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UNITED STATES TOBACCO COMPANY v. COMMONWEALTH PENNSYLVANIA (12/05/75)

decided: December 5, 1975.

UNITED STATES TOBACCO COMPANY, APPELLANT,
v.
COMMONWEALTH OF PENNSYLVANIA, APPELLEE



Appeal from the Order of the Board of Finance and Revenue in case of Petition of United States Tobacco Company, Docket No. R-774.

COUNSEL

Frank A. Sinon, with him Robert L. Weldon, Sherill T. Moyer and Rhoads, Sinon & Reader, for appellant.

Eugene J. Anastasio, Deputy Attorney General, with him Vincent J. Dopko, Deputy Attorney General, for appellee.

President Judge Bowman and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Opinion by Judge Crumlish, Jr. Dissenting Opinion by Judge Rogers. Judge Blatt joins in this dissent.

Author: Crumlish, Jr.

[ 22 Pa. Commw. Page 212]

Presently before us is a de novo appeal from a decision and order of the Board of Finance and Revenue sustaining the settlement and order of the Resettlement Board*fn1 imposing the Corporation Income Tax*fn2 upon the

[ 22 Pa. Commw. Page 213]

United States Tobacco Company (Appellant) for its reporting period ending December 31, 1971. For the reasons hereinafter stated we affirm.

Appellant is a New Jersey corporation engaged in the manufacture and sale of tobacco products sold exclusively in interstate commerce and in part to Pennsylvania customers. No company manufacturing plants are maintained in Pennsylvania, and no offices, bank accounts, company records or corporate meetings are within the Commonwealth. Appellant's sole relevant contact with Pennsylvania, for the taxable period in question, was through so-called missionary representatives whose function is dispositive of the question of sufficient nexus for imposition of this tax.

Appellant's attack upon the settlement is framed as follows:

1. The imposition of Corporation Income Tax against Appellant, a corporation engaged solely in interstate commerce activities within Pennsylvania, premised upon the sales solicitation activities of its missionary representatives is violative of Act of September 14, 1959, 15 U.S.C. § 381 et seq. and the Commerce and Due Process Clauses of the United States Constitution.

[ 22 Pa. Commw. Page 2142]

. The add back of corporation income tax, after apportionment of Appellant's Pennsylvania income tax liability is invalid in that no statutory authority exists for such an add back, in that it results in the taxation of more of a corporation's income than is reasonably related to Pennsylvania activity, in that it discriminates against multistate corporations and it unconstitutionally taxes gross income to the extent of the add back.

I -- NEXUS

Section 502 of the Code, 72 P.S. § 7502, which defines imposition of the Corporation Income Tax states:

"Every corporation carrying on activities within this Commonwealth or owning property in this Commonwealth by or in the name of itself or any person . . . shall be subject to and shall pay a State property tax on taxable income derived from sources within this Commonwealth."

The incidence of this property tax measure falls upon the taxable income derived from sources within the Commonwealth; however, crucial to the imposition of this tax is that the corporation be carrying on activities sufficient to establish a nexus enabling constitutional exaction of the tax; or phrased differently, our inquiry must ultimately confront the question of whether the Commonwealth has given anything for which it can ask in return, afforded protections or conferred benefits to establish a sufficient nexus to subject Appellant to taxation. Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450 (1959).

Both the Commonwealth and Appellant have extensively reviewed the unfolding liberalization of the law as it relates to state taxation of foreign corporations with varying degrees of connection with the taxing state. It may be beneficial for the disposition of the instant case to briefly review the law in this somewhat complex area.

Our inquiry begins with Roy Stone Transfer Corp. v. Messner, 377 Pa. 234, 103 A.2d ...


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