           IN THE COMMONWEALTH COURT OF PENNSYLVANIA


William W. Gardner and Cynthia   :
Gardner,                         :
                                 :
                     Petitioners :
                                 :
                v.               : No. 335 F.R. 2015
                                 : Submitted: December 13, 2018
Commonwealth of Pennsylvania,    :
                                 :
                     Respondent :



BEFORE:       HONORABLE MARY HANNAH LEAVITT, President Judge
              HONORABLE PATRICIA A. McCULLOUGH, Judge
              HONORABLE MICHAEL H. WOJCIK, Judge


OPINION NOT REPORTED


MEMORANDUM OPINION
BY JUDGE WOJCIK                                              FILED: January 24, 2019

                William W. Gardner and Cynthia Gardner (together, Taxpayers)
seek review of the May 1, 2015 order of the Board of Finance and Revenue
(Board).1 The Board found that the Board of Appeals (BOA) properly dismissed
the Petitions for Refund filed by Taxpayers on September 29, 2014, as untimely,



       1
          Although our review of the Board’s order is addressed to our appellate jurisdiction, we
essentially function as a trial court and review the Board’s decision de novo. Quest Diagnostics
Venture, LLC v. Commonwealth, 119 A.3d 406, 410 n.4 (Pa. Cmwlth. 2015).
because they were filed more than six months after the amount at issue was paid.
We affirm.
             As required by Rule 1571(f) of the Pennsylvania Rules of Appellate
Procedure, Pa. R.A.P. 1571(f), the parties submitted a Stipulation of Facts and
exhibits, which reveal the following. William W. Gardner (Gardner) is the sole
owner of Blue Water Aviation, Inc., which is a Delaware “S” corporation. Gardner
also is the sole member of two Delaware limited liability companies, North Rock
Aviation, LLC, and Blue Water Aviation Services, LLC. (Collectively, the three
entities are referred to as the Aviation Entities.)
               The Aviation Entities generated a loss for tax purposes for tax years
2009 and 2010. On March 26, 2013, the Department of Revenue (Department)
issued assessments for the 2009 and 2010 tax years, allocating 100% of the
Aviation Entities’ income/losses as rental income/losses. Taxpayers paid the 2009
Assessment ($623,363.00) on October 15, 2013, and the 2010 Assessment
($457,155.00) on November 1, 2013.
               At that time, Taxpayers’ appeal from personal income tax
settlements for the years 2006, 2007, and 2008 (the prior appeal)2 was pending in
this Court. On March 17, 2014, during the course of negotiating a final Stipulation
for Judgment, Taxpayers’ counsel requested that a statement be added to the
stipulation to clarify that, with respect to Blue Water Aviation, Inc., the parties
agreed to allocate 75% of profit/loss to trade or business activity and 25% to rental
activity. On behalf of the Department, Attorney Kevin A. Moury of the Office of
Attorney General responded the following day:

      2
        Gardner v. Commonwealth, (Pa. Cmwlth., 493 F.R. 2011, discontinued per Stipulation
of Judgment filed April 14, 2014).


                                            2
            Stipulations for judgment only set forth the recalculation
            of the tax. No other terms of settlement are included and
            I do not have authority to do so.

            This email is your assurance that the 75/25 compromise,
            in favor of the Taxpayers, will be used to compromise
            future tax years involving Blue Water Aviation and
            similar aviation entities. In the event this compromise is
            not implemented at audit, by the BOA or [Board], it will
            be implemented upon a timely filed appeal to
            Commonwealth Court.           The Department expressly
            reserves any and all rights it has or may have regarding
            reviewing, auditing, assessing and litigating a position
            different than contained in the first sentence of this
            paragraph.
Stipulation of Facts, April 5, 2018, Exhibit 3. Later that day, Attorney Moury
emailed Taxpayers’ counsel as follows:

            Also I should add that I will recommend the same 75/25
            split for future years unless and until there would be a
            change in the applicable laws or caselaw [sic] and
            provided that there are no jurisdictional defects in any
            appeal at any state [sic] of the proceedings. Of course,
            this cuts both ways with respect to a change in law.
Id.
             The prior appeal was resolved by way of a Stipulation for Judgment
on April 14, 2014. On April 30, 2014, Taxpayers’ counsel sent an email to “PA
Department of Revenue,” stating:

            Dear Sir/Madam:

            Taxpayers entered into a stipulated settlement with the
            Commonwealth of Pennsylvania for tax years 2006,
            2007, and 2008 regarding Pennsylvania Personal Income
            Tax (PA-40). (A copy of the stipulated settlement is
            attached.)


                                         3
            A major portion of the dispute related to the tax treatment
            of income/loss for aircraft which were owned and
            operated under separate legal entities, which were owned
            wholly by the Taxpayers. After extended negotiations
            with the Department of Revenue and its counsel, it was
            agreed that the tax treatment for the tax years in dispute
            and future tax years, Blue Water Aviation (a pass-
            through entity) and Taxpayers’ other aviation entities
            would be reported on the Taxpayers’ future personal
            income tax returns [by] allocating the income/loss 75%
            to business activities and 25% to rental activities. Copies
            of confirming emails from Kevin A. Moury, Esquire, of
            the Attorney General’s Office (counsel for the
            Department of Revenue), acknowledging this treatment
            are attached for your review.

            This information is being submitted by the Taxpayers as
            a supporting statement for the tax reporting method being
            applied on the Taxpayers’ Pennsylvania Personal Income
            Tax Returns for 2009 and future years.
Id. Thereafter, Taxpayers filed amended returns for tax years 2009 and 2010,
allocating the income/losses of the Aviation Entities as 75% business
income/losses and 25% rental income/losses.
              On September 29, 2014, approximately 11 months after making
payment of the 2009 and 2010 assessments, Taxpayers filed Petitions for Refund
with the BOA. Taxpayers requested a refund of personal income tax paid for 2009
and 2010 on pass-through income/losses from the operation of the Aviation
Entities, in the amounts of $37,731.00 and $76,073.00, respectively, asserting that
the Department incorrectly characterized the reported income/losses as rental
income/losses instead of business income/losses.     As support for their refund
requests, Taxpayers relied on the outcome of the prior appeal, which raised similar
issues.




                                        4
                The BOA dismissed the petitions for lack of jurisdiction because the
petitions were filed more than six months after the payments were made. Section
3003.1(d) of the Tax Reform Code of 1971 (Tax Code), Act of March 4, 1971, P.L.
6, as amended, added by the Act of July 1, 1985, P.L. 78, 72 P.S. §10003.1(d)
(providing that “[i]n the case of amounts paid as a result of an assessment,
determination, settlement, or appraisement, a petition for refund must be filed with
the department within six months of the actual payment of the tax.”). By order
dated May 1, 2015, the Board affirmed the BOA’s decision and dismissed the
petitions.
              On appeal to this Court,3 Taxpayers first argue that the settlement of
the prior appeal, as reflected in the Stipulation for Judgment and contemporaneous
emails, constitutes a binding agreement that is enforceable against the Department
under a theory of equitable estoppel. Taxpayers allege that they executed the
agreement in reliance on the representations by Attorney Moury that its terms
would apply to the subsequent tax years at issue,4 and they maintain that the
Department is estopped from denying the validity of the agreement’s terms.
              The doctrine of equitable estoppel applies when a Commonwealth
agency has intentionally or negligently misrepresented a material fact, knowing or
having reason to know that another person would justifiably rely on that
misrepresentation, or where the other person has been induced to act to his

       3
          The parties resolved the issues on appeal concerning tax year 2011, Garner v.
Commonwealth, (Pa. Cmwlth., No. 464 F.R. 2015, discontinued per Stipulation for Judgment
filed December 6, 2018).

       4
          Taxpayers do not assert that they made payment of the 2009 and 2010 tax assessments
in reliance on the parties’ agreement. In fact, those payments were tendered approximately six
months before the purported agreement was finalized.


                                              5
detriment because he justifiably relied on the misrepresentation.                           Quest
Diagnostics Venture, LLC v. Commonwealth, 119 A.3d 406, 413 n.6 (Pa. Cmwlth.
2015); Natiello v. Department of Environmental Protection, 990 A.2d 1196 (Pa.
Cmwlth. 2010).
               Taxpayers rely on Borg-Warner Corp. v. Board of Finance and
Revenue, 227 A.2d 153 (Pa. 1967), and Lapp v. Commonwealth, 387 A.2d 1312,
1316 (Pa. Cmwlth. 1978), for the proposition that the Attorney General is
authorized to settle tax litigation on behalf of the Commonwealth. Next, citing
Department of Public Welfare v. UEC, Inc., 397 A.2d 779 (Pa. 1979);5 Department


       5
         In UEC, Inc., the taxpayers (UEC) entered into a contract with the Department of Public
Welfare (DPW), under which UEC would receive approximately $4,000,000 for providing
program design and management for a system of model day care centers. The term of the
contract was from June 15, 1970, to June 14, 1971. Before the written contract expired, the
parties began negotiating an extension. They continued operations beyond the expiration date
until October 14, 1971, when the Commonwealth informed UEC that the contract would not be
renewed. From that date until February 15, 1973, the Commonwealth repeatedly gave UEC oral
assurances that it would pay the balance due under the contract.

               On May 2, 1973, UEC filed a complaint with the Board of Arbitration of Claims
(board) against DPW, seeking damages for breach of written and oral contracts. DPW filed
preliminary objections that were dismissed by the board. DPW appealed to Commonwealth
Court, which reversed the board, sustained DPW’s preliminary objections, and dismissed UEC’s
complaint. In doing so, Commonwealth Court held that the cause of action based on the written
contract, which expired on June 14, 1971, was barred by the six-month statute of limitations
applicable to claims brought against the Commonwealth, and that DPW lacked authority to bind
the Commonwealth to the oral agreement.

                Reversing, our Supreme Court held that this Court erred in failing to consider the
doctrine of estoppel as preventing the Commonwealth from asserting the statute of limitations on
claims as a defense to its contractual obligations. The Court cited repeated assurances by
Commonwealth officials that the Commonwealth would compensate UEC for the amount owed
and never denied liability for the debt. The Court determined that the conduct of Commonwealth
officials from October 14, 1971, through February 15, 1973, and ongoing, lulled UEC into a
false sense of security regarding the necessity of taking legal action. The Court further held that
(Footnote continued on next page…)
                                                6
of Commerce v. Casey, 624 A.2d 247, 254 (Pa. Cmwlth. 1993);6 and Department of
Revenue, Bureau of Sales and Use Tax v. King Crown Corp., 415 A.2d 927 (Pa.
Cmwlth. 1980),7 Taxpayers argue that the Department is estopped from denying
the validity of the prior settlement agreement. These cases are inapposite.
               Unlike the facts in UEC and Casey, Taxpayers did not rely on the
purported agreement to pay the tax assessments for 2009 and 2010. Instead,
Taxpayers paid those amounts on October 15, 2013, and November 1, 2013,
approximately five months before the prior appeal was settled pursuant to the April
14, 2014 Stipulation for Judgment. Essentially, Taxpayers contend that they relied
on their understanding of the settlement terms when they signed the Stipulation of

(continued…)

application of the doctrine of estoppel should not be denied merely because it was being asserted
against the government.

       6
         Casey was an appeal by the Department of Commerce, involving a contract for services
between the Pennsylvania High Speed Intercity Rail Passenger Commission (Commission) and
the plaintiff, an expert in the field of high-speed ground transportation. This Court rejected the
Department’s contention that the contract was not valid, because it was entered into without legal
review as required by statute, without competitive bidding, and in violation of various state
ethics laws. Relevant here, we further held that the Department of Commerce was estopped
from denying the validity of the contract because the plaintiff reasonably relied on the authority
of the Commission members and his work product was accepted in its entirety.

       7
          In King Crown Corp., taxpayers entered into a written settlement agreement with the
Department of Revenue, Bureau of Sales and Use Tax (Commonwealth) for payment of
delinquent sale and use taxes. The agreement provided that taxpayers would pay the tax debt on
an installment basis. The taxpayers relied on the agreement and made monthly payments. The
Commonwealth subsequently began proceedings to enforce its judgment against the taxpayers,
claiming that the settlement agreement was null and void because it was not properly approved
or documented. This Court held that the Commonwealth was estopped from repudiating its
agreement. In doing so, we noted that the taxpayers’ belief that a valid compromise had been
agreed upon was “fully reasonable.” 415 A.2d at 930. However, we remanded for the trial court
to determine which specific delinquent assessments were covered by the agreement.


                                                7
Judgment settling the prior appeal. In contrast to the facts in King Crown Corp.,
Taxpayers’ belief that the stipulation’s terms would apply to untimely filed refund
petitions cannot be deemed reasonable based on this record.
               Taxpayers also contend that the agreement does not predicate
enforcement upon a timely-filed petition for refund.          We conclude that this
argument also is without merit.        As the Department notes, the March email
explicitly states that the applicability of the settlement terms to future tax years is
conditioned upon there being no jurisdictional defect at any stage of the
proceedings.
               The Department further observes that Taxpayers failed to request a
refund within the six-month period allowed under Section 3003.1(d) of the Tax
Code.
               In relevant part, Section 3003.1 of the Tax Code states:

               Petitions for Refunds:
               (a) For a tax collected by the Department of Revenue, a
               taxpayer who has actually paid tax, interest or penalty to
               the Commonwealth or to an agent or licensee of the
               Commonwealth authorized to collect taxes may petition
               the Department of Revenue for refund or credit of the
               tax, interest or penalty. Except as otherwise provided by
               statute, a petition for refund must be made to the
               department within three years of actual payment of the
               tax, interest or penalty.
                                         * * *
               (d) In the case of amounts paid as a result of an
               assessment, determination, settlement or appraisement, a
               petition for refund must be filed with the department
               within six months of the actual payment of the tax.
               (e) A taxpayer may petition the Board of Finance and
               Revenue to review the decision and order of the
               department on a petition for refund. The petition for

                                           8
              review must be filed with the board within ninety days of
              the mailing date of a decision and order of the
              department upon a petition for refund.
72 P.S. §10003.1(a), (d), (e).
              In this instance, Taxpayers paid amounts based on assessments for
2009 and 2010. Requests for refunds of amounts paid as a result of assessments
are governed by Section 3003.1(d) and must be filed within six months of the
payment date. Taxpayers did not file requests for refunds within the time period
allowed under the statute. Because the terms of the purported agreement require
the absence of a jurisdictional defect, Taxpayers’ untimely refund request would
render any such agreement unenforceable.
              Taxpayers challenge the BOA’s dismissal of the Petitions for Refund
as untimely. Specifically, Taxpayers argue that because they seek to enforce the
agreement, rather than contest the propriety of the tax collected, the Petitions for
Refund are subject to the three-year statute of limitations in Section 3003.1(a) of
the Tax Code.8 In support, citing Borg-Warner Corp., Taxpayers maintain that this
Court has recognized a distinction between taxes paid under a settlement and taxes
paid as a result of an illegal or improper tax. Taxpayers argue that their right to
relief is based upon an agreement in this case, and they insist that, because their
right to relief arises from an agreement, their Petitions for Refund are not subject to
the six-month limitations period in Section 3003.1(d).               However, they again
overlook the fact that no tax payments were made in reliance on the purported
agreement.


       8
         Alternatively, Taxpayers argue that the Petitions for Refund were timely under Section
3003.1(d) of the Tax Code, because they were filed within six months of the agreement and
settlement of the prior appeal.


                                              9
               Taxpayers were assessed the taxes at issue based on the result of an
audit. There is no dispute that Taxpayers filed Petitions for Refund approximately
11 months after paying the 2009 and 2010 tax assessments. The Department
argues that compliance with the applicable six-month time limitation in Section
3003.1(d) of the Tax Code “is an absolute condition to obtaining a refund.” Quest,
119 A.3d at 410. We agree.
               In Quest, the taxpayer’s petition for refund was dismissed as untimely
under Section 3003.1(a) of the Tax Code. We affirmed, observing as follows:

               Where, as here, a statute provides a remedy, the
               directions of the statute must be strictly pursued to obtain
               the remedy.[9] The time limitation in a tax statute must be
               strictly enforced to prevent any uncertainty in the
               budgetary planning and fiscal affairs of the
               Commonwealth. Compliance with the time limitation in
               the Tax Reform Code is an absolute condition to
               obtaining a refund. Section 3003.1(a) of the Tax Reform
               Code is a statute of repose that extinguishes entitlement
               to a tax refund upon expiration of the three-year time
               period set forth therein; it is not a statute of limitations
               that runs from the time of an injurious occurrence or
               discovery of such occurrence. Consequently, a petition
               for refund filed beyond the three-year time period in
               Section 3003.1(a) is time-barred. The petitioner has the
               burden of establishing the timeliness of the petition for
               refund.
119 A.3d at 410 (quotations and citations omitted). Moreover, we explained that
equitable estoppel, laches, or equitable tolling cannot vary the statutory
requirements: “Neither the [Board] nor this Court has the power to alter the explicit
time limitations in the [Tax Code] based on equitable principles.” 119 A.3d at 414.



      9
          Section 1504 of the Statutory Construction Act of 1972, 1 Pa. C.S. §1504.


                                               10
Consequently, the Board properly dismissed the petitions as untimely under
Section 3003.1(d) of the Tax Code.
            For the foregoing reasons, we affirm.




                                      MICHAEL H. WOJCIK, Judge


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




                                        11
         IN THE COMMONWEALTH COURT OF PENNSYLVANIA


William W. Gardner and Cynthia   :
Gardner,                         :
                                 :
                     Petitioners :
                                 :
                v.               : No. 335 F.R. 2015
                                 :
Commonwealth of Pennsylvania,    :
                                 :
                     Respondent :


                                 ORDER


            AND NOW, this 24th day of January, 2019, the order of the Board of
Finance and Revenue, dated May 1, 2015, is AFFIRMED. Unless exceptions are
filed within thirty (30) days pursuant to Pa. R.A.P. 1571(i), this Order shall
become final.




                                    __________________________________
                                    MICHAEL H. WOJCIK, Judge
