A pricey case of beer: Phila. sues Yuengling for $6.63 million

Yuengling brewery owner Dick Yuengling Jr.'s once-local beer is the nation's oldest.
Yuengling brewery owner Dick Yuengling Jr.'s once-local beer is the nation's oldest.
Posted: February 09, 2013

It's no barroom brawl, but the City of Philadelphia v. D.G. Yuengling & Son Inc. has the makings of an interesting tussle.

What's not in dispute is that the city has filed a lawsuit in Common Pleas Court seeking to collect $6.63 million in taxes, interest, and penalties against the Yuengling brewery for not paying the Business Income and Receipts Tax.

What's also not in dispute is that the brewery itself is in Pottsville, more than 90 miles from City Hall.

But the questions raised by the dispute could fill a case of Yuengling Traditional Lager.

Yuengling has not filed an answer to the nine-page civil complaint filed by the City Solicitor's Office. On a radio talk show Wednesday, chief executive Richard L. Yuengling Jr., who is also named as a defendant, said that, while he did not know what the suit says, the brewery has never paid what had been called, until 2012, the business privilege tax.

Two tax lawyers and an accountant not directly connected to the Yuengling lawsuit said the dollar amounts involved are quite high compared with other situations where city Revenue Department auditors have found tax liability.

In the radio interview, Dick Yuengling said that the brewery ships its craft beer to its wholesaler, Origlio Beverage, located within city limits, which then trucks cases and kegs to bars, restaurants, and other distributors for sale to the public.

Dick Yuengling and other executives did not return calls seeking comment. Dominic Origlio, president of the wholesaler, declined to comment on the case.

In its lawsuit, the city said that Revenue Department auditors tried to examine and audit Yuengling's records for the 2008 through 2011 tax years, but that the company "did not cooperate." The city determined the amount of taxes owed by Yuengling based on the accounts payable of a separate taxpayer, an unidentified Philadelphia beer distributor, that listed Yuengling's sales inside the city.

One lawyer interviewed for this story who did not want to be identified said that since the business privilege tax was created in 1984 and amended in 1998, there have been few court cases involving such a large sum.

Mark McDonald, press secretary for Mayor Nutter, said the administration typically doesn't comment on matters in litigation, preferring to let court filings speak for themselves.

Even though Yuengling has no physical property or employees in the city, its products are sold in retail establishments throughout Philadelphia. In that way, Yuengling is like "hundreds of other companies" that go through the city's tax enforcement process, said Matthew Melinson, state and local tax partner in the Philadelphia office of the accounting firm Grant Thornton L.L.P.

The process tends to grind along outside the public eye. Few disputes end up in the headlines, said Melinson, who said he has handled dozens of cases where a business with no "obvious physical presence" winds up with an unexpected tax bill.

The "active presence" provision - triggered by any business organization that "pursues profit and gain" in the city - was added to the business privilege tax in 1998 and has tripped up many businesses when city auditors, or outside contractors hired by the city, have determined that taxes were owed, the one lawyer said.

Melinson cautioned against a rush to judgment by outsiders on the Yuengling litigation. "I wouldn't be quick to vilify either side," he said.

Such disputes are not unique to Philadelphia, Melinson said, with states and other large metropolitan areas under pressure to generate revenue from "nonresident" companies and technology improving to help them do so.

Contact Mike Armstrong

at 215-854-2980 or marmstrong@phillynews.com, or @PhillyInc on Twitter.

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