Appeal from the Order of the Board of Finance and Revenue in case of Petition of First Federal Savings and Loan Association of Hazleton, Docket No. R-26570.
Mary G. Cooper, with her Bigelow, Gillespie, Larocca and Cooper, for appellant.
Paul S. Roeder, Deputy Attorney General, with him Donald J. Murphy, Deputy Attorney General, and R. Scott Shearer, Deputy Attorney General, for appellee.
President Judge Bowman and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., and Blatt. Judges Mencer and Rogers did not participate. Opinion by President Judge Bowman. Judge Kramer did not participate in the decision in this case.
[ 25 Pa. Commw. Page 360]
This is an appeal from a decision of the Board of Finance and Revenue denying First Federal Savings and Loan Association of Hazleton's (appellant) petition for review of the resettlement of its Mutual Thrift Institutions (MTI) tax for the year ending December 31, 1971.*fn1 In determining the appellant's
[ 25 Pa. Commw. Page 361]
net earnings, upon which the tax is based, the Department of Revenue (Department) included interest received on Federal obligations. Appellant asserts that the inclusion of such interest is prohibited in view of the provisions of the Act of August 31, 1971, P.L. 395, 72 P.S. § 4752-1 et seq. (hereinafter referred to as Act No. 94), as they relate to those of 31 U.S.C. § 742, which provides:
"Except as otherwise provided by law, all stocks, bonds, Treasury notes, and other obligations of the United States, shall be exempt from taxation by or under State or municipal or local authority. This exemption extends to every form of taxation that would require that either the obligations or the interest thereon, or both, be considered, directly or indirectly, in the computation of tax, except nondiscriminatory franchise or other nonproperty taxes in lieu thereof imposed on corporations, and except estate taxes or inheritance taxes." (Emphasis added.) It is not disputed that the MTI tax is a "franchise or other nonproperty" tax within the meaning of 31 U.S.C. § 742. Appellant's argument is that the tax is discriminatory in that the income from Federal obligations is included in net earnings while that from state and local obligations is, or rather should legally be, excluded. If the tax does have such a discriminatory effect, it is invalid. Commonwealth v. Curtis Publishing Co., 363 Pa. 299, 69 A.2d 410 (1949), petition denied, 339 U.S. 928 (1950). However, the fact is, as the parties have stipulated, the Department has, since the effective date of the tax, included income on Commonwealth obligations in computing net income for MTI tax purposes. Thus, appellant's argument is reduced to the proposition that such practice is and has been illegal.
Appellant places primary reliance on Act No. 94, which provides in pertinent part:
[ 25 Pa. Commw. Page 362]
"Notwithstanding the provisions of any law presently or hereafter enacted to the contrary, all obligations, their transfer and the income therefrom . . . issued by the Commonwealth, any public authority, commission, board or other agency created by the Commonwealth, any political subdivision of the Commonwealth or any public authority created by any such political subdivision, shall at all times be free from taxation . . . except . . . [inheritance and estate taxation] . . . ." 72 P.S. § 4752-2.
Appellant argues that this provision clearly exempts the income from Commonwealth obligations from "net income" for purposes ...