UPMC Payroll Tax Challenge


By Casey Kuretich

In June of this year, the Court of Common Pleas of Allegheny County ruled on a dispute between the City of Pittsburgh (City) and UPMC regarding the entity’s payroll tax exemption.

The Court found in favor of UPMC’s position that the entity does not have employees, and therefore, did not owe payroll tax to the City.

Pittsburgh’s former mayor, Luke Ravenstahl, announced in March of 2013 that the City was launching a formal challenge to UPMC’s tax-exempt status with the filing of this lawsuit. Pittsburgh was seeking UPMC’s payment of six years worth of back payroll taxes, which is assessed at 0.55% of payroll expenses and is paid to the City quarterly.

Pittsburgh’s position included three requests for relief:

  1. That UPMC be declared an “employer” of all employees of all the subsidiaries, affiliates and other entities that it controls;
  2. That the Court declare that UPMC is not an Institution of Purely Public Charity and therefore is not exempt from the City’s payroll tax; and
  3. An order requiring UPMC to file quarterly Payroll Tax Returns covering all of its operations beginning from March 2007 to the present.

Judge R. Stantton Wettick, Jr., writing for the Court, stated that if Pittsburgh failed on the first request, it could not prevail on the remaining requests.

The Court noted that if this relief was granted, UPMC and its wholly-owned subsidiaries would be compressed into a single employer and UPMC would then be responsible for the reporting requirements for each of its subsidiaries and responsible for the payment of any payroll taxes based on the subsidiaries’ payments to its employees. Currently, UPMC is a parent holding company, which exists to hold UPMC’s debt and investments.

This legal entity has no employees, as reported on its Form 990 Return of Organization Exempt from Income Tax.

Judge Wettick concluded that there was no basis in law, either in Pennsylvania law or the Pittsburgh payroll tax ordinance, for the Court to disregard corporate form and compress several taxpayers into a single taxpayer.  He went on to state that this “narrow ruling…does not consider whether UPMC or any of its subsidiaries are charitable organizations.”

On July 25, 2014, Pittsburgh dropped its lawsuit against UPMC in an attempt to encourage cooperation between the City and its largest employer.

Cooperation may take the form of Payment In Lieu of Tax agreements (“PILOTs”)

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