Appeal from the Order of the Board of Finance and Revenue in case of In Re: Resettlement Petition of Jubilee Knitting Mills, Inc. Transferred from the Court of Common Pleas of Dauphin County to Commonwealth Court of Pennsylvania, September 1, 1970.
Lewis H. Markowitz, with him Markowitz, Kagen & Griffith, 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 Judge Mencer.
Jubilee Knitting Mills, Inc. (Jubilee) is a Pennsylvania corporation, a wholly owned subsidiary of Triumph Hosiery Mills, Inc. (Triumph), also a Pennsylvania corporation, which was organized for and engaged in the manufacture of ladies' hosiery and knitwear apparel. From its inception until June 30, 1965, Jubilee manufactured ladies' seamless hosiery and knitwear apparel in Pennsylvania and sold the manufactured products exclusively to Triumph, its parent corporation. Upon the cessation of its manufacturing operations, Jubilee leased all of its equipment to Triumph
which thereafter, and during the year 1967, used the leased equipment to manufacture the same type of hosiery and knitwear which had previously been manufactured by Jubilee.
On June 30, 1965, Triumph was indebted to Jubilee in the sum of $278,775 for goods sold and delivered to Triumph by Jubilee. This indebtedness was reduced to $249,775 by December 31, 1965. The change in the indebtedness represented increases for unpaid equipment rental by Triumph and decreases by cash payments by Triumph. These cash payments by Triumph also included a $30,000 dividend declared by Jubilee which was due and owing to Triumph.
Movement in the indebtedness account resulted in a balance due Jubilee on December 31, 1966 of $253,000; on December 31, 1967, the same amount, and on December 31, 1968, a balance of $361,000. This indebtedness owed by Triumph to Jubilee was not repaid, but money of a comparable amount was used by Triumph to purchase additional equipment which was used in manufacturing by Triumph. Interest on the indebtedness was paid by Triumph to Jubilee.
We are here concerned with Jubilee's capital stock tax return for the year ending December 31, 1967. Jubilee timely filed its return and computed its tax on the basis of a sworn valuation of its capital stock of $500,000 and a taxable apportion fraction of 3,578/809,333.*fn1 The Commonwealth accepted Jubilee's capital stock valuation but settled Jubilee tax by increasing the numerator of the taxable apportion fraction by 264,874, which made the fraction 268,452/809,333.*fn2
The increase of 264,874 in the numerator was due to the disallowance by the Commonwealth of the $253,000 owed by Triumph ...