At a Glance...

The Pennsylvania Department of Revenue's Board of Appeals is issuing orders purporting to "dismiss" large sales tax refund petitions and ordering the Bureau of Audits to take over. There are questions regarding the Department's authority to "dismiss" a refund petition and then conduct an audit, so taxpayers are well-advised to appeal any dismissal order to the Board of Finance and Revenue.

The Pennsylvania Department of Revenue's Board of Appeals (the "Board") is issuing orders dismissing large and complex sales and use tax refund petitions "without prejudice," while directing the Department's Bureau of Audits to open a field audit of the taxpayer filing the petition to "review the account" for accuracy. As discussed in this alert, an order of this type is not supported by Pennsylvania's procedural statutes and—even though the Board's dismissal orders may purport to be "without prejudice"—a taxpayer receiving such a notice should, nonetheless, appeal the order to protect its rights.

What's the background for these dismissal orders?

These orders are the result of a new program that the Department announced in a Bulletin issued in April 2017 to handle large and complex sales and use tax refund petitions.1 Under the Bulletin, the Department indicated that if a taxpayer files a "large" refund petition, the Department will—in its discretion—"dispose of a refund petition by issuing a decision" requiring a field audit to deal with the petition. The Bulletin specifically refers to claims of more than $100,000 as candidates for referral to audit. Institutionally, this means that the Department's Bureau of Audits, rather than the Department's Board of Appeals, would first review a refund petition.

But this is not a mere shuffling of the work flow within the Department. The "audit" anticipated by the Bulletin goes beyond an audit of the refund petition to include a full-blown audit of the taxpayer. Indeed, the Bulletin explicitly contemplates extending the audit to periods beyond the period covered by the refund petition. Additionally, the Bulletin makes clear that the audit will identify "underpayments" and "liabilities," which may culminate in an "assessment."

Taxpayers are rightly concerned about this new procedure, based on experiences with similar approaches taken by other states. Historically, in Pennsylvania, filing a refund claim has not triggered audits for underpayments.

There are some potential benefits to a review by the Bureau of Audits. For example, the Bulletin indicates that the Bureau of Audits would allow sampling to establish overpayments, and would allow overpayments to offset underpayments for purposes of netting the interest computation. Because the Board has not, historically, allowed the use of sampling in the context of a refund petition, and because it has not historically netted overpayments against underpayments, this new approach could be a benefit for some taxpayers.

Yet regardless of whether there are benefits to taxpayers, it is unclear how this process fits the statutory scheme. For example, the Department is required, within six months of the filing of the refund petition, to issue a determination "in accordance with law," and to "provide a written explanation of the basis for any denial of relief."2 Thus, under the statute, the Department must issue a written decision on the merits within six months.3 It is unclear that this statutory requirement is satisfied by the Board issuing a decision dismissing a petition on the merits "without prejudice," and ordering an audit that then goes beyond the six-month time limit.

Should taxpayers consider appealing these dismissal orders?

Any taxpayer that receives a decision and order from the Board dismissing its refund petition should appeal that order to the Board of Finance and Revenue. A timely appeal to the Board of Finance and Revenue is the only process allowed by the statute after the Board issues a decision and order denying a taxpayer's requested relief.4 There is no special statutory recognition of the dismissal of an order "without prejudice." Thus, our view is that until the validity of the Board's dismissal orders has been reviewed by a tribunal independent of the Department, the failure to appeal a dismissal order issued by the Board could expose a taxpayer to the risk that its refund rights will be forfeited.


1. Pennsylvania Department of Revenue Sales & Use Tax Bulletin 2017-01 (April 10, 2017).

2. 72 P.S. § 9703(c), (d).

3. 72 P.S. § 9703(c), (d). The six-month decision deadline may be extended, upon agreement with the taxpayer, for an additional six months.

4. 72 P.S. § 9704(a) ("Within 90 days after the mailing date of the department's notice of decision and order on a petition filed with it, a taxpayer may petition the board to review the decision and order of the department.").

This article is presented for informational purposes only and is not intended to constitute legal advice.