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Pennsylvania court holds net loss carryover deduction cap unconstitutional in violation of Uniformity Clause

The Commonwealth Court of Pennsylvania ruled on Nov. 23 that the statutory cap on net loss carryover deductions violated the uniformity clause of the Pennsylvania Constitution because it resulted in disparate treatment of similarly situated taxpayers according to their taxable income. In a 5-2 decision delivered by an en banc panel, the court determined that the statutory cap created different classes of corporate taxpayers based entirely on the size of their business as measured by taxable income, the very classification that the Uniformity Clause prohibits. As a remedy, the court awarded the taxpayer a full tax refund for the year at issue, but confined the reach of its holding to the statute as applied to the taxpayer. Although an appeal is expected, this decision affects similar taxpayers for multiple tax years. Accordingly, such affected taxpayers should consider refund opportunities for all open periods pending the outcome of further litigation.

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