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TAX REVIEW BOARD v. D. H. SHAPIRO COMPANY. (11/13/62)

November 13, 1962

TAX REVIEW BOARD, APPELLANT,
v.
D. H. SHAPIRO COMPANY.



Appeal, No. 146, Jan. T., 1962, from order of Court of Common Pleas No. 1 of Philadelphia County, March T., 1960, No. 884, in case of Tax Review Board of the City of Philadelphia v. D. H. Shapiro Company. Order affirmed.

COUNSEL

Levy Anderson, First Deputy City Solicitor, with him Ellis A. Horwitz and Leonard B. Rosenthal, Assistant City Solicitors, James L. Stern, Deputy City Solicitor, and David Berger, City Solicitor, for appellant.

Christopher Branda, Jr., with him Dechert, Price & Rhoads, for appellee.

Before Bell, C.j., Musmanno, Jones, Cohen, Eagen and O'brien, JJ.

Author: O'brien

[ 409 Pa. Page 254]

OPINION BY MR. JUSTICE O'BRIEN

D. H. Shapiro Company is a partnership engaged in the practice of public accounting, having its only office in the City of Philadelphia. Throughout the fiscal years ending March 31, 1955 to March 31, 1959, the years here in question, Shapiro derived gross receipts from accounting services performed for clients located

[ 409 Pa. Page 255]

    outside of Philadelphia, ranging from a low of $46,214.95 in fiscal 1955 to a high of $67,081.50 in fiscal 1957.During each of the fiscal years involved, at least one of Shapiro's partners was a nonresident of Philadelphia, and the aggregate profit participation of the nonresident partners was never less than 46 per cent; the highest proportion of nonresident partners was 4 out of 5 in fiscal 1958, representing an aggregate profit participation of 89 per cent. Approximately 78 percent of Shapiro's receipts from out-of-city clients was attributable to services actually performed outside of the city at the places of business of various clients. The remaining 22 per cent is attributed to review, typing and proofreading of accounting statements in the office in Philadelphia and also to a ratable share of nonearning "office time". "Office time" includes time spent on office administration, meetings, duplication of reports, reading of accounting and tax periodicals, etc., which Shapiro does not charge to specific clients.

In filing net profits tax returns for the years in question, Shapiro excluded from its tax base the distributive shares of its nonresident partners attributable to services performed outside of Philadelphia. The Department of Collections of the City assessed additional taxes for the years in controversy, denying that Shapiro could allocate its net profits in the manner described. The Tax Review Board sustained the assessment, holding that Shapiro's entire net profit was taxable. Shapiro's appeal to the court below was sustained and the board reversed. The City, by stipulation, intervened and appeals the order of the court below to this Court.

The question presented for our determination is whether a partnership composed of residents and non-residents of Philadelphia, having its sole office in Philadelphia and performing services both outside and inside Philadelphia, is subject to the Philadelphia Net

[ 409 Pa. Page 256]

Profits Tax on all of its profits, or whether the profits earned by nonresident partners for services performed outside Philadelphia are properly excludable from the ...


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