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decided: January 28, 1974.


Appeal from the Board of Finance and Revenue of the Commonwealth of Pennsylvania in case of In Re: Logan Clay Products Company, Docket No. R-22195. Transferred September 1, 1970, from the Court of Common Pleas of Dauphin County to the Commonwealth Court of Pennsylvania.


Henry W. Fulton, Jr., with him William J. Kenney and Kenney, Stevens, Clark & Semple, for appellant.

M. David Smeltz, Deputy Attorney General, for appellee.

President Judge Bowman and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Opinion by Judge Kramer. Dissenting Opinion by President Judge Bowman. Judge Rogers joins in this dissent.

Author: Kramer

[ 11 Pa. Commw. Page 630]

This is an appeal filed by Logan Clay Products Company (Logan) from an order of the Board of Finance and Revenue (Board) denying Logan's petition for resettlement of Logan's Corporate Net Income Tax for the fiscal year ending November 30, 1964. Logan had reported its Corporate Net Income Tax as $1,614.45 and had filed its tax return timely. On January 18, 1966, the Department of Revenue (Department) mailed Notice of Settlement to Logan assessing a deficiency in its

[ 11 Pa. Commw. Page 631]

Corporate Net Income Tax for the said period in the amount of $5,031.18 (exclusive of interest and penalty). The Department settled the tax at $6,645.63, thereby creating the alleged deficiency. After the appeal was filed, the matter came up for a hearing de novo before this Court. A record was made, the matter was fully briefed and argued before the Court en Banc. It is now ripe for determination.

The basic issue before the Court is whether Logan, which operates in several states, is engaged in a unitary or multiform business for Pennsylvania Corporate Net Income Tax purposes. The determination of that issue will resolve all of the questions raised by Logan and the Board.

Findings of Fact

1. The Logan Clay Products Company (Logan) is an Ohio corporation, having its principal place of business in Logan, Ohio.

2. Logan is engaged at Logan, Ohio in the business of manufacturing unglazed vitrified clay sewer pipe (hereafter sometimes referred to as the Ohio Division).

3. On June 30, 1958, Logan was merged with Graff-Kittanning Clay Products Company (Graff-Kittanning), a Pennsylvania corporation. As a result of this merger, Logan acquired, and has since operated as a separate division, two plants located in Pennsylvania, near Kittanning, Armstrong County, Pennsylvania (hereafter sometimes jointly referred to as the Pennsylvania Division). The Pennsylvania Division was purchased for approximately $1,800,000 ($1,300,000 by loans from Pennsylvania banks, and the balance was paid from a bank account of Logan in Ohio). Payments on these loans were made from Ohio.

4. One of the Pennsylvania Division plants, known as Worthington Ceramics, was located at Worthington,

[ 11 Pa. Commw. Page 632]

Pennsylvania and was engaged in manufacturing drain tile, building tile and flue liners (sometimes referred to separately as Worthington). The other plant in the Pennsylvania Division, also located in Worthington, Pennsylvania, is known as Graff-Kittanning Clay Products (sometimes referred to separately as Graff), and was engaged in the manufacture of certain types of salt-glazed vitrified clay sewer pipe and flue lining.

5. On February 6, 1967, the Department of Revenue (Department) mailed to Logan a Notice of Settlement assessing the Corporate Net Income Tax for the fiscal year ended November 30, 1964 (tax year) in the amount of $8,260.08 (including penalty), as a result of an alleged understatement of appellant's Corporate Net Income Tax liability.

6. A tax deficiency in the amount of $5,031.18 was assessed against the appellant, due to its reporting its Net Income from its Pennsylvania business on a separate or multiform basis.

7. Prior to the merger in 1958, the Ohio Division did no business in Pennsylvania and was not subject to its corporate taxes.

8. After the merger (June 30, 1958), the Pennsylvania Division continued to operate as a separate entity as it had before the merger.

9. After the merger and during the tax year in question, the two divisions (Pennsylvania and Ohio) were operated as two separate and distinct businesses.

10. Separate books and records were kept for each division.

11. Separate accounting records, balance sheets, profit and losses, were made for the Pennsylvania Division and the Ohio Division.

12. The Ohio Division was operated by Barton A. Holl, President and General Manager; Robert Sparnon, Secretary-Treasurer; Barton S. Holl, Vice President of Production; Richard H. Brandt, Vice President of

[ 11 Pa. Commw. Page 633]

Administration; and Richard H. Holl, Vice President of Sales, all of whom are residents of Ohio.

13. The Ohio Division was originally established in 1890, and had operated independently as a business until its merger with Graff-Kittanning in 1958.

14. The stockholders of Logan Clay Products Company, before and after the merger, were basically residents of Ohio.

15. John Frantz, a Pennsylvania resident and Pennsylvania Division Manager, is a stockholder. Most of the stockholders of Logan Clay Products Company reside in Ohio.

16. The Pennsylvania Division operated with a minimum of guidance from the Logan officials in Ohio.

17. Only limited supervision was given to the operations of the Pennsylvania Division; this being performed by Barton A. Holl, the controlling shareholder of Logan and his son, Richard H. Holl, which supervision did not exceed three visits per year.

18. There were no significant changes made in Pennsylvania Division personnel or policy after the merger.

19. John Frantz, a Pennsylvania resident, was the Manager of the Pennsylvania Division during the tax year.

20. During the tax year, Frantz supervised the entire Pennsylvania operations, which encompassed approximately 175 to 180 employees.

21. The only guidelines given to Frantz in conjunction with managing the Pennsylvania Division were "run it like it was your own."

22. Frantz did not receive any substantial supervision regarding the operations during the tax year.

23. There was no assertion of quality control by Ohio Division management to the operations in Pennsylvania.

[ 11 Pa. Commw. Page 63424]

. The Ohio Division purchased its workmen's compensation insurance from the State of Ohio.

25. The Ohio Division used the Farmers and Merchants Bank in Logan, Ohio and the City National Bank and Trust Company in Columbus, Ohio for its banking.

26. Except for the original loan payments, none of the funds in the Ohio banks were used to pay the obligations of the Pennsylvania Division.

27. The Ohio Division paid for its own insurance, supplies, and payroll.

28. The Ohio Division had its own invoices headed "Logan Clay Products Company, Logan, Ohio" for its customers.

29. There were no company-wide standards which apply jointly to the entire operations of Logan in Ohio and Pennsylvania.

30. There was no transfer or exchange of equipment between the Ohio and Pennsylvania Divisions.

31. The Pennsylvania Division was not financially dependent upon the Ohio Division.

32. Separate billings were made to each of the divisions for the work performed for each of them.

33. Each of the Pennsylvania plants were responsible for their own accounts receivable, their own invoicing, their own banking, their own payables, and their own general ledger.

34. Each plant in the Pennsylvania Division had separate invoices for its own ...

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