John D. Rively, Harrisburg, for appellant.
Donald J. Murphy, Deputy Atty. Gen., Harrisburg, for appellee.
Eagen, C. J., and O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Roberts, J., filed a concurring opinion in which O'Brien, J., joined. Nix, J., concurred in the result. Pomeroy, J., filed a dissenting opinion. Eagen, C. J., dissents. Jones, Former C. J., did not participate in the decision of this case.
Appellants, Fred W. Staley and Barbara K. Staley, husband and wife, filed a state income tax return for the year 1971, showing joint income of $6,543. In reporting their taxable income, appellants did not include all of the payments of money received by the husband from the Prudential Insurance Company of America, by whom the husband was employed as a life insurance agent.
The appellee, Commonwealth of Pennsylvania, Department of Revenue, determined appellants' taxable income to be $8,524. The difference in the amount of taxable income reported by the appellants and that determined by the appellee, an amount of $1,981, represented business expenses which appellant Fred Staley had incurred during the taxable year. Appellants excluded from the total payments received
from the husband's employer that amount expended for business expenses, and reported the balance of payments received as taxable income. Appellee concluded that the exclusion was not proper, and computed appellants' tax liability to be higher than the amount paid. An assessment was issued for $40.67 due.
Appellants' petition for reassessment was denied and their petition for review of the Department's decision was denied, after hearing, by the Board of Finance and Revenue. The Commonwealth Court affirmed, Commonwealth v. Staley, 21 Pa. Commw. 193, 344 A.2d 748 (1975). We granted appellants' petition for allowance of appeal, and this appeal followed. If appellants are correct in the amount of their taxable income, they are entitled to a refund of $5.00.
Appellee concedes that appellants claimed business expenses were legitimate, but contends that the amount of money expended by appellant for these expenses is not to be excluded from the total payments received from the husband's employer.
The husband was employed pursuant to a contract which provided that he would receive payments from his employer on a commission basis for insurance sold. The contract further provided that the husband was to pay all of his business expenses.
Appellants contend that the total commission payments received by the husband from the employer do not constitute taxable income. The Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6, as amended, 72 P.S. § 7101 et seq. (Code), imposes an income tax on eight classes of income. Section 302 and section 303. The first class of income specified in the Code is that class of income with which we are primarily concerned. It is a class defined as "compensation." Section 303(a)(1) states that a tax is to be paid on:
"All salaries, wages, commissions, bonuses and incentive payments whether based on profits or otherwise, fees, tips and similar remuneration received for services rendered whether directly or through an agent and whether in cash or in property except income derived from the United
States Government for active duty outside the Commonwealth of Pennsylvania as a member of its armed forces." (Emphasis added.) 72 P.S. § 7303(a)(1) (Supp.1977-1978).
Section 301(d) of the Code also defines compensation as follows:
"(d) Compensation means and shall include salaries, wages, commissions, bonuses and incentive payments whether based on profits or otherwise, fees, tips and similar remuneration received for services rendered, whether ...