Appeal from judgment of Court of Common Pleas of Dauphin County, No. 148, Commonwealth Docket 1968, in case of Commonwealth v. Alcoa Properties, Inc.
N. David Rahal, with him Leon D. Metzger, and Metzger, Hafer, Keefer, Thomas and Wood, for appellant.
George W. Keitel, Deputy Attorney General, with him William C. Sennett, Attorney General, for Commonwealth, appellee.
Samuel C. Harry, and Morgan, Lewis & Bockius, for amici curiae.
Bell, C. J., Jones, Cohen, Eagen, O'Brien, Roberts and Pomeroy, JJ. Opinion by Mr. Justice Cohen. Mr. Justice Roberts and Mr. Justice Pomeroy concur in the result.
This is an appeal by Alcoa Properties, Inc. (Alcoa) a Delaware corporation authorized to do business in Pennsylvania, from a resettlement of its 1964 Pennsylvania franchise tax. The sole question is whether Alcoa is entitled to exercise the statutory election to compute its tax as a "holding company." This election provides that a "holding company" may compute tax by applying the tax rate (5 mills in 1964) to ten percent of the actual value of its whole capital stock rather than to a taxable value determined by applying the customary three-fraction formula to the actual value.
The appellation "holding company" is statutorily defined as follows: "The term 'holding company' shall mean any corporation (i) at least ninety percent of the gross income of which for the taxable year is derived from dividends, interest, gains from the sale or other disposition of stock or securities and the rendition of management and administrative services to subsidiary corporations, and (ii) at least sixty percent of the actual value of the total assets of which consists of stock, securities or indebtedness of subsidiary corporations". Act of August 24, 1963, P. L. 1228, amending Act of June 1, 1889, P. L. 420, 72 P.S. § 1871(e) (Supp. 1970). Here, there is no question concerning part (ii) of the definition. The parties agree that over 60% of the actual value of Alcoa's total assets consists of the stock of three subsidiary corporations.
The dispute arises in connection with part (i). In 1964 Alcoa's gross income was $56,176. Of this total $55,260 -- over 98% -- constituted interest. Of this interest $20,262 came from Alcoa's subsidiary corporations, and $34,998 came from loans to companies which
were not subsidiaries of Alcoa. The Commonwealth argues that the statute requires at least 90% of the income (in one or more of the various described forms) to come from subsidiaries and that since only about 37% of Alcoa's income was so derived, Alcoa does not qualify for the election.
Alcoa, on the other hand, argues that the statute is perfectly clear that the income from "dividends, interest, [and] gains from the sale or other disposition of stock or securities" may come from any source while only the income from "the rendition of management and administrative services" must come from subsidiaries. Since, as Alcoa points out, it meets this test, it is entitled to exercise the election.
The court below (one judge dissenting) agreed with the Commonwealth that 90% or more of all the gross income must come from subsidiaries and ruled against Alcoa. It did so, ...