Appeal from judgment of Court of Common Pleas of Dauphin County, No. 88 C.D. 1967, in case of Commonwealth of Pennsylvania v. Rosenbloom Finance Corp.
George W. Keitel, Deputy Attorney General, for Commonwealth, appellant.
Frank A. Sinon, with him Sherill T. Moyer, and Rhoads, Sinon & Reader, for appellee.
Jones, C. J., Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Opinion by Mr. Justice Manderino.
The issue in this appeal is whether the appellee, Rosenbloom Finance Corporation, may elect to be taxed as a holding company and thus pay less Pennsylvania corporate franchise tax. The Board of Finance and Review resettled appellee's reported franchise tax for the year 1963. The resulting tax was $25,972.03. In an appeal to the Court of Common Pleas of Dauphin County sitting as the Commonwealth Court, appellee raised two issues: (1) whether the valuation of appellee's capital stock was proper, and (2) whether the appellee was a holding company and thus entitled to a reduced tax rate.
The first issue was decided in favor of the Commonwealth and is not raised in this appeal. The second issue was also initially decided in favor of the Commonwealth. The appellee, however, filed exceptions which were sustained. The exceptions were sustained because the Commonwealth Court held that our decision in Commonwealth v. Alcoa Properties, Inc., 440 Pa. 42, 269 A.2d 748 (1970), decided after appellee filed its exceptions, mandated a conclusion that the appellee was a holding company. The Commonwealth Court thus ordered that the Commonwealth establish a credit in favor of the appellee in the amount of $25,666.83. From that order the Commonwealth has appealed.
Under the corporate franchise tax law, a corporation may elect to be taxed as a holding company, and thus pay a lower tax rate, if the electing corporation meets two criteria of the statutory definition of holding company which is as follows: "The term 'holding company' shall mean any corporation (i) at least ninety percent of the gross income of which for the taxable year is derived from dividends, interest, gains from the sale or other disposition of stock or securities and the rendition of management and administrative services to subsidiary corporations, and (ii) at least sixty percent of the actual value of the total assets of which consist of stock, securities or indebtedness of subsidiary corporations." Act of June 1, 1889, P. L. 420, as amended, 72 P.S. § 1871(e) (replaced by Act of March 4, 1971, P. L. 6, No. 2, art. VI, § 602, as amended, 72 P.S. § 7602(f)).
In this case we are involved with part (ii) of the definition. The issue is whether, in part (ii), the phrase "of subsidiary corporations" modifies the immediately preceding phrase "of stock, securities, or indebtedness" or whether it modifies only the immediately preceding word "indebtedness." If the phrase "of subsidiary corporations" modifies the phrase "of stock, securities or indebtedness," a corporation's assets consisting "of stock, securities" in non-subsidiary corporations should not be considered in determining the necessary sixty percent requirement of part (ii). If, however, the phrase "of subsidiary corporations" modifies only the word "indebtedness" a corporation's assets consisting "of stock, securities" of any corporation -- not necessarily a subsidiary corporation -- should be considered. In this case, sixty percent of the actual value of appellee's total assets does not consist "of stock, securities" of a subsidiary corporation but does consist "of stock, securities" of non-subsidiary corporations.
Appellee argues that our decision in Alcoa Properties controls the issue now before us. We do not agree. This case and Alcoa Properties both concern the statutory definition of holding company, but not the same part of that definition. In Alcoa Properties, we were concerned with part (i) of the definition. We concluded that the phrase "to subsidiary corporations" in part (i) modified only the phrase "the rendition of management and administrative services," and not the phrase "from dividends, interest, gains from the sale or other disposition of stock or securities." We reached that conclusion because any other result would have distorted the "clear language of the Act." This case involves not part (i) but part (ii) of the definition. In Alcoa Properties, part (ii) of the definition was not ...