Appeal from judgment of Commonwealth Court, No. 58, T.D. 1970, from decision of Board of Finance and Revenue; appeal transferred September 1, 1970, from the Court of Common Pleas of Dauphin County to the Commonwealth Court of Pennsylvania, in case of Commonwealth of Pennsylvania v. Carheart Corporation.
William P. Thorn, with him Wolf, Block, Schorr and Solis-Cohen, for appellant.
George W. Keitel, Deputy Attorney General, with him J. Shane Creamer, Attorney General, for Commonwealth, appellee.
Jones, C. J., Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Opinion by Mr. Justice Roberts. Mr. Justice Eagen dissents and would affirm on the opinion of the Commonwealth Court.
This is an appeal from a judgment of the Commonwealth Court dismissing appellant's petition for resettlement of franchise tax for the year 1958.*fn1 The Commonwealth Court sustained the action of the Board of Finance and Revenue [Board] which approved the tax settlement as fixed by the Department of Revenue and Auditor General.
Appellant, a Delaware corporation, holds a Certificate of Authority ". . . to transact in the Commonwealth of Pennsylvania the business of to buy, sell and generally deal in and with real estate and to acquire, purchase,
own, hold, sell, assign, transfer, mortgage, pledge or otherwise dispose of and deal in stocks, bonds, mortgages, securities, notes and commercial papers." In 1958 -- the tax year in question -- appellant owned 27,500 shares of the stock of Meadville Corporation [Meadville] which it excluded from the value of its capital stock in computing its franchise tax. The Commonwealth, disallowed that exclusion and included the value of the Meadville stock in the tax base.
The franchise tax is imposed by the Act of June 1, 1889, P. L. 420, § 21, as amended, 72 P.S. § 1871(b) (1949), which provides: "(b) Every foreign corporation, joint-stock association, limited partnership, and company whatsoever, from which a report is required under the twentieth section hereof, shall be subject to and pay into the treasury of the Commonwealth annually, through the Department of Revenue, a franchise tax at the rate of five mills upon a taxable value to be determined in the following manner. The actual value of its whole capital stock of all kinds, including common, special, and preferred, shall be ascertained in the manner prescribed in the twentieth section of this act, and shall then be divided into three equal parts." The "three equal parts", mentioned in the statute, refer to three fractions involving the taxpayer's tangible property, wages, and gross receipts.*fn2 Commonwealth v. Rieck Inv. Corp., 419 Pa. 52, 56, 213 A.2d 277, 280 (1965). "All three fractions are designed as measures of corporate activity in the taxing state." Commonwealth v. Koppers Co., Inc., 397 Pa. 523, 531, 156 A.2d 328, 333 (1959). Accord, Commonwealth v. Columbia Gas and Elec. Corp., 336 Pa. 209, 8 A.2d 404 (1939).
The issue presented, as the Commonwealth Court observed, "is whether the Meadville stock bears sufficient relation to Carheart's business activities in Pennsylvania, so as to require the inclusion of the value of the Meadville stock in the formula as a Pennsylvania related valuation under which Carheart would have its franchise tax computed for the taxable year of 1958." Carheart Corp. v. Commonwealth, 5 Pa. Commonwealth Ct. 195, 210 (1972).
The Commonwealth Court reviewed the relevant authorities and properly concluded, " if the Meadville stock was an integral part of the ongoing business of Carheart in Pennsylvania, then the value of the Meadville stock must be included in the Pennsylvania capital stock value basis from which the franchise tax liability is computed." Id. at 213-14. (Emphasis added.) See also Commonwealth v. The Mundy Corp., 346 Pa. 482, 30 A.2d 878 (1943); Commonwealth v. Columbia Gas and Elec. Corp., supra. However, in applying this test to the ...