           IN THE COMMONWEALTH COURT OF PENNSYLVANIA

General Motors Corporation,                      :
                                                 :
                              Petitioner         :
                                                 :
                v.                               : No. 869 F.R. 2012
                                                 : Argued: September 10, 2019
Commonwealth of Pennsylvania,                    :
                                                 :
                              Respondent         :


BEFORE:       HONORABLE P. KEVIN BROBSON, Judge
              HONORABLE MICHAEL H. WOJCIK, Judge
              HONORABLE BONNIE BRIGANCE LEADBETTER, Senior Judge


OPINION BY JUDGE WOJCIK                                        FILED: November 21, 2019


              General Motors Corporation (GM) petitions for review of the order of
the Board of Finance and Revenue (F&R) sustaining a decision of the
Commonwealth of Pennsylvania (Commonwealth) Department of Revenue’s
(Department) Board of Appeals that denied GM’s petition for a refund of corporate
net income tax in the amount of $738,760 for the tax year ended December 31,
2001 (2001 Tax Year). At issue is the “net loss carryover” (NLC) provision
contained in Section 401(3)4.(c)(1)(A)(I) of the Tax Reform Code of 1971 (Tax
Code),1 for the 2001 Tax Year, which imposed a $2,000,000 cap on the amount of

       1
         Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §7401(3)4.(c)(1)(A)(I). This section
provides:

       (c)(1) The net loss deduction shall be the lesser of:

               (A)(I) For taxable years beginning before January 1, 2007, two
              million dollars ($2,000,000); . . . .
(Footnote continued on next page…)
loss a corporation could carry over from prior years as a deduction against its 2001
taxable income. This statutory cap created a non-uniform classification based
solely on whether the taxpayer’s income exceeded $2,000,000; taxpayers whose
income exceeded $2,000,000 paid the tax, while taxpayers whose income did not
exceed $2,000,000 did not. The parties agree that the cap violates the Uniformity
Clause of Article 8, Section 1 of the Pennsylvania Constitution.              See Nextel
Communications of the Mid-Atlantic, Inc. v. Commonwealth, 171 A.3d 682 (Pa.
2017), cert. denied, 138 S. Ct. 2635 (2018) (holding that a $3,000,000 flat-dollar
cap of the NLC provision violated the Uniformity Clause of the Pennsylvania
Constitution). However, they disagree regarding the appropriate remedy. To wit:
in order to cure the constitutional infirmity, either the $2,000,000 flat-dollar
deduction or the entire NLC provision must be severed from the Tax Code. Upon
review, we conclude that only the flat-dollar deduction must be severed from the
Tax Code, and we reverse F&R’s order and remand to F&R for recalculation and
the issuance of a refund.

                                     I. Background
              This matter involves GM’s petition for refund of Pennsylvania
corporate net income tax in the amount of $738,760 for the 2001 Tax Year.
According to the parties’ Stipulation of Facts, GM is a Delaware corporation,
engaged in the production and sale of motor vehicles throughout the United States,


(continued…)


72 P.S. §7401(3)4.(c)(1)(A)(I).   In 2001, this provision was formerly codified at 72 P.S.
§7401(3)4.(c)(1).


                                             2
including Pennsylvania. GM carried into the 2001 Tax Year net losses, as defined
under Section 401(3)4.(b) of the Tax Code, 72 P.S. §7401(3)4.(b), apportioned to
Pennsylvania in the amount of $202,276,343, which had accumulated since the tax
year ended December 31, 1995. For the 2001 Tax Year, GM’s taxable income
apportioned to Pennsylvania before accounting for any net loss deduction was
$9,394,999. Although GM carried losses into the 2001 Tax Year ($202,000,000)
that vastly exceeded its 2001 income ($9,300,000), GM took a net loss deduction
of only $2,000,000, which was the statutory cap on net loss deductions. After
accounting for the net loss deduction, GM reported taxable income apportioned to
Pennsylvania of $7,394,999, which resulted in a corporate net income tax liability
of $738,760, which GM paid in full. The Department accepted GM’s Tax Report
as filed and did not issue an assessment. Stipulation of Facts (S.F.), 12/14/18, Nos.
2-10.
             In February 2012, GM filed a petition for refund of Pennsylvania
corporate net income tax paid for the 2001 Tax Year with the Board of Appeals
claiming entitlement to a full refund based on its contention that the flat-dollar net
loss cap violated the Uniformity Clause of the Pennsylvania Constitution. GM
argued that, had the deduction not been limited to $2,000,000, it could have
deducted net losses equal to its taxable income, thereby reducing its taxable
income from $7,394,999 to $0, like the favored taxpayers. The Board of Appeals
denied the petition. GM timely appealed to F&R raising the same issues.
             F&R recited the applicable provisions of the Tax Code: “A net loss
for a taxable year is the negative amount for said taxable year determined under
subclause 1 or, if applicable, subclause 2. Negative amounts under subclause 1
shall be allocated and apportioned in the same manner as positive amounts.”


                                          3
Section 401(3)4.(b) of the Tax Code, 72 P.S. §7401(3)4.(b). Under subclause 1,
“The net loss deduction shall be the lesser of: (A)(I) For taxable years beginning
before          January       1,    2007,       two      million      dollars         ($2,000,000).”
72 P.S. §7401(3)4.(c)(1).
                  F&R denied GM’s request for relief because the Tax Code set the
limit on net loss deductions for the 2001 Tax Year at $2,000,000. As to GM’s
challenge to the validity and/or constitutionality of the statutory cap, F&R stated
that, as an administrative tribunal, it can only apply the current state of
Pennsylvania law and cannot pass upon the validity or constitutionality of that law.
See Parsowith v. Department of Revenue, 723 A.2d 659, 662 (Pa. 1999) (F&R is
not a competent tribunal to pass upon a challenge of a statute’s validity or
constitutionality); Philadelphia Life Insurance Co. v. Commonwealth, 190 A.2d
111, 116 (Pa. 1963) (same). Thus, on November 6, 2012,2 F&R affirmed the
decision of the Board of Appeals and denied GM’s petition for review of refund.
GM’s timely-filed petition for review to this Court followed.3, 4




         2
             F&R reached its decision prior to the Supreme Court’s Nextel decision.
         3
          This Court’s review in this matter is “de novo in nature, with no record being certified
by [F&R].” Pa. R.A.P. 1571; Andrews v. Commonwealth, 196 A.3d 1090, 1096 (Pa. Cmwlth.
2018). “Although the Court hears these cases under its appellate jurisdiction, the Court functions
essentially as a trial court.” Andrews, 196 A.3d at 1096 (citation omitted). Our decision is based
on either a record created before this Court or, as in this case, stipulated facts. Graham
Packaging Co., LP v. Commonwealth, 882 A.2d 1076, 1077 (Pa. Cmwlth. 2005).
         4
        Because the issue involved in this case was similar to the issue involved in Nextel,
which was then pending before this Court, the parties asked the Court to hold the matter in
abeyance pending disposition of Nextel.


                                                   4
                                     II. Issues
             In this appeal, GM argues that, as a matter of statutory construction,
Nextel requires that the $2,000,000 cap be stricken from the statute, leaving no cap
on the net loss deduction for the 2001 Tax Year, not the entire NLC provision.
Further, considering that some taxpayers have actually paid tax for 2001, while
others have not, GM contends the Due Process and Equal Protection Clauses of the
United States Constitution and the Remedies Clause of the Pennsylvania
Constitution require an actual (as opposed to hypothetical) equalization of the
relative tax positions of the taxpayers for 2001. See U.S. Const. amend. XIV, §1;
Pa. Const. art. VIII, §1. We must also determine whether the remedy in this case
should apply retroactively or prospectively.


                                  III. Discussion
                       A. Nextel & the Uniformity Clause
                                  1. Contentions
             GM asserts that, in the 2001 Tax Year, GM and 133 corporations had
their loss deductions limited because their income exceeded $2,000,000; if the
deductions had not been limited, those corporations could have applied their
carryover net losses to reduce their taxable income to zero. S.F. No. 15. By
contrast, over 15,000 other corporate taxpayers did not have their loss deductions
limited because their income fell below the $2,000,000 threshold; they were able to
deduct their total losses and reduce their taxable income to zero; and they paid no
tax. S.F. No. 14. GM maintains that the Uniformity Clause prohibits classification
by income and has done so for over 100 years. While GM’s appeal was pending,
the Supreme Court held in Nextel that a flat-dollar limitation on the loss deduction


                                         5
for the 2007 tax year violated the Uniformity Clause because it created two classes
of “taxpayers solely on the basis of their income.” 171 A.3d at 699-700. The
Court severed the unconstitutional flat-dollar limitation from the statute. Id. In
accordance with Nextel, GM seeks the same relief here.
              The Commonwealth responds that legislative intent is paramount in
this case of statutory severance. Whether the severance is limited to the flat-dollar
deduction or extended to the entire NLC provision requires ascertaining the
legislature’s intent in enacting the NLC provision.             According to the
Commonwealth, the legislative history, as analyzed by the Supreme Court in
Nextel, confirms that the General Assembly never intended an unlimited NLC
deduction, which would be the result if the flat-dollar deduction is severed.
Rather, the primary legislative intent is to protect the Commonwealth’s fiscal
health, which is served by severing the entire NLC provision. If the entire NLC
provision is severed, GM will not have overpaid its tax and will not be entitled to a
refund.


                                    2. Analysis
              The Uniformity Clause provides:

              All taxes shall be uniform, upon the same class of
              subjects, within the territorial limits of the authority
              levying the tax, and shall be levied and collected under
              general laws.
Pa. Const. art. VIII, §1. The test of uniformity is whether there is a reasonable
distinction and difference between the classes of taxpayers sufficient to justify
different tax treatment.    Allegheny County v. Monzo, 500 A.2d 1096, 1106
(Pa. 1985).


                                         6
            In Nextel, the Supreme Court examined whether the NLC provision
for the 2007 tax year, which restricted the amount of loss a corporation could carry
over from prior years as a deduction against its 2007 taxable income to whichever
is greater: 12.5% of the corporation’s 2007 taxable income or $3,000,000, violated
the Uniformity Clause. See 72 P.S. §7401(3)4.(c)(1)(A)(II).
            The Court opined that the Uniformity Clause prohibits classifying
taxpayers, including corporations, based on the amount of their income. Nextel.
“[C]lassifications based solely upon the quantity or value of the property being
taxed are arbitrary and unreasonable, and, hence, forbidden.” Nextel, 171 A.3d at
696.
            In determining whether the NLC provision violated the Uniformity
Clause, the Court did not “look at its language in a vacuum”; rather, it examined
how the statute “functions when applied to establish a corporation’s net income tax
liability.” Nextel, 171 A.3d at 698. The Court examined the long history of the
NLC deduction and the legislative intent behind the deduction.
            The General Assembly first introduced the deduction in 1980 to spur
business investment in Pennsylvania.      Nextel, 171 A.3d at 703.     However, a
recession that “severely impacted the state’s budgetary health” led to the
suspension of the deduction from 1991 through 1994. Id. at 704. In 1994, the
General Assembly reinstated the deduction, which included a flat-dollar cap for the
first time. The Court determined that “the overall structure of the NLC reflects the
legislature’s intent to balance the twin policy objectives of encouraging investment
(by allowing corporations to deduct some of the losses they sustain when making
such investments against their future revenues), and ensuring that the




                                         7
Commonwealth’s financial health is maintained (through the capping of the
amount of this deduction).” Id. at 704.
             The Court then examined the NLC provision for the 2007 tax year:

             Under its terms, the NLC allows any corporation with
             taxable income of $3 million or less in 2007 to fully
             deduct all net losses carried over from prior years up to
             the entire amount of its taxable income. As a result, such
             corporations pay no corporate net income taxes, given
             that the statutory tax rate of 9.9% is ultimately applied
             only to a corporation’s net income. [Section 402 of the
             Tax Code,] 72 P.S. § 7402(b). Thus, the NLC gives
             corporations with $3 million or less in taxable income,
             and carryover losses equaling or exceeding their taxable
             income, a de facto total exemption from paying the
             corporate net income tax. By contrast, corporations with
             taxable income over $3 million are not permitted to
             exempt their entire income from taxes, even if, like [the
             taxpayer], they have sufficient net losses from prior years
             to offset it. Instead, such corporations are limited in the
             amount of prior net losses they can claim to the greater of
             12.5% of their taxable income or $3 million, thereby
             requiring them to pay the corporate net income tax of
             9.9% on the remaining portion of their taxable income.

Nextel, 171 A.3d at 698-99. The Court determined that “the NLC, by allowing
corporations to take a flat $3 million [NLC] deduction against their taxable
income, has effectively created two classes of taxpayers among corporations which
have [NLC] deductions equal to or exceeding their taxable income.” Id. at 699.
Such a classification creates an exemption from taxation solely on the basis of
income, which runs afoul of the Uniformity Clause. Id. Thus, the Court concluded
that the NLC provision was unconstitutional as applied to the taxpayer based on its
inclusion of the $3,000,000 flat deduction. Id. at 701.



                                          8
               The Court then conducted a severability analysis. Nextel, 171 A.3d at
701; see Section 1925 of the Statutory Construction Act of 1972 (Statutory
Construction Act), 1 Pa. C.S. §1925 (requiring courts, in the event that “any
provision of any statute or the application thereof to any person or circumstance is
held invalid” to determine if the void provision may be severed from the remaining
valid portions of the statute). Section 1925 creates a general presumption of
severability for every statute, subject to two exceptions:

               (1) if the valid provisions are so essentially and
               inseparably connected with, and so depend upon, the
               void provision or application, that it cannot be presumed
               the General Assembly would have enacted the remaining
               valid provisions without the void one, or (2) if the
               remaining valid provisions, standing alone, are
               incomplete and incapable of being executed in
               accordance with the legislative intent.
Nextel, 171 A.3d at 703 (citation omitted).
               “In determining whether either of these two exceptions are applicable
to a particular statute, legislative intent is our Court’s guiding consideration.” Id.;
see also Saulsbury v. Bethlehem Steel Co., 196 A.2d 664, 666 (Pa. 1964) (“In
determining the severability of a statute . . . the legislative intent is of primary
significance.”). “The ‘touchstone’ for determining legislative intent in this regard
is to answer the question of whether, after severing the unconstitutional provisions
of a statute, ‘the legislature [would] have preferred what is left of its statute to no
statute at all.’” Nextel, 171 A.3d at 703 (quoting D.P. v. G.J.P., 146 A.3d 204, 216
(Pa. 2016)).
               The Supreme Court then considered the following three options:

               (1) sever the flat $3 million deduction from the remainder
               of the NLC; (2) sever both the $3 million and 12.5%
               deduction caps and allow corporations to claim an
                                           9
              unlimited net loss—the remedy chosen by the
              Commonwealth Court majority; or (3) strike down the
              entire NLC and, thus, disallow any [NLC].
Id. at 703. The Court determined that the first option of severing the $3,000,000
flat deduction from the remainder of the statute while preserving the percentage
cap5 was the most consistent with legislative intent because it furthered the
legislature’s twin policy objectives. Id. at 704. The Court explained:

              By striking this provision, all corporations for the tax
              year 2007 would be limited to taking a [NLC] deduction
              of 12.5% of their taxable income for that year. Thus,
              each corporation will be entitled to avail itself of a [NLC]
              deduction, as the legislature intended, but such deduction
              will be equally available to all corporations during that
              year, no matter what their taxable income. This fulfills
              the central tenet of the Uniformity Clause that the tax
              burden be borne equally by the class of taxpayers subject
              to paying it, inasmuch as it assures that all corporations
              will equally share in the obligation to pay corporate net
              income tax for tax year 2007.
Id. at 704-05. In the process, it explained that striking all caps in the NLC
provision (option (2)) contravened the legislature’s intent to limit this deduction to
protect the Commonwealth’s fiscal health by allowing unlimited net loss
deductions. Id. at 705. Alternatively, the Court reasoned that striking the entire
NLC provision (option (3)) would leave the taxpayer owing more corporate taxes
than it paid and contravened the legislature’s “intent to promote investment by
allowing every corporation doing business in Pennsylvania an opportunity to
benefit from this deduction.” Id. at 705.

       5
        For the tax years between 2007 and 2017, the NLC deduction included both a flat-dollar
cap and a percentage cap. See 72 P.S. §7401(3)4.(c)(1)(A)(II)-(VII). For the tax years between
1994 and 2006, the NLC deduction included only a flat-dollar cap.                See 72 P.S.
§7401(3)4.(c)(1)(A)(I).


                                             10
              In this case, we are dealing with the 2001 Tax Year, in which the
NLC’s dollar cap stood at $2,000,000. This limitation is the operational equivalent
of the cap the Supreme Court severed in Nextel. The parties agree the $2,000,000
flat deduction runs afoul of the Uniformity Clause based on Nextel. Consequently,
we must engage in a severability analysis.
              However, unlike the NLC provision at issue in Nextel, the NLC
provision here does not contain a percentage cap option. As a result, there are only
two severability options available:

              (1) sever the flat $2,000,000 deduction from the
              remainder of the NLC and allow corporations to claim an
              unlimited net loss; or

              (2) strike down the entire NLC and, thus, disallow any
              [NLC].
The Supreme Court determined neither one of these options satisfied both of the
General Assembly’s policy goals of promoting business investment while
maintaining the Commonwealth’s fiscal health.               Nextel, 171 A.3d at 704-05.
Unfortunately, the Supreme Court did not determine which of these divergent
goals would better serve the General Assembly’s intent. See id.
              While Nextel was pending before the Supreme Court, this Court faced
a similar predicament in RB Alden Corp. v. Commonwealth, 142 A.3d 169
(Pa. Cmwlth. 2016) (Alden I).6 In Alden I, as here, the NLC provision for the 2006
tax year contained a $2,000,000 flat cap, but no percentage cap. Alden I, 142 A.3d
at 185.    Upon determining that the $2,000,000 cap was unconstitutional, we
eliminated the cap from the NLC provision and remanded the matter to F&R to

       6
        Alden I also involved application of the tax benefit rule, which this Court declined to
adopt. 142 A.3d at 183-84. The tax benefit rule is not an issue here.


                                              11
calculate the taxpayer’s corporate net income tax without a cap. Id. at 186. This
enabled the taxpayer to claim an unlimited NLC deduction for the 2006 tax year.7
See id. Having decided the matter without the benefit of the Supreme Court’s
analysis in Nextel, this Court did not examine legislative intent when fashioning a
remedy to cure the constitutional infirmity. See id. On appeal, the Supreme Court,
by per curiam order, vacated this Court’s final order and remanded the matter “for
reconsideration in light of” Nextel. RB Alden Corp. v. Commonwealth, 194 A.3d
125 (Pa. 2018) (Alden III).8
              Nextel directs that legislative intent is paramount in a case of statutory
severance. 171 A.3d at 703. Given the divergent goals presented here, and the
absence of a third option that would satisfy both goals that was present in Nextel,
we must determine the General Assembly’s paramount intention. Commonwealth
v. Neiman, 84 A.3d 603, 614 (Pa. 2013). We start by examining the “‘main’
purpose” for the legislation. Neiman, 84 A.3d at 614.
              The General Assembly enacted the NLC provision to promote
business development in Pennsylvania. Nextel, 171 A.3d at 705. In the words of
its proponents, the purpose of the NLC provision was to:                  “assist new ‘high
technology’ businesses that were focused on the rapid development of new
products, as well as to assist existing construction and farming enterprises which



       7
         The Commonwealth and the taxpayer both filed timely exceptions. This Court
overruled the Commonwealth’s exceptions and dismissed the taxpayer’s exceptions as moot.
See RB Alden Corp. v. Commonwealth, 169 A.3d 727 (Pa. Cmwlth. 2017) (en banc) (Alden II).
       8
          Because the issue on remand in RB Alden Corp. v. Commonwealth (Pa. Cmwlth., No.
73 F.R. 2011, filed November 21, 2019) (Alden IV), is virtually identical to the issue presented
here, these matters were argued seriately before this Court on September 10, 2019.


                                              12
had been harmed by a recent recession.” Id. at 703-04 (quoting House Legislative
Journal, at 2579, Remarks by Representative Pott (November 18, 1980)).
               As the Supreme Court in Nextel recognized, the NLC provision has
been around in one form or another since 1981. Id. at 704. For the first ten years,
the NLC deduction was unlimited. Id. During a recession, the General Assembly
suspended the NLC provision for four years and, since 1994, has steadfastly
maintained a cap in various forms ever since to maintain the state’s fiscal health.
Id.
               The legislative enactments to suspend or limit the NLC deduction
clearly demonstrate the General Assembly’s “intent to limit this deduction” to
promote the Commonwealth’s fiscal health. Nextel, 171 A.3d at 705. But, is fiscal
health the primary objective of the NLC provision?
               Recently, in Safe Auto Insurance Company v. Oriental-Guillermo,
214 A.3d 1257, 1268 (Pa. 2019), our Supreme Court examined “divergent policy
concerns” in the context of determining the enforceability of an unlisted resident
driver exclusion (URDE) in a personal automobile insurance policy. At issue was
whether the URDE contravened the Motor Vehicle Financial Responsibility Law
(MVFRL)9 and its underlying “competing public policy concerns of remedial
coverage and cost containment.” Id. at 1268. Although cost containment is clearly
one of the policy concerns to be considered, the Court determined it was not “the
dominant public policy underlying the MVFRL.” Id. (emphasis added). Rather,
the dominant policy was the remedial purpose of the MVFRL, which was retained
from the prior regulatory scheme. Id.


      9
          75 Pa. C.S. §§1701-1799.7.


                                        13
             The same reasoning applies here. Although fiscal health is clearly one
of the policy concerns to be considered, and an important one at that, it is not the
dominant public policy underlying the NLC provision. In other words, it is not the
“main purpose” for the legislation. See Neiman. The main purpose of the NLC
provision, its raison d’être (reason for being), is to promote business investment in
the Commonwealth. The flat-dollar limitation serves as a public purse safeguard
that is ancillary to the overarching purpose of business promotion.
             Furthermore, the General Assembly has demonstrated an intent to
keep the NLC provision since its enactment, even during periods of economic
recession. Although the General Assembly suspended the deduction or placed a
cap on it, it never actually repealed the NLC provision. Cf. PPG Industries, Inc. v.
Board of Finance and Revenue, 790 A.2d 261, 269 (Pa. 2001) (in a case severing
the unconstitutional manufacturing exemption from the capital stock/franchise tax,
the Supreme Court observed that the General Assembly had first added the
exemption 45 years after the original statute was passed and then repealed and
reenacted it twice).
             Finally, Section 1925 of the Statutory Construction Act instructs:

             The provisions of every statute shall be severable. If any
             provision of any statute or the application thereof to any
             person or circumstance is held invalid, the remainder of
             the statute, and the application of such provision to other
             persons or circumstances, shall not be affected thereby,
             unless the court finds that the valid provisions of the
             statute are so essentially and inseparably connected with,
             and so depend upon, the void provision or application,
             that it cannot be presumed the General Assembly would
             have enacted the remaining valid provisions without the
             void one; or unless the court finds that the remaining
             valid provisions, standing alone, are incomplete and are


                                         14
             incapable of being executed in accordance with the
             legislative intent.
1 Pa. C.S. §1925. Indeed, “if the provisions are distinct and not so interwoven as
to be inseparable, . . . the courts should sustain the valid portions.” Saulsbury,
196 A.2d at 666. “[P]ublic policy . . . favors severability.” Nextel, 171 A.3d at
702 (quoting PPG Industries, 790 A.2d at 267).
             In this regard, the flat-dollar limitation is fully capable of separation
from the NLC provision. Only the flat-dollar limitation fails the uniformity test,
not the entire NLC provision. See Nextel, 171 A.3d at 703. The valid NLC
provisions are not “inseparably connected with” or “depend[ent] upon” the void
flat-dollar provision. See id. The valid NLC provisions, standing alone, are
complete and capable of execution. See Nextel, 171 A.3d at 703. As the history of
the NLC provision shows, this legislation has previously existed without a cap. By
excising only the flat-dollar limitation from the statute, the NLC provision serves
the General Assembly’s primary intent of promoting business investment in the
Commonwealth.
             Considering the intent and history of the NLC provision as well as a
public policy that favors severability, we believe that the General Assembly would
prefer “what is left of its statute to no statute at all.” Nextel, 171 A.3d at 703. For
these reasons, we find that the General Assembly’s intent is better served by
severing the offending portion (the flat-dollar $2,000,000 cap) as opposed to
striking the entire NLC provision.
             Notwithstanding, even if this Court was to determine that the General
Assembly would favor striking the entire NLC provision, the following
constitutional analysis leads us to the same conclusion that severing the flat-dollar



                                          15
provision is the only remedy that cures the constitutional infirmity in a meaningful
and adequate way.


          B. Due Process, Equal Protection and the Remedies Clause
                                   1. Contentions
             GM maintains that severing the flat-dollar limitation is the only
remedy that actually satisfies due process, equal protection and the Remedies
Clause.    Conversely, striking the entire NLC provision produces a mere
“hypothetical” equalization of the relative tax position of taxpayers in 2001, but in
actuality leaves intact the illegal non-uniform tax positions of the two classes based
solely on income: (1) GM and 133 other corporations that paid tax because their
net income exceeded the $2,000,000 cap (disfavored taxpayers); and (2) 15,000
others taxpayers that paid no tax because their net income did not (favored
taxpayers). Because the statute of limitations has closed, the Department cannot
go back and assess the favored taxpayers to disallow the net loss deductions that
they have already taken. GM maintains that due process, equal protection and the
Remedies Clause require “meaningful backward-looking relief” so that the actual
relative position of GM (and the other disfavored taxpayers) is “equival[ent] to the
position actually occupied by . . . [the] favored taxpayers.” McKesson Corp. v.
Division of Alcoholic Beverages and Tobacco, Department of Business Regulation
of Florida, 496 U.S. 18, 31, 42 (1990). These constitutional issues were not
addressed by the Supreme Court in Nextel. According to GM, the only way to
actually equalize the tax positions between disfavored and favored taxpayers in this
case is to sever the cap and issue GM a full refund of all taxes paid under the




                                         16
unconstitutional statute.      Such relief would actually put GM on par with the
favored taxpayers that paid no tax.
              The Commonwealth counters that prospective relief in this case is not
foreclosed by due process, equal protection or the Remedies Clause. It claims that
GM’s reliance on McKesson and progeny is misplaced. McKesson involved a state
tax law that was held invalid under the Commerce Clause (U.S. Const. art. I, §8).
The Commerce Clause is not involved here, nor is there any question of federal
law in this case. Contrary to GM’s assertions, the due process, equal protection
and McKesson arguments were fully briefed, argued and given due consideration
by the Supreme Court in Nextel and should not be reconsidered in this appeal.10
Although GM’s Remedies Clause argument is new, this constitutional provision is
currently being satisfied as GM is pursuing an equalization remedy through the
open courts. However, that remedy does not necessarily entitle GM to a refund.


                                         2. Analysis
                                       a. Due Process
              The Due Process Clause of the Fourteenth Amendment to the U.S.
Constitution provides that no state may “deprive any person of life, liberty, or
property, without due process of law.” U.S. Const. amend. XIV, §1. The maxim
of “where there is a legal right, there is also a legal remedy,” is the “essence of

       10
          The attorneys that represent GM in this matter also represented the taxpayer in Nextel.
GM concedes that the taxpayer in Nextel raised these constitutional arguments in its
supplemental appellee’s brief. Petitioner’s Reply Brief at 14. However, the Supreme Court did
not decide or address GM’s due process and equal protection arguments or cite McKesson in its
decision. See Nextel. In Pennsylvania, only a question that has been “conclusively decided” is
precedential. See William Penn School District v. Pennsylvania Department of Education, 170
A.3d 414, 462 (Pa. 2017).


                                               17
civil liberty.” Marbury v. Madison, 5 U.S. 137, 163 (1803). Every injury requires
“proper redress.” Id. at 147.
             In McKesson, the U.S. Supreme Court examined the requirements of
due process in a tax discrimination case. There, the state court properly struck
down a liquor tax as unconstitutional because it discriminated against interstate
commerce by giving preference for liquor made from state-grown crops. 496 U.S.
at 22.    Despite declaring the law unconstitutional, the state court applied
prospective relief and declined to provide a refund for any other form of post-
payment relief. Id.
             On appeal, the U.S. Supreme Court, in a unanimous decision, reversed
the state court’s failure to provide the taxpayer meaningful relief for its payment of
an unlawful tax. McKesson, 496 U.S. at 52. The Court opined that:

             The question before us is whether prospective relief, by
             itself, exhausts the requirements of federal law. The
             answer is no: If a State places a taxpayer under duress
             promptly to pay a tax when due and relegates him to a
             postpayment refund action in which he can challenge the
             tax’s legality, the Due Process Clause of the Fourteenth
             Amendment obligates the State to provide meaningful
             backward-looking relief to rectify any unconstitutional
             deprivation.
Id. at 31 (footnotes omitted).
             The U.S. Supreme Court ruled that “a State found to have imposed an
impermissibly discriminatory tax retains flexibility in responding to this
determination” so long as that remedy is meaningful. Id. at 39-40. Where a state
“offers a meaningful opportunity for taxpayers to withhold contested tax
assessments and to challenge their validity in a predeprivation hearing,” the
“availability of a predeprivation hearing constitutes a procedural safeguard . . .


                                         18
sufficient by itself to satisfy the Due Process Clause.” Id. at 38 n.21. If no such
predeprivation remedy exists, “the Due Process Clause of the Fourteenth
Amendment obligates the State to provide meaningful backward-looking relief to
rectify any unconstitutional deprivation.”      Id. at 31 (footnote omitted).      In
providing such relief, a state may award a full tax refund to the taxpayer or some
other order that “create[s] in hindsight a nondiscriminatory scheme.” Id. at 40.
             The U.S. Supreme Court explained that due process is satisfied only if
the “position” that the taxpayer occupies at the end of the day is “equivalen[t] to
the position actually occupied by the [taxpayer’s] favored competitors.”
McKesson, 496 U.S. at 42. It is insufficient to merely “place [a taxpayer] in the
same tax position that [the taxpayer] would have been placed by . . . a
hypothetical” reformation of a discriminatory statute. Id. at 41.
             As the Pennsylvania Supreme Court explained:

             The [McKesson] Court did not bind the state’s hands in
             choosing what type of backward[-]looking remedy it
             would employ. Rather, the Court held that State could
             cure the invalidity by: (1) refunding the difference
             between the tax paid and the tax that would have been
             assessed had the taxpayer been granted the unlawful
             exemption; (2) assessing and collecting back taxes, to the
             extent consistent with other constitutional restrictions,
             from those who benefited from the unlawful exemption
             during the contested tax period, calibrating the
             retroactive assessment to create in hindsight a
             nondiscriminatory scheme; or (3) applying a combination
             of a partial refund and a partial retroactive assessment, so
             long as the resultant tax actually assessed during the
             contested tax period reflects a scheme that does not
             discriminate against interstate commerce.




                                         19
Annenberg v. Commonwealth, 757 A.2d 338, 349-50 (Pa. 2000), cert. denied sub
nom. Annenberg v. Board of Commissioners of Montgomery County, 531 U.S. 959,
(2000) (footnote omitted).
              The Commonwealth argues that McKesson does not apply here
because the present case does not involve a violation of the Commerce Clause or a
question of federal law. However, the Commonwealth cites no authority and
offers no persuasive reason to apply the analysis in McKesson so narrowly.
              To the contrary, the Courts of this Commonwealth have previously
recognized that McKesson dictates that some retroactive remedy is necessary to
remedy an unconstitutional tax statute, whatever the root of the constitutional
infirmity may be. See PPG Industries, 790 A.2d at 270 (McKesson “dictates that
some retroactive remedy” is necessary to rectify “prior unconstitutional
discrimination”);11 Automobile Trade Association of Greater Philadelphia v. City
of Philadelphia, 596 A.2d 794 (Pa. 1991) (recognizing that McKesson’s due
process principles are relevant to vindicate a taxpayer’s rights under the
Uniformity Clause, but remanding for a determination as to whether the challenged
mercantile license tax was unconstitutional); Z & R Cab, LLC v. Philadelphia
Parking Authority, 187 A.3d 1025 (Pa. Cmwlth. 2018) (applying McKesson’s
analysis in determining that the taxicab licensees could be entitled to recover a
portion of their fees and assessments paid under an unconstitutional state statute
that violated their due process rights); Lebanon Valley Farmers Bank v.
Commonwealth, 27 A.3d 288 (Pa. Cmwlth. 2011), rev’d on other grounds, 83 A.3d
107 (Pa. 2013) (upon determining that a share tax was unconstitutional because it

       11
           The challenged tax in PPG Industries discriminated against interstate commerce and
violated the Commerce Clause.


                                             20
violated the Uniformity Clause, this Court relied on McKesson in holding that
meaningful retrospective relief was warranted); Dunn v. Board of Property
Assessment, Appeals and Review of Allegheny County, 877 A.2d 504, 516-17 (Pa.
Cmwlth. 2005), aff’d, 936 A.2d 487 (Pa. 2007) (determining that the statutory
scheme under which aggrieved taxpayers could obtain a refund of purportedly
unlawful property taxes satisfied the Due Process Clause as contemplated by
McKesson); Fidelity Bank, N.A. v. Commonwealth By and Through Department of
Revenue, 645 A.2d 452, 456 (Pa. Cmwlth. 1994) (stating that “[i]n general, under
McKe[s]son, the relief given must be equivalent to the monetary interest lost by
the banks [(that paid improper single excise taxes)] because of the requirement to
pay the . . . taxes prior to challenging the tax scheme” and holding that relief in the
form of credits, as opposed to cash refunds, “fit[] within the concept of
‘meaningful backward-looking relief’ required under the constitution”).
                Here, Pennsylvania relegates taxpayers to postpayment refund actions
in which they may challenge the accuracy and legal validity of their tax obligation.
Section 3003.2(a)(1) of the Tax Code12 provides every corporation subject to the
corporate net income tax “shall make payments of estimated corporate net income
tax.” Sections 3003.5 and 3003.6 of the Tax Code13 set forth the procedure for
seeking a postpayment refund. Pennsylvania penalizes taxpayers for failing to
remit taxes in a timely fashion. See Section 3003.7 of the Tax Code14 (a person
that fails to make a payment is subject to penalties and interest).                  Therefore,


      12
           Added by the Act of July 1, 1985, P.L. 29, as amended, 72 P.S. §10003.2(a)(1).
      13
           Added by the Act of June 16, 1994, P.L. 279, as amended, 72 P.S. §§10003.5, 10003.6.
      14
           Added by the Act of June 16, 1994, P.L. 279, 72 P.S. §10003.7.
(Footnote continued on next page…)
                                               21
McKesson requires us to consider the due process requirement of providing
taxpayers with a meaningful retrospective remedy.
                Applying McKesson to the matter at hand, we reexamine the available
remedies: severing the entire NLC provision or severing the cap. Severing the
entire NLC provision would theoretically equalize tax positions by eliminating any
deduction and require all taxpayers to pay tax by removing the deduction
completely. Under this approach, GM correctly paid the tax. Hypothetically, the
nonpaying taxpayers would now owe tax. However, in actuality, because the
three-year statute of limitations has passed, those taxpayers that previously did not
owe or pay the tax would not be subject to assessment for the 2001 Tax Year. See
Section 407.3(a) of the Tax Code15 (“Tax may be assessed within three years after
the date the report is filed.”).         Consequently, the actual disparity of the tax
positions between the classes would remain: those that paid tax (unfavored) and
those that did not (favored) for the 2001 Tax Year. Under McKesson, restoring
GM to a “‘hypothetical’ nondiscriminatory scheme does not in hindsight avoid the
unlawful deprivation.” 496 U.S. at 43. It still, in fact, treats GM worse than the
favored taxpayers that paid no tax, thereby perpetuating the Uniformity Clause
violation during the contested tax period. See id.
                Conversely, if the $2,000,000 cap is severed from the NLC provision,
GM would be entitled to a full refund of the taxes paid for the 2001 Tax Year.
This would place GM in the same tax position as the favored taxpayers that paid no


(continued…)

      15
           Added by the Act of October 18, 2006, P.L. 1149, 72 P.S. §7407.3(a).


                                               22
tax for the 2001 Tax Year.       Under McKesson, severance of the flat-dollar
deduction is the only way to satisfy due process and provide GM a meaningful
remedy for unlawful tax collection. Any lesser remedy would have a chilling
effect on taxpayers that wish to make such challenges.

                               b. Equal Protection
            Next, the Equal Protection Clause of the Fourteenth Amendment to
the U.S. Constitution provides that no state may “deny to any person . . . the equal
protection of the laws.” U.S. Const. amend. XIV, §1. “The Equal Protection
Clause applies only to taxation which in fact bears unequally on persons or
property of the same class.” Allegheny Pittsburgh Coal Co. v. County Commission
of Webster County, West Virginia, 488 U.S. 336, 343 (1989) (citation and internal
quotation omitted). “The [E]qual [P]rotection [C]lause . . . protects the individual
from state action which selects him out for discriminatory treatment by subjecting
him to taxes not imposed on others of the same class.” Id. at 345.
            A state law that does not target a protected class is subject to rational
basis review. Armour v. City of Indianapolis, Indiana, 566 U.S. 673, 680 (2012).
This means that “if there is a rational relationship between the disparity of
treatment and some legitimate governmental purpose,” the law will meet the
standard.   Id.   In creating classifications and distinctions in tax statutes,
“[l]egislatures have especially broad latitude.”     Id. (citation omitted); accord
Allegheny Pittsburgh Coal, 488 U.S. at 344. “If the selection or classification is
neither capricious nor arbitrary, and rests upon some reasonable consideration of
difference or policy, there is no denial of the equal protection of the law.”
Allegheny Pittsburgh Coal, 488 U.S. at 344.



                                        23
             Although the rational basis standard is relatively lax, when a tax
classification violates a state’s own law, it cannot meet the standard.         See
Allegheny Pittsburgh Coal, 488 U.S. at 345. For example, in Allegheny Pittsburgh
Coal, the U.S. Supreme Court examined a local taxing scheme, which valued some
properties based on recent purchase prices. The Supreme Court determined that
the tax scheme ran afoul of the state’s (West Virginia) constitution, which provided
that all property shall be taxed in proportion to its value.          The relative
undervaluation of comparable property in the county denied the taxpayers of equal
protection of the law. 488 U.S. at 346. As for the remedy, the Court ruled that “[a]
taxpayer in this situation may not be remitted by the State to the remedy of seeking
to have the assessments of the undervalued property raised.” Id. “The [Equal
Protection Clause] is not satisfied if a State does not itself remove the
discrimination, but imposes on him against whom the discrimination has been
directed the burden of seeking an upward revision of the taxes of other members of
the class.” Id.
             Here, as in Allegheny Pittsburgh Coal, the Pennsylvania Constitution
requires uniform state taxation.     Pa. Const. art. VIII, §1.      In Nextel, the
Pennsylvania Supreme Court determined that the NLC’s flat-dollar deduction
limitation created a non-uniform classification in violation of the Pennsylvania
Constitution.     Equal protection requires the Commonwealth to remove the
discrimination. See Allegheny Pittsburgh Coal. Both of the severability options
remove the discrimination, thereby satisfying equal protection.

                               c. Remedies Clause
             The Remedies Clause of the Pennsylvania Constitution provides: “All
courts shall be open; and every man for an injury done him in his lands, goods,

                                        24
person or reputation shall have remedy by due course of law.” Pa. Const. art. VIII,
§1. Our Supreme Court has said: “the right to sue the Commonwealth for the
recovery of money or taxes alleged to have been erroneously paid to it exists only
by the grace of the Legislature.” Land Holding Corp. v. Board of Finance and
Revenue, 130 A.2d 700, 703 (Pa. 1957). “Where a State through its Legislature
consents to be sued, the modes, terms and conditions of the statute conferring such
privilege and authorizing refunds must be strictly construed and followed.” Id.
             Here, GM is exercising its right to pursue a tax refund consistent with
the rights granted to it by the General Assembly. The “due course of law” includes
the statutorily prescribed administrative review before F&R and the judicial review
process. The court is “open” to GM and is considering GM’s claims. In this
regard, GM’s rights under the Remedies Clause are being met. While GM is
entitled to a remedy in this matter, it is not necessarily entitled to a refund under
the Remedies Clause.

                             C. Retroactivity of Nextel
                                   1. Contentions
             Lastly, we must address whether the remedy in this matter is applied
prospectively or retroactively.      The Commonwealth argues that, where the
Pennsylvania Supreme Court invalidates a tax statute under the state constitution,
as it did in Nextel, the decision takes effect as of the date of the decision and is not
applied retroactively. Oz Gas, Ltd. v. Warren Area School District, 938 A.2d 274,
278 (Pa. 2007); American Trucking Associations, Inc. v. McNulty, 596 A.2d 784,
787 (Pa. 1991). The Commonwealth argues that any remedy in this case should be
fashioned under this principle. Relying on Chevron Oil Company v. Huson, 404
U.S. 97 (1971) (plurality), the Commonwealth contends that if a court changes the

                                          25
law and announces an entirely new principle of law, that court may continue to
apply the old principle of law to events occurring before the change.            The
Commonwealth maintains that a retroactive application of the law is inapplicable
here because Nextel announced a new principle of law.           Prior to Nextel, the
Pennsylvania courts have consistently held that the Uniformity Clause was
satisfied in the corporate net income tax context where the same statutory rate was
applied to the same tax base.       The dollar limitations that were imposed in
calculating the tax base had not been held to violate uniformity until the Nextel
decision. The NLC’s flat-dollar deduction limitation was unconstitutional because
it resulted in varying effective tax rates. The Supreme Court established new law
in holding for the first time that a flat-dollar limitation was unconstitutional, thus
warranting prospective application. Under a prospective application of Nextel to
the present case, GM is not entitled to a refund.
             GM responds that the only way to achieve “meaningful backward-
looking relief” as required by McKesson is by a retroactive application of Nextel.
GM argues that the Commonwealth cannot defend prospective-only application
under Chevron and its progeny, Oz Gas and McNulty. GM argues that Nextel did
not establish a new principle of law. Rather, the Supreme Court in Nextel applied a
straightforward reading of the Uniformity Clause, consistent with over 100 years
of precedent, that the Uniformity Clause is satisfied when the same tax rate is
applied and is not satisfied when the rate is not uniform. In Nextel, the Court held
that the flat-dollar limitation on the NLC deduction produced a non-uniform
statutory rate contrary to the Uniformity Clause. According to GM, this is not a
new pronouncement of the law. Furthermore, the Commonwealth did not carry its
burden on the other prongs of the Chevron test.


                                         26
                                     2. Analysis
             In Chevron, the U.S. Supreme Court fashioned a three-factor test for
determining when the relief should apply retroactively or prospectively. 404 U.S.
at 106-07. Those three factors examine: (1) whether the decision establishes a new
principle of law; (2) whether retroactive application of the decision will further the
operation of the decision; and (3) the relevant equities. Id. In short, the Court held
that if there is a change in law, due process may still be satisfied by the continued
application of the old, long-standing principle of law up through the date of the
change. Id. However, if there has been no change in law, a litigant is entitled, as a
matter of due process of that law, to have the long-standing law applied to it. Id.
             In Oz Gas and McNulty, the Pennsylvania Supreme Court applied the
three-factor test from Chevron. In Oz Gas, Pennsylvania taxpayers had “for nearly
100 years . . . paid ad valorem taxes on oil and gas interests” in reliance on past
precedent, which held that oil and gas was taxable as real estate. 938 A.2d at 279.
The Pennsylvania Supreme Court’s holding in Independent Oil and Gas
Association v. Board of Assessment Appeals of Fayette County, 814 A.2d 180 (Pa.
2002) (IOGA), precluded counties from collecting taxes on oil and gas reserves
that remain in the ground. Oz Gas, 938 A.2d at 276. With regard to whether
IOGA should apply retroactively to past taxes, the Court determined that IOGA
represented a departure from decades of taxation of oil and gas interest, upon
which the taxing authorities had relied. Oz Gas, 938 A.2d at 283. “The decision in
IOGA established a new principle of law in that, prior to the decision, these sorts of
taxes were deemed collectible pursuant to statute and precedent.” Id. The Court
determined that the other two Chevron factors also supported a prospective-only
holding. Id. “Applying IOGA retroactively would not forward the operation of the


                                         27
decision because the decision speaks for itself and clearly establishes that the taxes
are uncollectible going forward. And, finally, the equities weigh heavily in favor
of prospective-only application.”     Id.        The Court explained that requiring a
refunding of the taxes would cause substantial financial hardship to the
communities involved and the taxpayers would receive substantial relief from a
prospective-only application.
             Similarly, in McNulty the Pennsylvania Supreme Court determined
that any relief due was prospective only. 596 A.2d at 789. There, a trucking
association challenged Pennsylvania’s axle tax and marker fees, which were
assessed against common carriers. Id. at 784. The U.S. Supreme Court ruled that
such taxes and fees, when charged to carriers engaged in interstate commerce,
violated the Commerce Clause of the U.S. Constitution.             American Trucking
Associations, Inc. v. Scheiner, 483 U.S. 266 (1987).
             In McNulty, the Pennsylvania Supreme Court was charged with
determining whether the Scheiner decision entitled the trucking association to a
refund of taxes previously paid.      While the McNulty matter was pending on
remand, the U.S. Supreme Court determined that Scheiner applied prospectively
only.   American Trucking Associations, Inc. v. Smith, 496 U.S. 167 (1990)
(plurality opinion).    Applying the Chevron test, the U.S. Supreme Court
determined that: (1) the decision in Scheiner clearly established a new principle of
law by declaring the highway taxes unconstitutional pursuant to the Commerce
Clause; (2) retroactive application of the Scheiner decision would not forward the
operation of the decision; and (3) the relevant equities dictated prospective
application because the legislature did not believe the taxes to be unconstitutional,
the taxing authorities collected taxes that the authorities reasonably believed were


                                            28
valid, and refunding the taxes could deplete the state treasury. Id. at 179-82. In
McNulty, the Pennsylvania Supreme Court embraced the logic employed in Smith
and determined that the Scheiner decision applied prospectively only. 596 A.2d at
787.
             Applying the foregoing here, with regard to the first prong, in Nextel,
the Pennsylvania Supreme Court made it clear that, in finding that the net loss cap
violated uniformity, it merely needed to apply existing case law to which it had
“steadfastly adhered” for “over a century.” Nextel, 171 A.3d at 696-97. The
Supreme Court cited years of precedent for the principle that it has “consistently
viewed as unconstitutional tax laws which . . . wholly exempt some of those
taxpayers from paying tax.” Id. at 697; see, e.g., Saulsbury (holding that the
Uniformity Clause proscribes the unequal treatment of certain individuals based
upon their income); Kelley v. Kalodner, 181 A. 598 (Pa. 1935) (holding that a
graduated-rate income tax violated the Uniformity Clause); In re Cope’s Estate,
43 A. 79 (Pa. 1899) (holding that a flat $5,000 property exemption applicable to all
estates for purposes of the Pennsylvania Inheritance Tax violated the Uniformity
Clause as it resulted in the unjust, arbitrary and illegal classification of similarly
situated taxpayers based solely on a difference in the amount of property in the
estate). Unlike in Oz Gas and McNulty, the Nextel Court did not overrule prior
precedent.   Consequently, the Supreme Court in Nextel did not apply a new
principle of law, but rather applied the long-standing principle that tax uniformity
prohibits classification based on quantity of income. Id.
             As for the second prong, the Commonwealth argues that a retroactive
application would not forward the operation of the decision. It maintains that if the
entire NLC provision is severed, a retroactive application would result in a higher


                                         29
tax burden for GM because it would lose the benefit of the statutory net loss
deduction of $2,000,000. The Commonwealth explains:

               [D]isallowing the NLC deduction entirely on a
               retroactive basis would not forward the operation of the
               decision because the decision could not be enforced
               retroactively. GM received the benefit of the statutory net
               loss deduction of $2,000,000 in calculating its tax
               liability. Disallowing the deduction entirely would
               actually result in a higher tax burden for GM. However,
               the Commonwealth recognizes that the three-year statute
               of limitations to issue an assessment has closed with
               respect to the present 2001 Tax Year.
Respondent’s Brief at 19 (citations omitted).                Conversely, if only the cap is
severed, retroactive application would serve to equalize the tax positions of the two
classes by reducing GM’s tax liability to zero, which is the same tax position of the
favored taxpayers. Equalizing the tax positions furthers the Nextel decision.
               With regard to the third prong, even if Nextel had announced a new
principle of law, the Commonwealth has not met its burden to show that it would
be inequitable to apply that new principle retroactively.                   The Commonwealth
argues that if the dollar cap is severed and the remedy is retroactively applied, it
will face significant refund claims from similarly situated taxpayers seeking an
unlimited NLC deduction.16             The Commonwealth claims that this significant
financial exposure favors prospective-only application. Indeed, it is difficult to

       16
           The Commonwealth asserts that its total tax exposure would be $37,000,000. As GM
points out, this figure is not part of the record developed before this Court. The only amounts in
the record are the $738,760 tax paid by GM and $0 tax paid by the 15,395 other taxpayers. See
S.F. Nos. 9, 14, 15. This matter is limited to GM and the 2001 Tax Year. “The applicability of a
judicial pronouncement to other litigants or potential litigants is a matter of judicial discretion to
be resolved on a case-by-case basis.” First National Bank of Fredericksburg v. Commonwealth,
553 A.2d 937, 941 (Pa. 1989).



                                                 30
imagine any scenario involving a substantial tax question that would not have a
multi-million dollar impact.17        However, the Commonwealth did not present
evidence regarding this tax burden beyond the refund it would owe GM. It has not
shown that the Commonwealth’s financial health will be impaired. Thus, it did not
carry its burden of showing the inequities present here. We, therefore, conclude
that Chevron does not prohibit retroactive application of a remedy in this case.




       17
           Although we recognize that the Commonwealth may face significant refund claims
from similarly situated taxpayers, we also recognize that the Commonwealth may see a
tremendous increase in revenue from corporate net income tax. In response to the Nextel
decision, the General Assembly amended the NLC provision for taxable year 2018 and onwards
to include only a percentage cap. See Section 401(3)4.(c)(1)(A)(VII), (VIII) of the Tax Code, 72
P.S. §7401(3)4.(c)(1)(A)(VII), (VIII) (capping the deduction at 30 percent of taxable income for
tax years beginning after December 31, 2017, and 35 percent for tax years beginning after
December 31, 2018). This means that corporations that paid no corporate net income tax in
previous years will now be paying tax.

        Moreover, there are “a number of procedural protections a state could adopt to allow for
sound fiscal planning while maintaining the ability to provide relief for taxes unlawfully
collected.” Automobile Trade Association, 596 A.2d at 796 (citing McKesson, 496 U.S. at 44).
To wit:
              [I]n the future, States may avail themselves of a variety of
              procedural protections against any disruptive effects of a tax
              scheme’s invalidation, such as providing by statute that refunds
              will be available to only those taxpayers paying under protest, or
              enforcing relatively short statutes of limitation applicable to refund
              actions. [(“[T]he State might, for example, provide by statute that
              refunds will be available only to those taxpayers paying under
              protest or providing some other timely notice of complaint . . . .”)].
              Such procedural measures would sufficiently protect States’ fiscal
              security when weighed against their obligation to provide
              meaningful relief for their unconstitutional taxation.

Dunn, 877 A.2d at 517 (quoting McKesson, 496 U.S. at 50) (citation omitted).


                                              31
                                  IV. Conclusion
            Upon review, we find that the General Assembly’s intent is better
served by severing the offending portion – the flat-dollar $2,000,000 cap – as
opposed to striking the entire NLC provision. This remedy satisfies due process by
providing “meaningful backward-looking relief,” where striking the entire NLC
does not. See McKesson, 496 U.S. 18, 42. Retroactive application is not precluded
under Chevron. For these reasons, we reverse F&R’s order and remand the matter
to F&R to recalculate GM’s corporate net income tax without capping the amount
that it can take on its NLC and issue a refund for the 2001 Tax Year.




                                      MICHAEL H. WOJCIK, Judge

Judge Fizzano Cannon did not participate in the decision of this case.




                                        32
              IN THE COMMONWEALTH COURT OF PENNSYLVANIA

General Motors Corporation,                      :
                                                 :
                                Petitioner       :
                                                 :
                   v.                            : No. 869 F.R. 2012
                                                 :
Commonwealth of Pennsylvania,                    :
                                                 :
                                Respondent       :



                                             ORDER


                 AND NOW, this 21st day of November, 2019, the order of the
Commonwealth of Pennsylvania, Board of Finance and Revenue (F&R) dated
November 6, 2012, is REVERSED, and this matter is REMANDED to F&R to
recalculate General Motors Corporation’s (Petitioner) corporate net income tax
without capping the amount that it can take on its net loss carryover deduction and
issue a refund for the tax year ended December 31, 2001. Unless exceptions are
filed within thirty (30) days pursuant to Pa. R.A.P. 1571(i), this Order shall
become final.1



                                              __________________________________
                                              MICHAEL H. WOJCIK, Judge


        1
            Petitioner’s Application for Summary Relief, filed February 19, 2018, is dismissed as
moot.
           IN THE COMMONWEALTH COURT OF PENNSYLVANIA


General Motors Corporation,                  :
                        Petitioner           :
                                             :
                 v.                          :    No. 869 F.R. 2012
                                             :    Argued: September 10, 2019
Commonwealth of Pennsylvania,                :
                     Respondent              :


BEFORE: HONORABLE P. KEVIN BROBSON, Judge
        HONORABLE MICHAEL H. WOJCIK, Judge
        HONORABLE BONNIE BRIGANCE LEADBETTER, Senior Judge


CONCURRING AND DISSENTING
OPINION BY JUDGE BROBSON                          FILED: November 21, 2019


                 I agree with the majority’s analysis and conclusion with respect to the
constitutionality of the net loss carryover (NLC) deduction provision for the tax year
ending December 31, 2001 (2001 Tax Year), which caps the deduction at
$2 million.1 The cap discriminates against taxpayers based solely on the amount of
income and, therefore, violates the Uniformity Clause of the Pennsylvania
Constitution.2 Nextel Commc’ns of the Mid-Atlantic, Inc. v. Dep’t of Revenue,
171 A.3d 682, 696 (Pa. 2017) (Nextel II), cert. denied, 138 S. Ct. 2635 (2018).
I, therefore, concur with this portion of the majority’s analysis and disposition.
                 As much as I would like to agree with the majority’s severance analysis
and its decision to award General Motors Corporation (GM) an unlimited NLC

       1
        Section 401(3)4.(c)(1)(A)(I) of the Act of March 4, 1971, P.L. 6, as amended, 72 P.S.
§ 7401(3)4.(c)(1)(A)(I).
       2
           Pa. Const. art. VIII, § 1.
deduction for the 2001 Tax Year, I must respectfully dissent as to this portion of the
majority’s decision. For the reasons set forth below, I believe that the Pennsylvania
Supreme Court’s decision in Nextel II precludes this Court from granting this relief
to GM.
               In Nextel Communications of Mid-Atlantic, Inc. v. Commonwealth,
129 A.3d 1 (Pa. Cmwlth. 2015) (en banc) (Nextel I), this Court addressed a
Uniformity Clause challenge to the NLC deduction provision for the tax year ending
December 31, 2007 (2007 Tax Year), found in Section 401(3)4.(c)(1)(A)(II) of the
Tax Reform Code of 1971 (Tax Reform Code).3 The taxpayer in that case, Nextel,
claimed that the two statutory caps on the NLC deduction for that year—the greater
of (1) 12.5% of taxable income or (2) $3 million—worked in tandem to allow
taxpayers with taxable income below $3 million the opportunity to fully offset their
corporate net income tax liability for 2007 through the NLC deduction, while larger
taxpayers (taxable incomes above $3 million), like Nextel, could not. This inequity,
Nextel claimed, created separate classes of taxpayers based solely on income level
in violation of the Uniformity Clause.
               In Nextel I, this Court held that the NLC deduction provision for
the 2007 Tax Year violated the Uniformity Clause, at least with respect to Nextel.
Nextel I, 129 A.3d at 8-11. Rather than look to how to modify the statutory provision
to remove the constitutional infirmity, by striking or severing the offending
provision from the statute, the Court focused instead on how to remedy the wrong
to Nextel. Indeed, on the separate question of modifying the statutory provision, we
observed:
               [S]triking the $3 million cap . . . would only serve to
               highlight the fact that while Nextel paid what it was
      3
          Act of March 4, 1971, P.L. 6, as amended, 72 P.S. § 7401(3)4.(c)(1)(A)(II).

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             supposed to pay, many corporate net income taxpayers in
             the 2007 Tax Year benefitted from the discriminatory cap
             and thus underpaid their corporate net income taxes—i.e.,
             they benefitted from the unconstitutional provision.
             Without more, then, an order declaring the $3 million cap
             unconstitutional and striking it from the statute does not
             remedy the constitutional violation.
Nextel I, 129 A.3d at 13 (emphasis in original).
                On the question of remedy, we first noted the general similarities
between Uniformity Clause challenges and challenges under the Equal Protection
Clause to the United States Constitution.4 Relying on precedent from the United
States Supreme Court, the Pennsylvania Supreme Court, and this Court,5 we opined
that Nextel was entitled to some form of affirmative relief to address the
constitutional harm that it suffered. The only appropriate way to address the
inequitable treatment “was to place the discriminated taxpayer in the same position
as the benefitted taxpayers.” Id. Because the unconstitutional $3 million cap
benefitted small taxpayers by allowing them to reduce their tax liability to $0 in
2007, but prevented larger taxpayers from doing the same, we held that Nextel must
be allowed to also reduce its tax liability for the 2007 Tax Year to $0, reasoning:
                       Under Molycorp, Iowa–Des Moines National Bank,
                and Tredyffrin-Easttown School District, the unequal
                treatment suffered by Nextel must be remedied, and it can
                only be remedied in one of two ways—the favored
                taxpayers pay more or Nextel pays less. The latter is the
                only practical solution. Nextel seeks a refund of corporate
                net income tax paid in 2007. This is an appropriate
                remedy. Like similarly-situated taxpayers with $3 million
                or less taxable income in the 2007 Tax Year, Nextel should

       4
           U.S. Const. amend. XIV, § 1.
       5
         Iowa-Des Moines Nat’l Bank v. Bennett, 284 U.S. 239 (1931); Cmwlth. v. Molycorp, Inc.,
392 A.2d 321 (Pa. 1978) (citing Iowa-Des Moines Nat’l Bank with approval); Tredyffrin-Easttown
Sch. Dist. v. Valley Forge Music Fair, Inc., 627 A.2d 814 (Pa. Cmwlth.), appeal denied, 647 A.2d
513 (Pa. 1993).

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               be permitted under the NLC deduction provision to reduce
               its taxable income to $0 by virtue of its positive net
               operating loss position that tax year.
Id.
               In Nextel II, the Pennsylvania Supreme Court affirmed in part and
reversed in part. In doing so, the Supreme Court issued three distinct holdings. First,
it agreed with this Court that the NLC deduction provision for the 2007 Tax Year,
particularly the $3 million cap on the allowed deduction, violated the Uniformity
Clause. Nextel II, 171 A.3d at 698-701. Second, it engaged in a severability
analysis, citing Section 1925 of the Statutory Construction Act of 1972 (Statutory
Construction Act), 1 Pa. C.S. § 1925.6 Id. at 701-05.
               Upon reviewing the legislative history surrounding the various
iterations of the NLC deduction in Pennsylvania, the Pennsylvania Supreme Court
opined:
                      This legislative history establishes that the General
               Assembly first granted the deduction without any cap at
               all, but abandoned this approach based on its
               determination that such an uncapped deduction had
               significant    deleterious     consequences       for   our
               Commonwealth’s fiscal health. However, our legislature
               perceived that the deduction provided some public benefit
               by encouraging investment in the development of new

      6
          Section 1925 of the Statutory Construction Act provides:
              The provisions of every statute shall be severable. If any provision of any
      statute or the application thereof to any person or circumstance is held invalid, the
      remainder of the statute, and the application of such provision to other persons or
      circumstances, shall not be affected thereby, unless the court finds that the valid
      provisions of the statute are so essentially and inseparably connected with, and so
      depend upon, the void provision or application, that it cannot be presumed the
      General Assembly would have enacted the remaining valid provisions without the
      void one; or unless the court finds that the remaining valid provisions, standing
      alone, are incomplete and are incapable of being executed in accordance with the
      legislative intent.

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             technologies, as well as the acquisition of the physical
             infrastructure necessary to implement those technologies.
             Thus, the legislature reintroduced the deduction in 1994,
             but attempted to avert the excessive drain on the public
             fisc the prior unlimited deduction had caused by imposing
             a cap on the amount of this deduction which a corporation
             could take in a given tax year, and the legislature has
             steadfastly maintained this cap in various forms for the
             last 23 years. Thus, the overall structure of the NLC
             reflects the legislature’s intent to balance the twin policy
             objectives of encouraging investment (by allowing
             corporations to deduct some of the losses they sustain
             when making such investments against their future
             revenues), and ensuring that the Commonwealth’s
             financial health is maintained (through the capping of the
             amount of this deduction).
Id. at 704 (emphasis added) (citation omitted). In short, the Pennsylvania Supreme
Court held that the intent of the General Assembly since reintroducing the NLC
deduction has been to allow the deduction but with limits. In accordance with this
legislative intent, the Supreme Court severed the $3 million cap on the deduction for
the 2007 Tax Year, leaving in place the provision that would limit the deduction
to 12.5% of taxable income: “Thus, each corporation will be entitled to avail itself
of a [NLC] deduction, as the legislature intended, but such deduction will be equally
available to all corporations during that year, no matter what their taxable income.”
Id.
             As a result of its severability analysis, the Supreme Court held that the
remedy awarded by this Court in Nextel I, allowing Nextel to take an unlimited NLC
deduction for the 2007 Tax Year, “contravene[d] the legislature’s intent to limit this
deduction.” Id. at 705. The Court reasoned:
             In order to avoid a repeat of the budgetary damage caused
             by the unlimited net loss deduction which was in effect
             from 1980-1991, the legislature has, since the
             reinstatement of this deduction in 1994, consistently
             required that it be capped. To remove all caps and allow
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               unlimited net loss deductions would be clearly contrary to
               the wishes of the General Assembly.
Id. (emphasis added).
               Third, and finally, the Supreme Court rejected this Court’s remedy
analysis, which was grounded in equal protection concerns.                     Essentially, the
Pennsylvania Supreme Court held that, as a result of its severance analysis, the
Commonwealth did not owe Nextel a refund because, under the NLC deduction
provision as revised by the Supreme Court for the 2007 Tax Year, “[Nextel] is
subject to the same tax liability for tax year 2007 as previously assessed by the
Department.” Id. Stated otherwise, “[h]ere, under the NLC [deduction provision],
as severed, there was no overpayment of corporate taxes by Nextel, as it owes
exactly what the Revenue Department previously assessed.”7 Id. (emphasis added).
               Based on the Pennsylvania Supreme Court’s decision in Nextel II, and
using the words of the Supreme Court, I am constrained to conclude that the
majority’s decision to afford GM an unlimited NLC deduction for the 2001 Tax Year
by striking the only limit that the General Assembly placed on that deduction—i.e.,
the $2 million cap, “contravenes the legislature’s intent to limit this deduction.” Id.
The Pennsylvania Supreme Court was very clear in its severance and remedy
analysis in Nextel II. Because the General Assembly did not intend to grant an


       7
          I respectfully disagree with the Supreme Court’s focus on Nextel’s tax liability
pre-severance and post-severance for purposes of determining whether Nextel was entitled to any
affirmative relief. Nextel never benefitted from the severed cap; rather, it was the smaller
taxpayers that benefitted in the 2007 Tax Year from the unconstitutional cap. It is this inequity,
that being the inequity between those that benefitted from the unconstitutional scheme (the smaller
taxpayers) and those that suffered from it (larger taxpayers like Nextel), that courts must remedy
when dealing with successful Uniformity Clause/equal protection challenges. Although it
provided some form of “prospective” relief by revising the NLC deduction provision for the 2007
Tax Year, the Supreme Court’s decision in Nextel II did nothing to remedy the inequitable
treatment suffered by Nextel.

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unlimited NLC deduction in any version of the provision since its reintroduction
in 1994, the courts cannot grant an unlimited deduction without violating legislative
intent.
             The majority deftly attempts to escape the grip of the Pennsylvania
Supreme Court’s decision in Nextel II by contending that striking the cap for
the 2001 Tax Year at least furthers the General Assembly’s “dominant” intent to
promote business investment in the Commonwealth.               (Maj. Op. at 13-14.)
Essentially, the majority holds that for Tax Year 2001, given a choice between an
unlimited NLC deduction or no deduction at all, the General Assembly would
choose an unlimited deduction.         The legislative history recounted by the
Pennsylvania Supreme Court in Nextel II, and the Supreme Court’s holdings in
Nextel II on the question of legislative intent, however, do not support the majority’s
hypothesis. Indeed, as recounted above, Pennsylvania used to have an unlimited
NLC deduction, but the General Assembly scrapped it out of concern for the fiscal
health of the Commonwealth. When the General Assembly brought the deduction
back in 1994, it put a cap on the deduction. Every iteration of the deduction since
has had some form of cap on it. For this reason, in Nextel II, the Supreme Court
expressly held that an unlimited cap is “clearly contrary to the wishes of the General
Assembly.” Nextel II, 171 A.3d at 705.
             The bottom line here is that, as much as I prefer the majority’s
disposition on the question of remedy, we are constrained by Nextel II. Under that
precedent, we cannot sever the $2 million cap from the NLC deduction provision
and allow GM to take an unlimited NLC deduction for the 2001 Tax Year. To the
extent we may take any action with respect to modifying the language of the
deduction under Section 1925 of the Statutory Construction Act, our only option, in


                                       PKB-7
keeping with the General Assembly’s intent to allow only limited NLC deductions,
is to strike the deduction in its entirety for the 2001 Tax Year. As for remedying the
harm to GM, again the Supreme Court’s decision in Nextel II constrains the Court.
We cannot compel the Commonwealth to refund anything to GM, because, as in
Nextel II, striking the entirety of the NLC deduction provision for the 2001 Tax Year
means that GM did not overpay its corporate net income tax for the 2001 Tax Year.




                                          P. KEVIN BROBSON, Judge




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