decided: March 27, 1979.
NORTHEASTERN BUILDING REGISTERED, APPELLANT
COMMONWEALTH OF PENNSYLVANIA, APPELLEE
Appeals from the Orders of the Board of Finance and Revenue in case of Appeal of Northeastern Building Registered, Docket Nos. R-25914 and R-25915.
James S. Palermo, with him Anthony J. Ciotola, for appellant.
Robert P. Coyne, Deputy Attorney General, for appellee.
President Judge Bowman and Judges Wilkinson, Jr., Mencer, Rogers, Blatt, DiSalle and MacPhail. Judges Crumlish, Jr. and Craig did not participate. Opinion by Judge DiSalle.
[ 41 Pa. Commw. Page 404]
This case involves appeals from two orders of the Board of Finance and Revenue sustaining the Department of Revenue's imposition of the capital stock tax*fn1 and the corporate net income tax*fn2 on Northeastern Building Registered (Northeastern) for the 1970 calendar
[ 41 Pa. Commw. Page 405]
year.*fn3 Since Northeastern was a registered partnership,*fn4 and since the Capital Stock Tax Act (CSTA) and Corporate Net Income Tax Act (CNITA) made reference only to limited partnerships,*fn5 Northeastern generally contends that a strict construction of the tax acts precludes imposition of the taxes. The sole question, therefore, is whether a registered partnership is to be taxed as a limited partnership or as a quasi-corporation within the meaning of the CSTA and CNITA. Given the uniformity of language in both acts, our determination of the registered partnership's tax liability under one act will be controlling with regard to the other.
We note that, as here, appeals taken pursuant to Section 1104 of The Fiscal Code, Act of April 9, 1929,
[ 41 Pa. Commw. Page 406]
P.L. 343, as amended, 72 P.S. § 1104, shall be treated as hearings de novo. The parties dispensed with a trial by jury in accordance with the provisions of Section 1 of the Act (Act) of April 22, 1874, P.L. 109, as amended, 12 P.S. § 688, and thereafter entered into a stipulation of facts. While counsel for neither party has made specific request that the Court state separately findings of fact and conclusions of law pursuant to Section 2 of the Act, 12 P.S. § 689, we nevertheless adopt the parties' stipulation of facts as our own and incorporate them herein by reference.
Our inquiry must begin with the opinion letter of the Attorney General dated October 30, 1903, 28 C.C. 582 (1903), wherein the precise question raised in this case was considered. After making a passing reference to the fact that, for purposes of the CSTA, a limited partner's proportional interest in the assets of the limited partnership shall be deemed to be capital stock and thereby taxable, the Attorney General concluded that registered partnerships were subject to the provisions of the CSTA.*fn6 This opinion is noteworthy not only because it was relatively contemporaneous to the passage of the Registered Partnership Act (RPA) itself, but also because it assumes, with little comment, that registered partnerships are a form of limited partnership which are subject to the CSTA.
This rather clear cut determination was somewhat clouded by the decision of the Court of Common Pleas of Dauphin County in Commonwealth v. Biddle & Henry, 2 Pa. D. & C. 705 (1923), wherein the court held that limited partnerships formed pursuant to the Uniform Limited Partnership Act (UPLA) were not subject to the CSTA. In considering the legislative intent with reference to the phrase "limited partnership," the
[ 41 Pa. Commw. Page 407]
court opined that "the legislature intended to tax those partnership associations and partnerships which have the characteristics of a corporation and which have the officers and the organization to make the reports required in order to subject them to taxation." This was so because the legislature was aware that the phrase itself was confusing and did not lend itself to ready definition within the context of corporate taxation.
Specifically, the court reasoned that it would be anomalous to tax all the partners of a limited partnership the same since a limited partnership, by its very nature, possessed both limited and general partners. While the taxing of a limited partner's interest would be consistent with the legislative intent -- since a limited partner's limited liability is analogous to a corporate stockholder's liability -- taxing a general partner's interest would not, since a general partner's unlimited liability is the same as would exist in a common law partnership.*fn7 The court further reasoned that since the CSTA required the filing of various tax reports and returns, it would be necessary for limited partnerships to have the capacity under the ULPA to appoint officers and promulgate the organization otherwise necessary to the fulfillment of these perfunctory tasks. The ULPA did not provide for such officers or organizations.
Noteworthy for present purposes is the fact that the court drew a clear distinction between a limited partnership formed under the ULPA and a registered partnership formed under the RPA. While the limited partnership lacked the two key corporate characteristics of complete limited liability for all partners and corporate-type organization (i.e., officers), the registered
[ 41 Pa. Commw. Page 408]
partnership could have both: (1) the RPA was expressly enacted to provide a form of limited partnership where all the partners could be limited partners, and (2) the RPA clearly provided for the creation of "official positions for the transaction of the business of the partnership." See Sections 1 and 4 of the RPA, 59 P.S. §§ 241, 262. It seems, therefore, that while the court in Biddle & Henry ultimately found that limited partnerships formed pursuant to the ULPA were not subject to the capital stock tax, it nevertheless provided strong doctrinal support for the Attorney General's 1903 opinion that registered partnerships were subject to the tax. Indeed, we note in this regard that the court chose to cite, with apparent approval, that very opinion letter.
The following year, the Attorney General drafted another opinion letter relating to the taxation of limited partnerships formed pursuant to the ULPA under an emergency profits tax which, like the CSTA, sought to tax corporations and other business organizations including limited partnerships. See Emergency Profits Tax No. 2, 5 Pa. D. & C. 585 (1924). Relying exclusively on Biddle & Henry, supra, and the reasons cited therein, the Attorney General opined that limited partnerships were not subject to the tax.
Relying on Biddle & Henry and the 1924 Attorney General's letter, the Department, over the years, has not assessed the capital stock or the corporate net income tax against limited partnerships formed under the ULPA. At the same time, again in reliance on Biddle & Henry and the 1903 Attorney General opinion letter, the Department has assessed these taxes on registered partnerships.*fn8
[ 41 Pa. Commw. Page 409]
Now after the passage of over half a century, this moribund issue is resurrected anew. As we understand it, Northeastern makes two specific contentions. First, the CSTA and CNITA are ambiguous or unclear as they relate to limited partnerships, and, since taxing statutes are strictly construed and taxes cannot be imposed by implication, they cannot be applied here.
[ 41 Pa. Commw. Page 410]
and where, as here, that language has been interpreted by the Attorney General, an administrative agency and by a court, the legislature may be presumed to have adopted those interpretations. Commonwealth v. Sitkin's Junk Co., 412 Pa. 132, 194 A.2d 199 (1963); Appeal of Saba, 58 Luz. L. Reg. 235 (1968).
Having considered de novo all the arguments raised, we hold that registered partnerships formed under the Registered Partnership Act are subject to the capital stock tax and the corporate net income tax.
Conclusions of Law
1. Northeastern Building Registered, a registered partnership, is subject to capital stock tax liability under the provisions of the Capital Stock Tax Act for its calendar year 1970.
2. Northeastern Building Registered is subject to corporate net income tax liability under the provisions of the Corporate Net Income Tax Act for its calendar year 1970.
3. The capital stock tax of Northeastern Building Registered for calendar year 1970 is $875.00.
4. The corporate net income tax of Northeastern Building Registered for calendar year 1970 is $2,186.04.
5. Judgment should be entered in favor of the Commonwealth and against Northeastern Building Registered in the total amount of $3,061.04.
And Now, this 27th day of March, 1979, it is ordered and decreed that judgment be entered in favor of the Commonwealth and against Northeastern Building Registered in the amount of $3,061.04 together with interest and costs according to law, unless exceptions be filed hereto within thirty (30) days. The Prothonotary is directed to notify forthwith the parties hereto or their counsel of this decree.
Judgment entered for Commonwealth and against taxpayer.