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January 11, 1954


Appeal, No. 177, March T., 1953, from decree of Court of Common Pleas of Allegheny County, April T., 1952, No. 1803, in case of O.H. Martin Company v. Borough of Sharpsburg, Dennis J. Casper, Burgess, and Catherine M. Cavanaugh, Tax Collector. Decree reversed.


J. Alfred Wilner, with him James Craig Kuhn, Jr. and Wilner, Wilner & Kuhn, for appellants.

A.E. Kountz, with him William A. Meyer, Edward T. Tait and Kountz, Fry & Meyer, for appellee.

Before Stern, C.j., Stearne, Jones, Bell, Chidsey and Arnold, JJ.

Author: Arnold

[ 376 Pa. Page 243]


This is an appeal from a decree of the court below enjoining defendant-borough from enforcement of an ordinance under which it taxed gross receipts of individuals or corporations offering service to the general public within the borough of Sharpsburg.

The appellee is a Pennsylvania corporation engaged in building construction and general contracting, and has its principal office within the borough. Some of its work is done in the borough, but its operations are principally carried out on the site of its jobs, many of which are outside the state. The ordinance imposed, inter alia, "on all... contractors... and on all other persons offering any service... to the general public... from places... within the Borough... a business privilege tax... on the gross receipts derived from all

[ 376 Pa. Page 244]

    services." (Italics supplied). The ordinance also included a saving clause that nothing contained therein should be construed to empower the borough to levy and collect taxes not within its power under the Federal or State Constitutions. Appellee attacked the ordinance, contending that: (1) It fails to distinguish between interstate and intrastate commerce, and that this defect is not cured by the saving clause; (2) it contains no formula for apportionment between receipts from interstate and intrastate commerce; (3) it unlawfull delegates to the tax collector the authority to determine who shall be required to pay the tax. The last contention arises from the fact that the ordinance empowers the tax collector "to prescribe... and enforce rules and regulations relating to... administration and enforcement." Under this the tax collector issued regulations providing that the ordinance did not apply to that "portion of... gross receipts which the Borough... is prohibited from taxing by reason of the Constitution of the United States... Receipts... from interstate commerce transactions [will be excluded] only if these transactions involve the performance of services out of the State for a client... out of the State." The forms for tax returns also provided for exclusion of receipts from interstate commerce. The court below held that the ordinance was invalid because there was no formula for apportionment of receipts, and that it unlawfull delegated to the tax collector authority to decide who the taxables would be.

It is true that "a direct State tax upon the privilege of conducting interstate commerce is invalid.": Keystone Metal Co. v. Pittsburgh, 374 Pa. 323, 327, 97 A.2d 797. See also Spector Motor Service, Inc. v. O'Connor, 340 U.S. 602. But merely because a portion of the receipts of a business is derived from interstate transactions does not preclude assessment and collection

[ 376 Pa. Page 245]

    of a tax on its intrastate activities: McGoldrick v. Berwind-White Coal Mining Company, 309 U.S. 33; Keystone Metal Co. v. Pittsburgh, 374 Pa. 323, 97 A.2d 797. In Dravo Contracting Co. v. James, 114 F. 2d 242*fn1 (decided in response to the remand made by the Supreme Court in the same entitled case, 302 U.S. 134) the taxpayer contended that the tax was void because no method of apportionment had been provided in a statute imposing a tax upon the gross income of every person "engaging or continuing within this state in the business of contracting..." Upholding the validity of the statute, the Court determined: "The fact that the Supreme Court [Dravo Contracting Co. v. James, 302 U.S. 134] sustained the tax, although the point was expressly raised in the record that it was invalid because imposed on [gross] income derived partly from out-of-state activities with no provision for apportionment, is conclusive... as to its validity... Since no method of apportionment is provided by the statute, it is clear that the apportionment directed by the Supreme Court [on the prior appeal] means a separation, for purposes of taxation under the statute, of the portion of the income subject to the taxing power of the state. And that this is all that the statute was intended to tax, appears from the fact that the tax is imposed upon 'engaging or continuing within the state in the business of contracting.'... It is well settled that, where income subject to the state's taxing power is separable from that which is not, a tax will be upheld as to the portion which is so subject... The tax here is not upon a unitary enterprise conducted in several states, but upon the business of contracting conducted in West Virginia, and income derived from that business is properly subject to taxation by that state. Only 'upon

[ 376 Pa. Page 246]

The result there is not affected by J.D. Adams Manufacturing Co. v. Storen, 304 U.S. 307, and the other cases relied an by the appellee. The cited case holds that "So far as the sale price of the goods sold in interstate commerce includes compensation for a purely intrastate activity, the manufacture of the goods sold, it may be reached for local taxation by a tax on the privilege of manufacturing, measured by the value of the goods manufactured, or by other permissible forms of levy upon the intrastate transaction. It is because the tax, forbidden as to interstate commerce, reaches indiscriminately and without apportionment, the gross compensation for both interstate commerce and intrastate activities that it must fail in its entirety so far as applied to receipts from sales interstate... as respects the appellant's sales of its manufactured product in interstate and foreign commerce, the statute cannot constitutionally be enforced." (Italics supplied). It is clear that this does not preclude validity of the ordinance in the instant case.

Decree reversed and bill dismissed at cost of appellee.


Decree reversed and bill dismissed at cost of appellee.

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