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Judge says payroll tax would have to come from UPMC's subsidiaries

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By Adam Brandolph and Brian Bowling
Wednesday, June 25, 2014, 3:45 p.m.
 

Legally, at least, UPMC has no employees.

Allegheny County Common Pleas Judge R. Stanton Wettick said as much Wednesday in throwing out Pittsburgh's challenge of UPMC's tax-exempt status as a nonprofit. He backed UPMC's claim that its 55,000 employees work for 37 subsidiaries.

“Employees of a subsidiary, such as Mercy Hospital, are not employees of UPMC. Thus, Pittsburgh cannot look to UPMC to pay a payroll tax based on payments Mercy Hospital made to its employees,” the judge said in an eight-page ruling.

Wettick called his ruling a narrow one and said the city treasurer is free to pursue collecting payroll taxes from UPMC's subsidiaries.

The cash-strapped city argues UPMC should pay payroll and property taxes estimated at about $20 million a year. When the city sued UPMC, the region's largest employer, in March 2013, then-Mayor Luke Ravenstahl said taxpayers shouldn't have to subsidize the $10 billion hospital system. UPMC countered that it performs considerable charitable work and is a net benefit to the city.

Each side offered differing interpretations of the judge's ruling.

UPMC spokesman Paul Wood said it shows the court “clearly agrees that the city's case had absolutely no merit.”

Mayor Bill Peduto downplayed the ruling's significance.

“Judge Wettick's ruling ... is on a procedural issue, and is not a decision on the merits of the lawsuit,” a prepared statement said. “Our lawyers are reviewing the decision and will advise me on our legal options.”

Peduto also is working to squeeze more money out of UPMC outside the courtroom. He has met with CEO Jeffrey Romoff to discuss efforts to prod UPMC into making long-term payments to the city in lieu of taxes.

Wettick said the city can't lump any company's subsidiaries into a single entity for tax purposes, so it can't do that to UPMC.

“There is no basis in the law for this court to disregard corporate form and the existence of UPMC's subsidiaries,” Wettick wrote in his decision.

The ruling doesn't settle the question of whether those subsidiaries are “purely public charities” that state law exempts from payroll taxes. The judge suggested the city treasurer calculate the tax that UPMC's subsidiaries should have paid, and try to collect.

“Nothing in this opinion suggests that the treasurer may not proceed in this fashion,” he said.

Several local tax lawyers declined comment on the decision. John D. Colombo, a University of Illinois law professor who studies medical nonprofits and is familiar with the case, said the judge made a narrow, technical ruling.

“I don't believe it has any implication beyond this case,” he said.

A labor group that has protested the wages UPMC pays its service workers said it remains convinced the medical giant is not a charity.

“UPMC isn't paying its fair share for public services like schools and transit, and taxpayers are forced to pick up the tab,” Barney Oursler, executive director of Pittsburgh United, wrote in an email.

Adam Brandolph and Brian Bowling are staff writers for Trib Total Media. Reach Brandolph at 412-391-0927 or abrandolph@tribweb.com. Reach Bowling at 412-325-4301 or bbowling@tribweb.com.

 

 
 


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