Banking, Business, Litigation, Real Estate

Publication: Changes to Pennsylvania Inheritance Tax Law

Publication, Winter 2013/2014

Changes to Pennsylvania Ineritance Tax Law

Very recent changes to Pennsylvania inheritance tax law make it more affordable for families to pass on interests in family businesses. Businesses in existence for five years, with book value assets worth less than $5 million, and with fewer than 50 full‑time employees can take advantage of the new law. All owners must be family members. Businesses with a principal purpose of managing investments or income‑producing assets are excluded from the protection of the new law.

Now when an owner dies and leaves an interest in a qualified business to a son or daughter, husband or wife, brother or sister, or other limited lineal or ancestral relatives, the inherited interest is not subject to inheritance tax.

Before the Act was passed, when small business owners died, their heirs were subject to Pennsylvania inheritance taxes on the share of the business each inherited. Pennsylvania inheritance tax rates are based on the relationship of the beneficiary to the decedent. Spouses pay no inheritance tax, but parents, children, and grandchildren pay 4.5%, siblings pay 12%, and all other beneficiaries pay 15%. The law was passed to protect small business owners from the drain of cash or assets that is triggered by inheritance taxes on the share left by a deceased family member.

The relatives who inherit a share of the business must keep the business in family hands, continuing to maintain the business in the ownership of family members for at least seven years. They are required to report to the state every year to confirm continued family ownership or else risk losing the exemption of the new law and then having to pay inheritance taxes.

POLICE LIABILITY FOR HIGH‑SPEED CHASES

Many Pennsylvania laws affect the power, responsibilities, and liabilities of law enforcement authorities who engage in high‑speed chases. A recent Pennsylvania appeals case clarified one issue relating to high‑speed chases—the liability of a police office to a third party injured as a result of the chase.

In the case, police officers pursued a mildly speeding car in the early morning hours. The driver immediately “floored it” because he was afraid he would be arrested for driving under the influence. The driver and his two passengers had engaged in a long evening of drinking, and the passengers had requested rides.

As the chase ensued, at speeds in excess of 100 mph, both passengers asked the driver to stop or slow down. After hitting a dip in the roadway, the fleeing car went airborne, crashed into trees, and ejected one of the passengers. The ejected passenger died, and his heirs sued the policed department, claiming that the decedent passenger had been an “innocent bystander” to the chase.

Pennsylvania law provides that law enforcers are liable for their negligence to innocent bystanders who are injured as a result of police vehicle pursuit. Sometimes high‑speed police chases are necessary, and not all high‑speed chases constitute negligence. In each case, the court or jury must consider all the facts, including the speed, the officer’s experience, the duration of the chase, the actual driving that took place, and any other relevant factors.

In the case of the decedent passenger, the Pennsylvania appeals court decided that passengers who engage in extensive drinking with a driver and then voluntarily ride with the inebriated driver are not innocent bystanders. The court focused on the public’s interest in ensuring that the roads are safe from dangerous drivers. Noting that police officers have no certain way to know whether there are passengers in a fleeing car, or whether passengers are victims or are complicit with the driver’s misconduct, the court absolved police officers from a duty to ascertain the presence or status of passengers in vehicular chases. The court left for another day the determination of the liability of a police officer who pursues a car in which the officer has reason to know that an innocent passenger is involuntarily at risk.

LOSING REAL ESTATE AT TAX SALE

Shortly after January 1, county delinquent tax collection authorities will start notifying some Pennsylvania property owners that they are delinquent in the payment of their real estate taxes. Eventually, that real estate will be sold at tax sale if the taxes remain unpaid. If you receive a delinquent tax notice in the upcoming months, don’t delay—resolve the payment promptly, and make sure you have paid the taxes in full.

A Pennsylvania widow was shocked to learn that she had lost her home at tax sale, and she was successful in her appeal to challenge the sale. The widow pleaded difficulty with managing her financial affairs, including her real estate taxes, because her husband had customarily taken care of them. When he died, she had used the life insurance proceeds to pay off the home mortgage, but she failed to pay part of the delinquent taxes. She then received a delinquent tax bill for $897.19 with penalties and interest, which she promptly paid in full. Yet because interest of $6.90 was accruing each month, and because another interest charge was imposed after she mailed her check, she was left with a balance due of $6.90. Several months later, the tax collection bureau billed her $28.25, a sum consisting of the interest balance of $6.90, plus postage and costs. The widow didn’t pay the $28.25.

The following year, the widow again paid her taxes late, and the total due, with penalties and interest, was $3,990.03. The bill did not include the previous year’s balance of $28.25, and the tax collection bureau apparently did not send any further requests for the $28.25 from the previous year.

Because the $28.25 was more than a year overdue, and because it caused the widow’s home to be on the delinquent tax list, her home went up for tax sale and was purchased by a bidder. When she discovered what had happened, she immediately requested a hearing to set aside the sale. The county court simply reviewed the record, found the sale legal, and denied her any relief.

On appeal, the appellate court reversed the county court, finding that fundamental state and federal principles of constitutional law demand “the most rigorous due process standards” when government deprives an owner of property. The widow was entitled to a hearing, in which the collection bureau was responsible to prove that she had had actual notice of the scheduled sale. The appeals court returned the case to the county for further hearing and proof.

Notices from tax collection authorities must be taken very seriously by property owners. In order to hold all property owners accountable for paying their real estate taxes, Pennsylvania law provides for an orderly process for the forced sale of real estate burdened by delinquent taxes. Be sure your real estate taxes are current, and if they are not, pay careful attention to all notices regarding your delinquent taxes. If you have actual notice of a tax sale—even if you think the sale is a mistake—don’t ignore the notice. You could lose your property.

AMBULANCE COMPANIES CAN COMPETE

Pennsylvania law permits municipalities to choose a preferred ambulance company and to appropriate public funds for ambulance and emergency medical services. But when a Pennsylvania township effectively banned all competing ambulance companies from doing business in the township, it exceeded its powers under the law.

The township had passed an ordinance designating the township’s ambulance service as the preferred provider. But the ordinance also directed all 911 calls to the township’s ambulance service, required all emergency providers to redirect emergency calls to the 911 system, and banned any other ambulance service from doing business or advertising in the township. An established commercial ambulance service with numerous subscribers and a 25‑year history of doing business in the township sued and won.

The court held that municipalities may designate preferred emergency services providers and may devote public funds to such preferred providers. But the power to designate cannot be exercised so broadly as to “effectively exclude all other providers.” Finding that the township’s ordinance was an “attempt to isolate a revenue stream and eliminate competition,” the court struck the ordinance down as unconstitutional.

PROBATIONERS HAVE RIGHTS

A Philadelphia man sentenced to probation in Philadelphia’s “Gun Court” persuaded the Pennsylvania Supreme Court that the Gun Court rules were illegal.

Philadelphia’s Gun Court is not actually a court; instead, it is simply a program designed to fast‑track trial and sentencing in gun possession crimes. The program was designed to decrease the number of illegal guns in active circulation and to speed up the supervision of possessors of illegal guns.

The man who challenged the program focused on the Gun Court rules of probation. Arrested for having pointed a gun at an occupant of a car, the man was found guilty of possessing a handgun without a license and of possessing a handgun with an altered serial number. Only 20 years old, the man already had an extensive criminal history. Largely because of that criminal history, the judge sentenced the man to several years in jail, to be followed by a strict probation period of three years. Additionally, the judge ordered that the man’s probation officer could search his home to find guns or contraband at any time, for any reason, or for no reason at all. The broad search power in the probation conditions was a routine provision used in Gun Court for probationers.

The man appealed, focusing on the probation provision that permitted a probation officer to search his home without warrant and without any particular reason or suspicion. Pennsylvania law regulating probation officers permits them to conduct warrantless searches of probationers’ homes and property if there is “reasonable suspicion” that the probationer has violated probation rules or possesses contraband or other illegal property. The Pennsylvania Supreme Court relied on the probation statute and decided that Gun Court judges may not expand the powers of probation officers by permitting “suspicionless, warrantless searches” of probationers’ homes and property.

Gun Court may continue to expedite and focus on gun crimes, but the firm measure of subjecting probationers to property searches without reasonable suspicion is no longer a weapon in the Gun Court’s arsenal.

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NO UNEMPLOYMENT BENEFITS AFTER RELIGIOUS DISPUTE

A worker who refused to wear a name tag bearing a religious “mission statement” lost the right to collect unemployment benefits after the court found that he had quit his job andthat he had no clear religious beliefs that were violated in the workplace.

The worker had been employed for almost two years at a small heating and air conditioning company. The company’s owner included a spiritual mission statement in the employee handbook and on a name tag that all employees were required to wear. The name tag displayed the employee’s name, photo, and company logo on the front; on the back, the name tag included a mission statement stating that the company was not just a business but a ministry and that the company was run in a way “most pleasing to the Lord.”

After working for the company for almost two years, the employee decided to cover the back of his name tag with duct tape, later explaining that he felt the company owner was “always pushing his religion.” When the owner noticed the duct tape, he told the employee to remove it or he would lose his job. The employee left the workplace and filed for unemployment.

In the subsequent litigation, the court focused on two issues. First, the court analyzed whether the employee had been fired or had quit. Because the employer had created an option, conditioning the retention of the job on the employee’s removing the duct tape, the court found that the owner had not fired the employee. Instead, the court noted, the employer had given the employee the choice to keep his job by removing the duct tape. But because the employee then simply chose to leave the workplace, it was determined that he had quit his job.

When workplace disputes arise, an employee is not considered to have been fired if the employer has given the employee a choice. Statements from employers such as “if you don’t like it, there’s the door” or “shape up or ship out” are not considered firings. When an employee is given the alternative to follow workplace rules or be fired, the courts focus closely on the employee’s response. Generally, in order for the termination to be considered a firing, an employer must have clearly and unequivocally fired the employee.

Next, the court focused on the religious issues. The court noted that while the employee claimed that his religious freedom and religious beliefs had been violated at work, the employee never identified his own religious beliefs and never explained just what he found offensive or burdensome in the name tag mission statement or in the workplace environment.

In defending his name tag mission statement, the business owner pointed out that the company employed workers of many faiths and that while he advanced Christian beliefs, his Jewish employees and nonreligious employees had no objections to the atmosphere at the workplace or to the content of the name tag statement.

Small businesses have broad leeway in introducing religious values in the workplace. While government agencies must respect constitutional principles of the separation of church and state, private employers may advance religious goals, provided they do so openly, without coercion, and without discriminating against employees of different faiths.

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