Appeal, No. 16, May T., 1955, from judgment of Court of Common Pleas of Dauphin County, 1953, No. 200, in case of Commonwealth of Pennsylvania v. American Telephone and Telegraph Company. Judgment affirmed.
George W. Keitel, Deputy Attorney General, with him Ralph S. Snyder, Deputy Attorney General and Herbert B. Cohen, Attorney General, for appellant.
Roy J. Keefer, with him Leon D. Metzger and William H. Wood, for appellee.
Before Stern, C.j., Stearne, Jones, Bell, Chidsey, Musmanno and Arnold, JJ.
OPINION BY MR. CHIEF JUSTICE HORACE STERN
The question on this appeal concerns the proper application for the year 1950 of the corporate net income tax of the American Telephone and Telegraph Company.
The activities of the Company are conducted by two separate and unrelated units, one of which, the General Department, operates wholly outside of Pennsylvania, the other, the Long Lines Department, both within and without Pennsylvania. Through its Long Lines Department it operates a comprehensive national system of
long distance telephone lines for interstate communication; the revenues thus derived arise partly from the portion of the system located in Pennsylvania; the lines passing through Pennsylvania constitute its only property in this Commonwealth. The Long Lines Department has its own administrative and operating forces, its own accounts and its own records. All the activities in connection with the General Department are those of a holding company and are carried on from the Company's office in New York. The principal items of gross income derived from the activities of the General Department are dividends, interest, royalties and payments under license contract arrangements. The Company holds stocks of associated corporations which own and operate lines furnishing telephone services in their respective territories and it makes advances to those corporations as their needs require.
The Corporate Net Income Tax Act of May 16, 1935, P.L. 208, as amended up to the year 1950, defined "net income" as being the net income of the corporation for the calendar year or fiscal year as returned to and ascertained by the Federal Government, with an allowance, however, of deductions from net income on account of dividends received from any other corporation. Prior to 1950 the American Telephone and Telegraph Company reported its corporate net income tax on the basis of all its activities, those of its Long Lines Department and General Department alike, and settlements were made accordingly. In 1950 it followed the same practice and reported its total net income as $310,031,478.01. From this it deducted the dividends it received from other corporations amounting to $292,517,811.39, and also interest on certain obligations of the United States (Commonwealth v. Curtis Publishing Co., 363 Pa. 299, 69 A.2d 410) of $3,772,114.60,
leaving a net income for allocation of $13,741,552.02. It then determined the allocating percentage according to the three fractions prescribed in the statute: (1) the value of the corporation's tangible property in Pennsylvania over the value of its tangible property wherever situated; (2) its expenditures for wages, salaries and commissions to employes assignable to Pennsylvania over its total expenditures for wages, salaries and commissions to employes; and (3) the amount of its gross receipts from business assignable to Pennsylvania over the amount of its gross receipts from all its business. For 1950 these fractions were as follows:
1. Average value of tangible property in Pa. $9,303,111
----------------------------------------- ----------- = .616063
Average value of all tangible property 579,159,592
2. Wages, salaries, etc., assignable to Pa. ...