaggi, Gary Sisson and Jim Nickman Jr., met with the school board and Samuel J. Davis, who was substituting at that time for Frankhouser, in an executive session that Davis said concerned potential litigation over the tax issue.
George said afterward that the board discussed having legal counsel for the two sides get together to consider the issues, including peaceful collection of the past-due taxes. George said he did not want to sue the businesses and wanted to see what could be done to make the tax fairer and easier to collect.
The school board did not discuss or act on the mercantile tax at their latest business meeting, but Superintendent Dr. Ronald Sheba and Frankhouser said the matter had been turned over to Weiss, who confirmed he is working to contact those concerned, in an effort “to reach a sensible resolution.”
“With the school district and North Union and South Union townships and the tax collector, we’re trying to reach sensible solutions that are sort of a win-win solution,” Weiss said.
He said he could not speculate on a solution.
“We’re going to have to work that out. I don’t want to presuppose something. A lot will have to depend on the response we get from the taxpayers,” he said.
Some money collected
The amount of taxes owed and by whom is unclear. School and township officials have quoted general figures of about $400,000, $600,000 and $800,000. Sheba and Frankhouser declined to give details and referred questions to Weiss and Central Tax’s executive vice president, Robert J. Villella, who did not return calls to his office. Weiss said he was expecting a final list from Central Tax and did not verify who owes what.
The mercantile tax is levied at 1.5 mills retail and 1 mill wholesale or $1.50 on every $1,000 of retail gross receipts and $1 on every $1,000 wholesale gross receipts.
Laurel Highlands business manager Joyce Estocak said the school district, for this budget year of 2002-2003, listed $350,000 in anticipated revenue from the mercantile tax and has so far collected 71 percent of that amount, or about $250,000. She said the district also budgeted for delinquent collection, hoping to bring in $58,632, but has received $67,308 so far. She said that amount was current and not from the prior years in dispute.
The school district last year received $327,000 in mercantile taxes, which Estocak said was about $67,000 more than anticipated.
Estocak said the school district gets money every month from Central Tax, as well as a receipt that outlines the type of tax, although no business names are listed.
Thurby and his companions declined comment at the time they met privately with the school board, but Thurby said he felt he had to speak up after the North Union Township supervisors, at their March business meeting, reaffirmed their decision to pursue legal channels.
Thurby said he does not want to see the supervisors lose money in court over the mercantile tax.
He said he has done much research on the issue over the years and is convinced it is illegal to tax some businesses and not others. He cited the case of Salvatore Mercadante, who challenged Uniontown’s mercantile tax and prevailed in 1996.
Thurby said he stopped paying the tax at that time. He said he submitted to an audit with Central Tax last year, and that review revealed he owed $46,654.59 inclusively from 1996 through 2001.
Prior legal action disputed
The ramification of further legal action after the Mercadante decision in 1996 is a sticking point.
Thurby’s attorney, Charles L. Potter Jr. of Pepper Hamilton LLP in Pittsburgh, said the county and commonwealth courts in the Mercadante case decided it was a violation of the uniformity clause of the state Constitution for Uniontown to tax the gross receipts of merchants but not those of service providers. He said the 1996 decision stayed on the books.
However, another case came up in Allentown. Potter said the argument in the Allentown case concerned a different rate for merchants and service providers, and the court ruled against the taxpayer. He said the case made its way to the state’s Supreme Court, which heard the arguments but decided in 2000 not to rule.
“Local municipalities take it as an overruling, but we don’t think it did,” Potter said, pointing out that the facts were different in the Allentown situation.
“They say the Mercadante decision is no longer law and they are free to collect the taxes, but there is case law that if a tax is not fairly enforced it is not lawful. Our position is you should be taxing and auditing and collecting from all people, not several,” he said.
Weiss had a different opinion. He said the Allentown case in 2000 overruled the Mercadante decision in 1996.
“Several years later, the City of Allentown had a case that went to Commonwealth Court that overruled Mercadante, that said you can have one tax and not the other, so there is no reason this tax wasn’t due,” said Weiss.
He said numerous people who have relied on the Mercadante case and decided not to pay had to face penalties.
A remedy is possible
Weiss said the mercantile tax is not uncommon, and he has advised the school district and township officials that it is a valid, legal tax that is owed, even though some resolution is possible.
Meanwhile, Thurby’s attorney said he will work with Thurby and the municipalities on a remedy. Otherwise, he said, the litigation could be costly to the taxing bodies.
“We hope to resolve and go forward,” Potter said.
Further, Thurby said he has been unsuccessful in efforts to obtain from Central Tax a list of who does and does not pay the tax, as well as who should pay the tax. He said he has heard from business owners who have not been contacted for delinquency and still others that have never paid the tax. He said he suggested to the school board that they levy one tax rate on all businesses.
According to Thurby, a number of business owners have contacted him, wanting to join as a group.
He said fighting this issue with his attorney’s help has been expensive but worthwhile, because he believes he is right to expect the district to administer and enforce the mercantile tax fairly.
“I probably would have been better off paying it. I could have paid the tax. It would have hurt to pay it. But, I’m a person, if I feel I’m right, I’m going to fight for it. I just felt right’s right,” he said.