No. 40 January Term, 1977, Appeal from the Order of the Commonwealth Court of Pennsylvania at No. 1739 C.D. 1973, Affirming the Order of the Board of Finance and Revenue dated November 30, 1973
Donald LaBarre, Jr., Bethlehem, for appellant.
Eugene J. Anastasio, Deputy Atty. Gen., for appellee.
Eagen, C. J., and O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Pomeroy, J., dissents.
Appellant, Hellertown Manufacturing Company, is a Delaware corporation authorized to do business in Pennsylvania. Appellant filed its Pennsylvania corporate net income tax return in 1971 pursuant to the Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6, Art. I, § 101, as amended, 72 P.S. § 7201 (Supp.1978) indicating a tax liability of $77,745. Appellee, the Commonwealth, in determining appellant's corporate net income tax, increased the tax to $111,818.34. The Board of Finance and Revenue ordered a resettlement with a taxation figure of $107,976.24. The Commonwealth Court affirmed this resettlement, and appellant exercised its right of appeal to this Court. See The Appellate Court Jurisdiction Act of 1970, Act of July 31, 1970, P.L. 673, art. II, § 203, 17 P.S. § 211.203 (Supp.1978).
The controversy in this case is whether the Secretary of Revenue may utilize a method of determining business income taxable by Pennsylvania which excludes appellant's sales in states in which the appellant is not jurisdictionally subject to corporate taxes. Excluding such sales results in a greater apportionment percentage and thus a greater net income tax liability. The Commonwealth Court found this method to be permissible under Article IV of the Tax Reform Code, 72 P.S. § 7401(3)2(a)(18), when the statutory method of apportioning the taxpayer's income does not fairly represent the extent of the taxpayer's business activity in Pennsylvania. Hellertown Manufacturing Co. v. Commonwealth, 25 Pa. Commw. 90, 358 A.2d 424 (1976). We agree and therefore affirm the order of the Commonwealth Court.
When the entire business of a corporation such as appellant is not transacted within Pennsylvania, the Tax Reform Code of 1971 provides that the portion of corporate net income taxable by Pennsylvania may be determined by multiplying the corporation's total net income by an apportionment percentage which is the average of three statutory
fractions (property, payroll and sales). 72 P.S. § 7401(3)2 (Supp.1978). The parties agree that the property fraction equals 100% since all of the appellant's tangible property is located in Pennsylvania. They further agree that the payroll fraction equals 100% because all of appellant's employees are also located within the Commonwealth. The dispute concerns the sales fraction.
Appellant computed the sales fraction by following the Tax Reform Code formula which provides:
"The sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this State during the tax period, and the denominator of which is the total sales of the taxpayer everywhere during ...