Appeal from judgment of Court of Common Pleas of Dauphin County, No. 185 Commonwealth Docket, 1961, in case of Commonwealth v. Weldon Pajamas, Inc.
Harry J. Rubin, with him Krekstein and Rubin, for appellant.
Edward T. Baker, Deputy Attorney General, with him William C. Sennett, Attorney General, for Commonwealth, appellee.
Bell, C. J., Musmanno, Jones, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice Roberts. Mr. Justice Musmanno did not participate in the decision of this case. Mr. Justice Cohen took no part in the consideration or decision of this case. Dissenting Opinion by Mr. Justice Jones. Mr. Justice Eagen joins in this dissent.
This appeal involves the question whether a foreign corporation, subject to the franchise tax, which does not actually engage in manufacturing in Pennsylvania is nonetheless entitled to the manufacturing exemption with respect to certain tangible property owned by it in Pennsylvania and with respect to compensation paid to several employees in Pennsylvania. The Commonwealth Court answered the question in the negative and entered final judgment for the Commonwealth, from which the taxpayer appealed.
Appellant, Weldon Pajamas, Inc. ("Weldon, N.Y."), is a New York corporation organized, inter alia, for
manufacturing purposes and authorized to transact business in Pennsylvania. Its principal office is in New York City. Appellant in its New York office purchases cloth suitable for use in pajamas and bathrobes and ships it to Williamsport, Pennsylvania, where Weldon Manufacturing Company of Pennsylvania ("Weldon, Penna."), a Pennsylvania corporation which is a wholly-owned subsidiary of appellant, manufactures the cloth into finished products and stores them in its own warehouse. Upon receipt by appellant of an order, finished products are shipped directly to the customer from Weldon, Penna.'s warehouse in Williamsport. The cloth furnished to Weldon, Penna. by appellant remains the property of appellant through all the stages of manufacture into the finished product. Three employees of appellant, one of whom is also President of Weldon, Penna. work at Weldon's plant in Pennsylvania to coordinate the activities of the two corporations.
Weldon, Penna. receives the manufacturing exemption on its capital stock tax for all the assets owned by it and used in manufacturing in Pennsylvania. This does not include the raw material, work in process and finished inventory inasmuch as those assets are owned by appellant. In preparing its franchise tax report for the fiscal year ended June 30, 1959, appellant (Weldon, N.Y.) excluded from the numerator of the tangible property fraction the average value of the raw material, work in process and finished inventory located at Weldon's plant in Pennsylvania and excluded from the numerator of the wages and salaries fraction the compensation paid to its employees working in Pennsylvania. The above items were excluded in the taxpayer's return on the basis that they were actually and exclusively used in manufacturing.
The franchise tax is imposed on foreign corporations doing business in Pennsylvania. While it differs
in certain respects from the capital stock tax which is applicable to domestic corporations, both taxes are governed by the same basic statute, the Act of June 1, 1889, P. L. 420, § 21(b), as amended, 72 P.S. § 1871. It has been frequently pointed out that these two taxes were designed to subject domestic and foreign corporations to substantially similar tax burdens. Commonwealth v. National Biscuit Co., 390 Pa. 642, 136 A.2d 821 (1957); Commonwealth v. Columbia Gas Corp., 336 Pa. 209, 8 A.2d 404 (1939). Thus, despite some differences in statutory language, we are convinced that the Legislature intended the manufacturing exemption to be administered uniformly and in accordance with the same basic principles, regardless of whether the taxpayer was a domestic or a foreign corporation.
Historically, the manufacturing exemption, with but one exception, has been reserved to those corporations organized for manufacturing purposes and actually engaged in manufacturing in Pennsylvania. The exception to this rule relates to a corporation organized for manufacturing purposes and owning a manufacturing plant which is leased to another corporation which is actually engaged in manufacturing. See Act of July 11, 1901, P. L. 668, 72 P.S. § 1893. We view this policy as being a fulfillment of the legislative intent and in furtherance of the purpose to be served by the exemption.
Appellant is organized for manufacturing purposes but is not actually engaged in manufacturing in Pennsylvania or elsewhere. Nor does it own a manufacturing plant which is leased to a manufacturer. It argues, however, that the raw material, work in process and finished inventory which it owns in Pennsylvania are actually and exclusively used in ...