Appeal from order of Commonwealth Court, Nos. 408 and 573 T.D. 1970, in case of Commonwealth of Pennsylvania v. Blumenthal Brothers Chocolate Company.
Ivan I. Light, with him William P. Thorn, and Wolf, Block, Schorr & Solis-Cohen, for appellant.
Edward T. Baker, Deputy Attorney General, for Commonwealth, appellee.
Jones, C. J., Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Opinion by Mr. Justice Manderino.
The appellant, Blumenthal Brothers Chocolate Company, is a Pennsylvania Corporation with headquarters in Philadelphia. During its fiscal years 1965 and 1966, the appellant had gross receipts each year of approximately $16,000,000 from its business of manufacturing and merchandising chocolate, cocoa, and candy products. Approximately $5,000,000 of appellant's total gross receipts of $16,000,000 each year was negotiated or effected, in the metropolitan New York area, by two sales agents of the appellant located outside of Pennsylvania. The orders received by the sales agents for the appellant's products were forwarded to the appellant's headquarters in Philadelphia for approval and the products ordered were shipped from Philadelphia to the out-of-state customers. The sales agents were paid strictly on a commission basis by the appellant. There was no other financial arrangement between the appellant and the sales agents. One of these sales agents, E. Berg & Sons (Berg), rented an office in Teaneck, New Jersey and the other agent, Charles R. Pariente (Pariente), rented an office in Hackensack, New Jersey.
In computing its Pennsylvania corporate net income tax liability for its fiscal years 1965 and 1966, the appellant excluded the gross receipts of approximately $5,000,000 received each year from its sales in the New York metropolitan area. The exclusion was not permitted, however, in the resettlements of appellant's tax liability. The resettlements were sustained by the Board of Finance and Revenue and the Commonwealth Court. Blumenthal Brothers Chocolate Company v. Commonwealth, 5 Pa. Commw. 344, 291 A.2d 347 (1972). This appeal followed.
The appellant had excluded the gross receipts of $5,000,000 from the numerator of the gross receipts fraction which is used, as provided by law, in the
computation of a corporation's net income tax liability. Corporate Net Income Tax Act, Act of May 16, 1935, P. L. 208, § 2, 72 P.S. § 3420b(2)(c)(3) (repealed 1971 and replaced by Act of March 4, 1971, P. L. 74, No. 2, art. IV, § 401, as amended, 72 P.S. § 7401). Such exclusion, according to the appellant, was proper under a specific provision of the Corporate Net Income Tax Act. We do not agree.
The Corporate Net Income Tax Act provides that the numerator of the gross receipts fraction used in computing corporate net income tax liability shall be ". . . the amount of the taxpayer's gross receipts from business assignable to this Commonwealth . . ." The Act further provides that the gross receipts assignable to Pennsylvania "shall be . . . [the corporation's] gross receipts" minus any gross receipts which qualify under certain exceptions enumerated in the Act. The gross receipts of $5,000,000, according to the appellant, fall under the exception in the Act which provides ". . . except those [gross receipts] negotiated or effected on behalf of the corporation by agents or agencies chiefly situated at, connected with, or sent out from, premises for the transaction of business maintained by the taxpayer outside of [Pennsylvania]. . . ." Corporate Net Income Tax Act, Act of May 16, 1935, P. L. 208, § 2, 72 P.S. § 3420b(2)(c)(3) (emphasis added).
The exception, of course, can only apply if all of the tests enumerated in the statute have been met by the appellant. There is no dispute that gross receipts of $5,000,000 each year were "negotiated or effected on behalf of the [appellant] by agents . . . [located] outside of Pennsylvania . . ." and there is no dispute that, in New Jersey, there were ". . . premises for the transaction of business . . ." by Berg and Pariente. These conclusions, however, are not sufficient ...