Appeal from judgment of Court of Common Pleas of Dauphin County, No. 666 Commonwealth Docket, 1964, in case of Commonwealth v. Lohmann-Johnson Oil Co., Inc.
Reginald L. Pawlowski, for appellant.
Eugene J. Anastasio, Deputy Attorney General, with him William C. Sennett, Attorney General, for Commonwealth, appellee.
Bell, C. J., Cohen, Eagen, O'Brien, Roberts and Pomeroy, JJ. Opinion by Mr. Justice Cohen. Mr. Justice Jones took no part in the consideration or decision of this case.
This appeal involves the corporate net income tax of the Lohmann-Johnson Oil Co., Inc., for the year ended April 30, 1963. The company (appellant) is a Pennsylvania corporation located in Pittsburgh and engaged in the business of drilling for oil and gas under contracts with other parties. These contracts are negotiated on appellant's behalf by employees located at its Pittsburgh office; but the work itself is performed in three different states: Pennsylvania, Maryland and West Virginia.
In reporting its corporate net income tax for the year ended April 30, 1963, appellant took the position
that it was a construction contractor and allocated receipts from its drilling operations to the state in which the individual job was located. The Commonwealth, however, took the position that appellant was not a construction contractor and allocated all the receipts to Pennsylvania since all the contracts were negotiated here. The court below agreed with the Commonwealth, and appellant has appealed to this Court.
The Corporate Net Income Tax Act of May 16, 1935, P. L. 208, § 2(c), as amended, 72 P.S. § 3420b, states on the question of gross receipts allocation that one-third of a corporation's net income is to be used as the base for allocating receipts and that the amount allocable is to be found by applying a fraction to that base. The denominator of the fraction is the amount of the corporation's gross receipts from all its business. The numerator includes various receipts determined to be assignable to Pennsylvania. The relevant language of the statute states that all receipts are assignable to Pennsylvania except those negotiated or effected by agents of the corporation "situated at, connected with, or sent out from" premises maintained by the corporation outside of Pennsylvania. It goes on as follows:
". . . In the case of construction contracts, negotiated or effected, at an office in the State of Pennsylvania, but performed outside the state, the gross receipts under such contracts shall be assignable outside the state, except that if the activities under any such contract to which the gross receipts are attributable shall occur partly within the state and partly outside the state, such proportion of the gross receipts under said contract shall be assignable to Pennsylvania as the direct and indirect costs, incurred in Pennsylvania under the contract for the taxable year, bear to the total cost incurred thereunder for the taxable year. In the case of construction contracts, negotiated or effected,
at an office outside the state, but performed in the state, the gross receipts under such contracts shall be assignable to the state, except that if the activities under any such contract to which the gross receipts are attributable shall occur partly within the state, and partly outside the state, such proportion of the gross receipts under said contract shall be assignable to Pennsylvania as the direct and indirect costs, incurred in ...