Appeal from the Orders of the Court of Common Pleas of Philadelphia County in cases of The School District of Philadelphia v. W.T. Grant Corporation, No. 2038 January Term 1971; the School District of Philadelphia v. The Southland Corporation, No. 2608 May Term 1970; and The School District of Philadelphia v. Penn Fruit Company, No. 3826 October Term 1970.
Robert T. Lear, Assistant Counsel, with him Edward B. Soken, General Counsel, for appellant.
Robert R. Batt, with him Louis W. Ricker and, of counsel, Ballard, Spahr, Andrews & Ingersoll, for appellee, W.T. Grant Corporation.
Gordon W. Gerber, with him P. J. DiQuinzio and Dechert, Price & Rhoads, for appellee, The Southland Corporation.
Ralph S. Snyder, with him Ralph G. Wellington and Schnader, Harrison, Segal & Lewis, for appellee, Penn Fruit Company.
President Judge Bowman and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Rogers and Blatt. Judge Mencer did not participate. Opinion by President Judge Bowman.
[ 19 Pa. Commw. Page 404]
Pursuant to the provisions of section 2 of the Act of May 23, 1949, P.L. 1669, as amended, (Act),*fn1 the Philadelphia City Council authorized that city's school district (appellant) to levy and collect the general business tax conditionally imposed by the Act. This authority has been accorded appellant through ordinances adopted by said City Council on an annual basis, beginning in December of 1967.
Section 3 of the Act,*fn2 in pertinent part, provides:
"Every person engaging in any business in any school district of the first class . . . shall pay an annual tax at the rate of two (2) mills on each dollar of the annual receipts thereof, Provided, however, That the amount payable shall not exceed two (2) per centum of his net income."
Further, in anticipation of possible constitutional objections to the enforcement of the tax, section 3 requires the collector (appellant) to establish rules and regulations regarding allocation of the receipts of a business, where that business is not a purely local one. By instructions
[ 19 Pa. Commw. Page 405]
which accompanied the 1968*fn3 general business tax return forms, appellant directed taxpayers as follows:
"A taxpayer who is entitled to allocations and/or exclusions when calculating his tax according to the gross receipts method is also entitled to an allocation of net income if the 2 percent limitation of tax is applicable." (Emphasis added.)
However, by regulations issued in the early part of 1969, appellant reversed this procedure, and no longer permitted allocation for purposes of the net income limitation. Therein lies the cornerstone of this dispute.
Appellees are corporations engaged in interstate commerce, which also do business in Philadelphia, and are subject to appellant's tax. On their 1968 tax returns, appellees computed their taxes due on the basis of the net income limitation, applying the 2% rate only to those portions of their net incomes allocable to their performances of business in Philadelphia. Lending no deference to the post-1968 change in appellant's policy, as reflected by the 1969 regulations, appellees computed their 1969 taxes (as measured by their gross receipts and net incomes for the year 1968) by allocating both their receipts and their net incomes and, after applying the ...