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decided: August 18, 1972.


Appeal from the Order of the Board of Finance and Revenue in case of Petition of Moreland Realty Corporation, No. R-23937. Appeal transferred from the Court of Common Pleas of Dauphin County to the Commonwealth Court of Pennsylvania, September 1, 1970.


William Y. Rodewald, with him Buchanan, Ingersoll, Rodewald, Kyle & Buerger, for appellant.

Edward T. Baker, Deputy Attorney General, for appellee.

President Judge Bowman and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Opinion by Judge Rogers.

Author: Rogers

[ 6 Pa. Commw. Page 245]

This appeal from a decision of the Board of Finance and Revenue requires us to determine the validity of the action of State taxing authorities in including out-of-state assets in settling the franchise tax of a foreign corporation against the taxpayer's claim that the assets and results of its business conducted elsewhere may not be included in computing its tax. The field has been well worked by the Common Pleas Court of Dauphin County and the Supreme Court of Pennsylvania*fn1 but remains difficult because each case requires the application of very general principles to a factual situation differing in detail from those previously considered.

Morewood Realty Corporation (Morewood) is a Delaware corporation whose principal place of operations is New York City. There, during and before 1966, the tax year in question, its board met, its business was transacted and its books and records were kept. Its corporate charter authorized it to own, lease and deal in real estate, to invest in securities, to manufacture and "to carry on other businesses."*fn2 Morewood was

[ 6 Pa. Commw. Page 246]

    registered to do business in Pennsylvania under a certificate authorizing it only to own, operate and deal in real estate and to hold and deal in securities.

During 1966, Morewood owned and leased to unrelated tenants through a rental agent two retail store buildings in Pittsburgh. The rental agent managed the properties, collected rents, deducted his fees and deposited the balance in a Pittsburgh bank from which it was withdrawn by Morewood and credited to an account in a New York City bank. Morewood owned separate insurance policies for the Pittsburgh properties. It maintained separate income, expense, asset and liability accounts for the Pennsylvania properties and segregated this activity on its balance sheets and profit and loss statements.

The Pittsburgh buildings were purchased, one in 1965 and the other in 1966, for the total sum of $455,000. The purchase prices were paid wholly in cash derived from the sale of another Pennsylvania retail store building and from general assets. The buildings produced during 1966 gross rents of $69,688 and a net profit of $1,654, after depreciation and expenses, including local real estate taxes of $42,964.

The taxpayer was engaged wholly in the State of New York in two other enterprises.

It owned and managed a portfolio of marketable securities worth in 1966 about $43,000,000 from which it derived about $1,190,000 in dividends and interest. The securities were held in New York, bought and sold there and the income and other proceeds received and deposited in banks in New York City.

The taxpayer's remaining activity was as the owner of a sand and gravel property on Long Island. Prior to 1956, Morewood itself mined, processed and sold the

[ 6 Pa. Commw. Page 247]

    sand and gravel on the site; after that time and during 1966, it licensed another corporation to remove the minerals in consideration of royalty payments. In addition it owned sand and gravel machinery, equipment and facilities which it rented to its licensee. The actual value of these properties, real and personal, on December 31, 1966 was $5,095,969. In 1966, Morewood received $105,010 in gross rentals for its machinery, equipment and facilities and $228,700 in gross royalties for sand and gravel removed. All of these receipts were had and held in New York. Morewood was compelled to exercise continuous and extensive oversight of the sand and gravel operation to ensure compliance by the licensee with the agreement with respect to amount of minerals removed and the amount of royalties due, the observance by the lessee of mining regulations, the prevention of pollution from the use of its property, and the surveillance of prices for minerals in the market upon which the royalties are partially based. Because the mining operations were noisy, dirty and unsightly they evoked public antagonism requiring constant attention by Morewood in the prevention of annoyance to the public of Long Island, the satisfaction of complaints and the creation of good will where possible. The taxpayer has engaged in protracted litigation resulting from one condemnation of its property and much activity to prevent another. As the result of an investigation of prices for sand and gravel conducted by Morewood's officers and accountants engaged by it, the taxpayer's royalty income was increased during one two-year period by $166,000.

All sales or purchases of sand and gravel or mining assets were made in New York and all receipts from that activity were received there. None of these activities took place in Pennsylvania. No equipment has ...

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