Appeal from the Order of the Board of Finance and Revenue in case of In Re: After Six, Inc., Docket No. R-398.
William P. Thorn, with him Wolf, Block, Schorr and Solis-Cohen, for appellant.
Vincent J. Dopko, Deputy Attorney General, for appellee.
President Judge Bowman and Judges Crumlish, Jr., Wilkinson, Jr., Rogers, Blatt and DiSalle. Opinion by Judge Rogers.
[ 33 Pa. Commw. Page 474]
Both After Six, Inc., a domestic corporation, and the Commonwealth of Pennsylvania have appealed a resettlement by the Board of Finance and Revenue of After Six's capital stock tax for its fiscal year ending June 30, 1972.
The number and complexity of the statutes governing the imposition of the capital stock tax suggest a preliminary discussion of these provisions. By Section 602(a) of the Tax Reform Code of 1971 (Tax Reform Code),*fn1 72 P.S. § 7602(a), a tax at the rate of 10 mills is imposed upon the taxable value of all capital stock of a domestic corporation.*fn2 The computations required to reach taxable value begin with a determination of actual value, reached by a consideration of the indicia of actual value described in Section 601 of the Tax Reform Code, 72 P.S. § 7601, as follows:
[F]irst, the average which said stock sold for during the year; and second, the price or value
[ 33 Pa. Commw. Page 475]
indicated or measured by net earnings or by the amount of profit made and either declared in dividends, expended in betterments, or carried into the surplus or sinking fund; and third, the actual value indicated or measured by consideration of the intrinsic value of its tangible property and assets, and of the value of its good will and franchises and privileges, as indicated by the material results of their exercise, taking also into consideration the amount of its indebtedness.
See also, Spang Stores, Inc. v. Commonwealth, 468 Pa. 63, 360 A.2d 180 (1976) (dealing with an essentially identical capital stock valuation provision under Section 20 of the Act of June 1, 1889, P.L. 420, as amended, 72 P.S. §§ 1901, 1902. The Act of June 1, 1889 has been repealed; replaced by the Tax Reform Code of 1971).
Taxable value is determined by applying one of two apportionment formulas against actual value so ascertained. The Act of June 22, 1931, P.L. 685, 72 P.S. § 1896,*fn3 provides for what is commonly referred to as a single factor apportionment formula employing only an asset fraction expressed as follows:
[ 33 Pa. Commw. Page 476]
(a) taxable assets (total assets less exempt assets)*fn4 /total assets = apportionment factor
(b) apportionment factor X actual value = taxable value X 10 mills = tax due.
However, Section 602(a) of the Tax Reform Code gives domestic corporations an election to compute their capital stock tax in accordance with Section 602(b) of the Tax Reform Code.*fn5 Section 602(b) imposes a franchise tax on foreign corporations measured by the taxable value of their capital stock.*fn6 Incorporated by reference into Section 602(b) for use in computing
[ 33 Pa. Commw. Page 477]
taxable value of the capital stock of foreign corporations are the three factors -- property, payroll and sales -- used in computing the apportionment factor used in turn in the computation of corporate net income tax due under Article IV of the Tax Reform Code. The apportionment factor so computed is required by Section 602(b) to be applied to the actual value of the foreign corporation's capital stock in order to arrive at its taxable value. These factors, which ...