Appeal from the Order of the Board of Finance and Revenue in case of Commonwealth of Pennsylvania v. J. L. Mott Corporation, No. R-21834. Transferred from the Court of Common Pleas of Dauphin County to the Commonwealth Court of Pennsylvania, September 1, 1970.
Harry J. Rubin, with him Krekstein, Rubin and Lasday, for appellant.
Eugene J. Anastasio, Deputy Attorney General, for appellee.
President Judge Bowman and Judges Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Judge Crumlish, Jr. did not participate. Opinion by President Judge Bowman.
[ 12 Pa. Commw. Page 495]
This is an appeal by J. L. Mott Corporation, a foreign corporate taxpayer, from the action of the Board of Finance and Revenue in refusing its petition for a resettlement of its 1962 calendar year foreign franchise tax. The parties have stipulated the facts, which we adopt as our findings of fact.
Appellant, a New Jersey corporation, was authorized to do business in Pennsylvania at all times material to this appeal. While appellant's certificate of incorporation in New Jersey includes manufacturing as a corporate purpose, during 1962 appellant itself carried on no manufacturing operations in Pennsylvania. It did, however, own a one-third undivided interest in real estate located in Philadelphia, which consisted of a lot and building. Appellant and co-owners leased this real estate to five unrelated tenants, several of which carried on manufacturing activities in the building. Appellant employed several maintenance and custodial personnel to care for the real estate. The rental received from tenants engaged in manufacturing constituted 89.4% of the total rental received by appellant.
The foreign franchise tax subjects foreign corporations to a tax at the rate of five mills imposed on the value of the corporation's capital stock. Act of June 1, 1889, P.L. 420, § 21(b), as amended, 72 P.S. § 1871(b). However, the Act of 1889 exempts from the value of the corporation's capital stock certain assets, which are actually and exclusively used in manufacturing in Pennsylvania, according to a statutorily prescribed formula of apportionment fractions (tangible property, wages and salaries, and gross receipts fractions). 72 P.S. § 1871(b).
The appellant submitted its 1962 franchise tax report to the Department of Revenue, computing its franchise
[ 12 Pa. Commw. Page 496]
tax following the statutory formula for those taking advantage of the manufacturer's exemption. In applying the exemption to its fractions, appellant excluded from the numerator of the tangible property fraction the value of all tangible property in Pennsylvania reported as used in manufacturing. This value was determined by taking the total value of appellant's one-third undivided interest in the real estate located in Philadelphia and applying to it a percentage (89.4%) representing the rental value of these premises being used by appellant's tenants for manufacturing.
Appellant also excluded from the numerator of the wages and salaries fraction the amount of compensation paid to appellant's employees reported as engaged in manufacturing in Pennsylvania. This amount was determined by taking the total amount of compensation paid by appellant to employees in Pennsylvania and applying the same rental percentage (89.4%) to this amount.
Appellant also excluded from the numerator of the gross receipts fraction the amount of gross receipts reported to be incident or appurtenant to manufacturing in Pennsylvania. This amount was determined by taking the total amount of rent received ...