The bad news for Warrington Township is that it needs to refund more than $1 million collected for a business tax that was ruled illegal this week.
The good news is that the township never spent the money and is prepared to refund up to $13,000, plus interest, to each of 150 businesses, officials said Thursday.
“We’re ready to send the checks as soon as possible,” lawyer William Casey said. “We’ll be glad to get rid of that escrow account — it was a pain.”
The Pennsylvania Supreme Court ruled Tuesday that a flat $2,600-a-year tax on businesses that grossed more than $1 million violated state law.
A flat, or fixed, business tax is legal, but not a tax based on gross revenue. By setting the $1 million minimum to exclude smaller businesses, Warrington’s tax is based on gross revenue and, therefore, is illegal, the court ruled.
Warrington started collecting the tax in 2008 to overcome a $400,000 budget shortfall. It set the tax at $2,600 to cover that deficit.
Businesses challenged the tax. “Some paid it and some didn’t,” Casey said.
So the township put the money aside and “balanced the budget in other ways,” he said.
The tax was designed to help cover the demands of large, “big box” businesses on police coverage and other township services. But it also hit small and medium-sized businesses, such as card shops, landscapers, dry cleaners and beer distributors.
“Funeral homes take in a lot of money,” Casey said.
The tax “was the same for small companies as for the mega businesses like Lowe’s,” said Greg Heller, owner of Heller’s Seafood Market on Easton Road for 35 years. “That’s close to $3,000, and it makes it hard to compete with the big mercantile companies.”
Heller was one of 27 business owners to challenge the tax in Bucks County Court and Commonwealth Court, which both supported it, and the state Supreme Court, which ruled 6-0 against it.
The township is waiting for an order from Commonwealth Court before it starts mailing refund checks to the 150 businesses, representing about 15 percent of Warrington’s businesses, township manager Timothy Tieperman said.
Meanwhile, officials are “trying to get a handle on the amount” of the refunds, since some of the businesses have not been operating the entire time, Tieperman said.
For a company such as Heller’s, which paid the tax for five years, the refund would be about $13,000, he said.
“I have no idea what the interest will be, but it’s not a lot of money,” Tieperman said. “The interest rate was probably less than 1 percent.”
He could not say how the money would be handled for businesses that have closed.
Besides losing the more than $1 million, the township paid $40,000 to $50,000 in tax collection fees that cannot be recouped, plus thousands of dollars in legal fees, he said.
Officials had been thinking of raising the minimum if the tax was approved, Casey said. “A lot of towns would have followed suit if it was upheld.”
The ruling needs to be studied before officials can consider their options, Tieperman said. Next year’s $1.6 million budget, which was adopted Wednesday, does not include revenue from the tax.
The ruling was issued more than two years after the state Supreme Court heard arguments on Nov. 30, 2010.
“They can rule at any time,” Casey said. “We thought it fell behind a cabinet.”