Harry J. Rubin, Harrisburg, for appellant.
Eugene J. Anastasio, Deputy Atty. Gen., Harrisburg, for appellee.
Jones, C. J., and Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ.
The Pennsylvania corporate net income tax, Act of March 4, 1971, P.L. 74, No. 2, art. IV, § 401 et seq., as amended, 72 P.S. § 7401 et seq., is imposed on corporations transacting business within the Commonwealth. It is levied for the privilege of doing business in Pennsylvania. Turco Paint & Varnish Co. v. Kalodner, 320 Pa. 421,
A. 37 (1936). The tax base, called "taxable income," for computation of the tax is, essentially, federal taxable income to which the taxpayer "adds-back" any deduction for the Pennsylvania corporate net income tax taken on the federal return. Section 401(3) 1 of the Act, supra, 72 P.S. § 7401(3)1. Corporations transacting their entire business in the Commonwealth apply the tax rate to all their "taxable income," while those which are not purely local are taxed on only the portion of "taxable income" attributable to the state. This latter figure is determined through application of an apportionment percentage. Section 401(3) 1, 2, supra, 72 P.S. § 7401(3) 1, 2. In this appeal we are asked to decide whether a corporation whose entire business is not transacted in Pennsylvania may apportion that part of its tax base which represents the corporation's federal tax deduction for the Pennsylvania corporate net income tax.
The appeal is before us on an agreed stipulation of facts. Appellant, Triumph Hosiery Mills, Inc., is a New York corporation authorized to do business in Pennsylvania. During 1971 it engaged in business activity in Pennsylvania and was liable for Pennsylvania corporate net income tax. In its tax report for that year, appellant arrived at its tax base by adding to federal taxable income the amount of Pennsylvania corporate net income tax deducted on its federal income tax return. Appellant then apportioned the sum of these two items.
This computation was disputed by the Pennsylvania Department of Revenue and Department of the Auditor General. The two departments first applied appellant's apportionment percentage to federal taxable income. Then, the whole deduction for Pennsylvania corporate net income tax was "added-back" in order to arrive at "taxable income." The method employed by the Commonwealth yielded $6,484.02 more in taxes.
Thereafter, appellant filed a Petition for Resettlement which was refused. It then filed a Petition for Review
with the Board of Finance and Revenue which was also refused, two members of the Board dissenting. On appeal to the Commonwealth Court appellant ...