Appeal from the Order of the Board of Finance and Revenue is case of Petition of Greenville Steel Car Company, Docket MR-26623.
Carl F. Chronister, with him Reed, Smith, Shaw & McClay, for appellant.
Eugene J. Anastasio, Deputy Attorney General, for appellee.
President Judge Bowman and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Opinion by Judge Crumlish, Jr. President Judge Bowman and Judge Mencer dissent.
[ 20 Pa. Commw. Page 386]
This appeal presents a narrow but important question of first impression under the Tax Reform Code of 1971, Act of May 4, 1971, P.L. 6, as amended, 72 P.S. §§ 7101 et seq. (Supp. 1974-1975). May a domestic corporation electing to compute and pay its capital stock-franchise tax as a foreign corporation apportion the actual value of its capital stock if it does not have income from business activity which is taxable in another state for the taxable year ending December 31, 1971?
The parties have waived a jury trial and stipulated to the following facts which are binding upon this Court as well as the parties. Anastasi Brothers Corp. v. Commonwealth, 455 Pa. 127, 315 A.2d 267 (1974); Commonwealth v. Carheart Corp., 450 Pa. 291, 299 A.2d 628 (1973). Greenville Steel Car Company (hereinafter "Appellant") is a Pennsylvania corporation which manufactures and sells railroad cars and earth moving equipment with its principal plant located in Greenville, Pennsylvania. In addition to the sale of its products, both intrastate and interstate during the calendar year ending December 31, 1971, the taxable year here involved, Appellant leased railroad cars to customers with locations both within and without the state. It, however, was not assessed with a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, or a corporate stock tax by any other state for the 1971 taxable year, although it did pay various ad valorem, property and utility taxes to other states. A capital stock tax report was duly filed with the Department of Revenue (Department) in which Appellant elected to compute its tax as a foreign corporation under section 602(a) of the Tax Reform Code of 1971 (Code), 72 P.S. § 7602(a) (Supp. 1974-1975). The actual value of
[ 20 Pa. Commw. Page 387]
its capital stock was computed to be $15,000,000.00 which, after applying the three-factor apportionment formula of sections 401(3)2. (a)(10) -- (18) of the Code*fn1 72 P.S. Department settled Appellant's capital stock tax liability at $92,112.00 by reappraising the actual value of its capital stock to be $16,000,000.00 and applying a single § 7401(3)2. (a)(10)(18) (Supp. 1974-1975), yielded a tax liability of $74,832.75.*fn2 On September 1, 1972, the taxable assets fraction of $25,422,668.00/$44,159,179.00. The Department disallowed apportionment because Appellant did not have income taxable in another state within the meaning of sections 401(3)2. (a)(2) and (3)
[ 20 Pa. Commw. Page 388]
of the Code, 72 P.S. § 7401(3)2. (a)(2) and (3) (Supp. 1974-1975), which it interpreted as a condition precedent to apportionment or allocation for franchise tax purposes. Upon the filing of a petition for resettlement, the Department resettled Appellant's tax liability to $86,355.75 based upon the same single taxable assets fraction as applied to Appellant's original appraisal value of $15,000,000.00. On February 28, 1973, the Board of Finance and Revenue refused Appellant's petition for review of this settlement, and this appeal followed. We affirm.
[ 20 Pa. Commw. Page 389]
Section 602(a) of the Code, 72 P.S. § 7602(a),*fn3 preserved the election available to a domestic corporation to compute its capital stock as would a foreign corporation computing its franchise tax as set forth in section 21(b) of the Franchise Tax Act, Act of June 1, 1889, P.L. 420, as amended, 72 P.S. § 1871(b) (repealed by the Code). Section 602(a) provides in pertinent part: "That every domestic corporation . . . shall be subject to, and pay . . . a tax at the rate of ten mills, upon each dollar of the actual value of its whole capital stock . . . as ascertained in the manner prescribed in section 601, for the calendar year 1971 and the fiscal year beginning in 1971 and each year thereafter, except that any domestic corporation . . . may elect to compute and pay its tax under and in accordance with the provisions of subsection (b) of this section 602. . . ." Subsection (b) of 602, in turn, provides: "Every foreign corporation, joint-stock association, limited partnership, and company whatsoever, from which a report is required under section 601 hereof, shall be subject to and pay . . . a franchise tax at the rate of ten mills . . . upon a taxable value to be determined in the following manner. The actual value of its whole capital stock . . . shall be ascertained in the manner prescribed in section 601 of this article. The taxable value Page 389} shall ...