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COMMONWEALTH v. TUBE CITY IRON & METAL COMPANY (11/27/68)

decided: November 27, 1968.

COMMONWEALTH
v.
TUBE CITY IRON & METAL COMPANY, APPELLANT



Appeal from judgment of Court of Common Pleas of Dauphin County, No. 126 Commonwealth Docket, 1966, in case of Commonwealth v. Tube City Iron & Metal Company.

COUNSEL

Robert D. Myers, with him Frank A. Sinon, and Rhoads, Sinon and Reader, for appellant.

Eugene J. Anastasio, Deputy Attorney General, with him William C. Sennett, Attorney General, for Commonwealth, appellee.

Bell, C. J., Musmanno, Jones, Cohen, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice Cohen. Mr. Justice Musmanno did not participate in the decision of this case. Dissenting Opinion by Mr. Justice Roberts.

Author: Cohen

[ 432 Pa. Page 602]

Tube City Iron and Metal Company (appellant) is a Pennsylvania corporation with its headquarters in this Commonwealth. Its business, both as expressed in its corporate charter and as evidenced by its actual operations, was dealing in scrap metal.

Around 1952 appellant acquired a scrap metal yard in West Virginia in payment of a debt due it and, as required by that state's laws, qualified to do business there as a foreign corporation. Since that time it regularly filed West Virginia Business and Occupation Tax Reports and Corporate License Tax Reports. However, at no time did it operate this scrap yard. Rather, from June 1, 1952, to November 1, 1954, and again from August 15, 1955, to September 30, 1961, it leased the real estate to other companies. Both of the lessees carried on a scrap metal business at the yard and sold all their scrap accumulations to appellant. In addition, appellant subsidized the lessees' operations by advancing money to the lessees.

On September 15, 1961, the scrap metal business at the West Virginia yard ceased. Thereafter, appellant made strenuous efforts to sell the property and finally

[ 432 Pa. Page 603]

    did so on April 21, 1964, at a considerable capital gain. This sale has produced the present dispute.

As a Pennsylvania corporation, appellant regularly filed Pennsylvania Corporate Net Income Tax returns. From 1952 through 1961 it claimed use of the three allocation fractions and regularly allocated outside of Pennsylvania the value of the West Virginia real estate in computing its tangible property fraction and the amount of rental receipts in computing its gross receipts allocation fraction. These allocations were accepted each year by the Commonwealth's taxing departments in settling appellant's corporate net income taxes.

In 1962 appellant states it did not use the allocation fractions because its income was too small to warrant such use. In 1963 it had no need to use the fractions because it operated at a loss. However, for its fiscal year ended September 30, 1964 (the year in which the sale of the property occurred) appellant again claimed its right to allocate and not only computed the three factors (excluding the value of the real estate from the numerator of the property fraction and the receipts from the sale of the property from the numerator of the gross receipts fraction), but also, more significantly, excluded from its Pennsylvania net income all of the gain from the sale of the property since such gain arose from the sale of a capital asset situated outside the Commonwealth.

In settling appellant's corporate net income tax for the year ended September 30, 1964, the taxing departments denied appellant's right to use the allocation fractions and simply taxed all of appellant's income, including the gain from the sale of the West Virginia property, at the statutory tax ...


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