Month: September 2018

Anyone who starts or relocates a business goes through exciting and challenging times.  It is understandable that the business owner’s primary focus  is getting established and meeting customer needs.  It stands to reason that a business plan will include big picture items such as marketing strategy and customer satisfaction, which in turn may lead to profits and success.

But there are many other issues to consider, some of which even experienced business owners overlook.  An important part of the original due diligence process and planning period should be attention to the local rules and regulations.  If proper attention is not given to local regulations, the business can have difficulty down the road.  That is why it is important for any person contemplating a change in business location or starting a business to consult not only an experienced financial professional but an experienced municipal attorney.

Three important areas of local regulations are taxation, zoning and land use.  This blog will deal with tax issues.  Zoning and land use issues arise earlier in the process, when a business buys or leases land.  Local ordinances may include additional protections beyond federal or state law (e.g., LGBT), but the pattern of regulation is similar to the federal or state regulations.

But taxation can be a trap for the unwary.  When choosing a business location, business organizers often consult with accountants and financial planners who are familiar with federal and state taxes.  These businesses assume that their consultants are familiar with local tax laws.  But this may not be a correct assumption.  The business owner needs to ask whether there are local taxes or registration requirements to be concerned about.  The answer may be yes and should be answered as soon as possible and before the doors open for business.

Pennsylvania is unique in that it consists of 67 individual counties and 2,500 municipalities – cities, townships and boroughs, each with their own ordinances and regulations.  Allegheny County, containing Pittsburgh, has 130 municipalities!  The four suburban Philadelphia counties contain 238 municipalities, ranging from Chester County’s 73 down to Delaware County’s 49.

Of the Commonwealth’s 2,500 plus municipalities and over 500 school districts, 90% impose Earned Income Tax and 80% impose a Local Services Tax (formerly Occupational Privilege Tax or Municipal and Emergency Services Tax).  These taxes are paid by employees but must be collected and remitted by the employer or the employer may be responsible for penalty, interest and perhaps fines.  The passage of Act 32 of 2008 providing for Central Tax Collection Committees on the County level made the payment, collection and disbursement of Earned Income Tax easier for all parties.  But even this statute requires employers  to collect the taxes from employees and quarterly remit the taxes to the correct county, failure to do so will result in interest and possibly penalty imposed on the employer.

It is at least as important that each business know the registration and tax requirements of any municipality in which it does business.   Failure to register a business when required and remit Business Privilege and Mercantile License Tax (business taxes) can result in penalty and interest assessments by the municipality.  These taxes are often overlooked when starting a new business or moving an existing business because less than 10% of all municipalities in Pennsylvania impose Business Taxes.  The taxes are self reporting, and the responsibility for filing and reporting falls on each business.  It is imperative when moving or starting a business, especially in southeastern Pennsylvania, to consult with an experienced municipal attorney who can guide you through the process of making sure you are properly registered and ready to pay any taxes the way they should be paid to avoid any unnecessary penalty and interest.  This will help you keep your focus on the reason you are in business to begin with – your success and the satisfaction of your customers.

At High Swartz, our business and corporate law attorneys provide businesses of all types and sizes with efficient and precise commercial law solutions. For more information or if you have any questions, please contact Kathleen M. Thomas at 215-345-8888 or kthomas@highswartz.com.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

For small business owners, the growth of a startup business can cause you to overlook the legal minutiae that come along the way.  It is not unusual to see small businesses that started out using form contracts or invoices that may have done the trick at the time, but ten or more years later they remain unchanged, without any new terms or conditions to accommodate the growth of the business.  The business may have started selling goods or services in a relatively small, local area, then before they know it, especially in the digital age, they are selling goods or services across State borders.  But have they considered whether those initial contract forms sufficiently address the needs of the expanded business?  Or whether the contracts and business practices comply with the laws of the jurisdiction in which they are selling?  As an example of unexpected issues that may arise, below are summaries of two interesting decisions that the Pennsylvania Courts have issued this year.

In February, the Pennsylvania Supreme Court issued a decision in Danganan v. Guardian Protection Services,[1] in which a customer (Danganan) purchased a home security system and services from Guardian Protection Services, a Pennsylvania business, for his residence in Washington, D.C.  The service contract had an initial term of three years.  Before the three years expired, Danganan moved and sold his residence in D.C., but Guardian continued to bill him and collect for the remainder due under the contract.  Danganan sued Guardian in Pennsylvania and asserted a claim under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), which allows consumers to pursue triple damages and attorney’s fees for deceptive business practices.  Guardian tried to get the UTPCPL claim dismissed, arguing that the law did not apply to non-Pennsylvania residents or transactions outside of Pennsylvania.  Ultimately the case was submitted to the Pennsylvania Supreme Court, which determined that a non-Pennsylvania resident may bring suit under the UTPCPL against a Pennsylvania business based on transactions that occurred out-of-state.

This decision should remind Pennsylvania business owners to confirm that its consumer contracts for transactions both inside and outside of Pennsylvania are compliant with the provisions of the UTPCPL and any regulations emanating from that law.  For those newer businesses still filling out those initial forms from the startup days, it is time to have a qualified attorney take a look and make any necessary revisions to properly protect the business.

In addition, in June the Pennsylvania Superior Court issued a decision in Webb-Benjamin, LLC v. International Rug Group, LLC,[2] which involved a dispute over a commission payment.  Webb-Benjamin, a Pennsylvania company, entered into a contract with International Rug Group, a Connecticut company, to provide services for a furniture sale in Canada.  Before the furniture sale ended, the two parties decided to terminate their contract but agreed that Webb-Benjamin would be paid its final commission at the end of the Canadian furniture sale.  Shortly after the termination, but before the end of the sale, International Rug registered to do business in Pennsylvania.  When International Rug failed to pay the commission, Webb-Benjamin sued in Pennsylvania to collect.  International Rug attempted to get the case dismissed on the grounds that the Pennsylvania Courts had no jurisdiction over the Connecticut company.  The Pennsylvania Superior Court disagreed and ruled that when an out-of-state company registers to do business in Pennsylvania, it consents to the jurisdiction of the Pennsylvania Courts, even for disputes that arose before the company’s registration.

This decision is pertinent to both Pennsylvania businesses and out-of-state companies that do business in Pennsylvania.  For Pennsylvania companies, the case may provide a basis to sue in Pennsylvania for disputes with out-of-state companies.  For non-Pennsylvania companies, the case points out another factor to consider when deciding to register to do business in Pennsylvania.

For all companies, these cases are a reminder to: (1) research the legal requirements for expanding the company’s business into other States, and (2) always have an attorney review the company’s contracts and transaction documents to assure that they include provisions that will best allow the company to grow and avoid undesired consequences.

Decisions made and actions taken during the process of business formation will have a significant effect on the owner’s exposure to personal and professional liability and the company’s profitability. At High Swartz LLP our attorneys have extensive experience in a wide range of industries, and provide investors, entrepreneurs and businesses in transition with sophisticated legal counsel designed to protect and promote the new and restructured businesses. As your counsel, we will help you make the right decisions and will implement necessary legal measures on your behalf, allowing you to focus on business management. For more information or if you have any questions, please contact Mark R. Fischer, Jr. at 610-275-0700 or mfischer@highswartz.com.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

[1] 179 A.3d 9 (Pa. 2018).

[2] 2018 WL 3153602 (2018 PA Super 187).