Freight Exception from Business Privilege Tax

The Pennsylvania Supreme Court issued a ruling in favor of S&H Transport, Inc. in its business privilege tax (BPT) dispute with the City of York over the exclusion of freight delivery and transportation charges.

S&H is a freight broker that arranges transportation of goods for sellers for a fee.  S&H matches sellers of goods with common carriers in order to ship the seller’s goods.  Once the goods have been shipped, S&H invoices the seller for the shipping costs of the common carrier and its commission.  S&H then remits the shipping costs to the common carrier and keeps its commission. The dispute began when S&H was audited by York, and the city disallowed S&H’s deduction of shipping fees collected on behalf of carriers.

The dispute turned on the interpretation of York’s BPT regulations and the Local Tax Enabling Act (LTEA).  The LTEA contains an exclusion for, “charges advanced by a seller for freight, delivery or other transportation for the purchaser in accordance with the terms of a contract of sale.”  York’s BPT regulation, on the other hand, excludes “freight delivery or transportation charges paid by the seller for the purchaser.”  The city argued that S&H was not a “seller” by definition, but the Court ruled there was sufficient ambiguity to rule in favor of S&H.

The Court ultimately decided that the exclusion provided by the city’s regulation was broader than the exclusion allowed under the LTEA.  As a result, the city must allow S&H a deduction of shipping costs it “paid” to common carriers.  The Court’s reasoning was based on the regulation and the fact that the language in the regulation did not limit the exclusion to sellers of goods as argued by the city.  The benefit of this ruling is likely limited to freight brokers or businesses with very similar fact patterns to S&H that are located in a city with an exception written in the same manner as York’s.

For more information about this case or business privilege tax issues, contact a member of the Schneider Downs’ State and Local Tax Team.