Appeal from the Order of the Board of Finance and Revenue in case of In Re: Petition of The Huntington Creek Corporation. Appeal transferred to the Commonwealth Court of Pennsylvania from the Court of Common Pleas of Dauphin County, September 1, 1970.
Ronald F. Kidd, with him Duane, Morris & Heckscher, for appellant.
Eugene J. Anastasio, Deputy Attorney General, for appellee.
President Judge Bowman and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Opinion by President Judge Bowman.
This appeal raises a very narrow question concerning the entitlement of a foreign corporation to various credits against its foreign excise tax liability resulting from payments of excise tax by the corporation at an earlier time and by other corporations now merged into the taxpayer corporation.
The appellant is a Maryland corporation called the Huntington Creek Corporation (Huntington Creek-Maryland). It was originally incorporated in Maryland as the Hunter-Wilson Distilling Company, Inc. (Hunter-Wilson) and first qualified to do business in Pennsylvania upon the issuance of a certificate of authority by the Department of State on January 2, 1941.
On June 3, 1960, following the sale of certain assets located in Pennsylvania, Hunter-Wilson withdrew its Pennsylvania certificate of authority and on August 9, 1960 changed its name to Henry Kelly Importing and Distilling Company, Inc. (Henry Kelly), under its Maryland corporate charter.
Leroux and Company, Inc. (Leroux), a Delaware corporation incorporated in 1958 and qualified in Pennsylvania on April 27, 1960, merged with a Pennsylvania corporation, the Huntington Creek Corporation (Huntington Creek-Pennsylvania) on March 31, 1962. Huntington Creek-Pennsylvania had been a domestic corporation since 1947 originally chartered under the name of Dillinger Distillers, Inc.
On August 31, 1965, Huntington Creek-Pennsylvania and Henry Kelly, the Maryland corporation, effected a merger whereby the surviving Maryland corporation took the name of the merged Pennsylvania corporation. The surviving foreign corporation, Huntington
Creek-Maryland, applied for and received a certificate of authority to do business in Pennsylvania on the date of the merger.
During the period when it was not qualified to do business in Pennsylvania -- between June 3, 1960 when it withdrew its certificate of authority and August 31, 1965 when it renewed its certificate and became requalified -- the Maryland corporation (Hunter-Wilson, Henry Kelly, Huntington Creek-Maryland) carried on no business activities in Pennsylvania except for warehousing various quantities of whiskey within the Commonwealth. As a result of such warehousing, the Maryland corporation was liable for and paid corporate income taxes from 1960 to 1965 but did not pay foreign excise taxes.
Upon recertification, Huntington Creek-Maryland filed various corporate tax reports required by law to be filed by a foreign corporation engaged in intrastate business in Pennsylvania. Among those reports was the one generating this appeal.
Huntington Creek-Maryland filed a Foreign Excise Tax report pursuant to the Act of July 25, 1953, P.L. 560, 72 P.S. § 1861 et seq., repealing and amending the Foreign Bonus Act of May 8, 1901, P.L. 150, 72 P.S. § 1861 et seq.*fn1
The Act requires all foreign corporations qualified to do business in Pennsylvania to pay a one-time privilege tax to the Commonwealth on their initial capital upon entry or upon any subsequent increase in such capital as defined in the Act. A system of credits and deductions is provided for in the original Act of July 25, 1953 and in subsequent amendments found in the Act of August 14, 1963, P.L. 1102. The original Act
provides at Section 2: "Imposition of Tax. -- From and after the effective date of this act, every foreign corporation, in addition to complying with all the laws of the Commonwealth now or hereafter in effect, shall, for the privilege of exercising its franchises in Pennsylvania, pay to the Department an excise tax of one-third of one per centum upon the amount of any increase of capital actually employed wholly within this Commonwealth."
Under the definitional section, we find that "increase of capital" as used above in Section 2 means both the subsequent increase of capital occurring in a foreign corporation qualified before the effective date of the Act and the initial total capital of a foreign corporation qualifying to do business for the first time after 1953.
"'Increase of Capital' means (a) as to foreign corporations doing business in this Commonwealth at the effective date of this act, any increase of capital in excess of the amount actually employed wholly in this Commonwealth at any time prior to the first day of January, one thousand nine hundred fifty-three, by such corporations reporting on a calendar year basis, or at any time prior to the first day of any fiscal year, beginning in the calendar year one thousand nine hundred fifty-three, by such corporations reporting on a fiscal year basis; (b) as to corporations admitted to do business in this Commonwealth after the effective date of this act, capital actually employed wholly within this Commonwealth at the time of or after receiving a certificate of authority to do business from the Department of State and any increase thereof."
The appellant here had $15,969,375 as the maximum amount of capital employed in Pennsylvania during its first fiscal year. However, as Hunter-Wilson, the Maryland corporation had employed a maximum capital
of $9,305,482 (occurring in 1957) during its nineteen years of doing business here. The appellant therefore claimed a deduction from total capital employed of $9,305,482 as a foreign corporation qualified before the Act of July 25, 1953, 72 P.S. § 1861 et seq., and therefore liable for excise tax only on increases in capital above that capital on which tax had already been paid.
Further, appellant deducted an additional $1,213,491 from its total capital as the maximum amount of capital employed in Pennsylvania by Leroux during its existence as a qualified foreign corporation before its 1962 merger with Huntington Creek-Pennsylvania.
The Department of Revenue disallowed the appellant's claimed credits and assessed foreign excise tax liability against the total capital employed during the corporation's first fiscal year in Pennsylvania. The appellant filed a petition for resettlement which was denied and a petition for review with the Board of Finance and ...