Before Honorable James Crumlish, Jr., President Judge Honorable Theodore O. Rogers, Judge Honorable Robert W. Williams, Jr., Judge Honorable David W. Craig, Judge Honorable John A. MacPHAIL, Judge Honorable Joseph T. Doyle, Judge Honorable Madaline Palladino, Judge
SmithKline Beckman Corporation (SmithKline), a Pennsylvania business corporation doing business in this and other states, has appealed from an order of the Board of Finance and Revenue sustaining the Department of Revenue's resettlement of its capital stock tax for the year ending December 1977 by which the Department included $53,969,534 of dividends and $56,446 of interest on United States obligations received by SmithKline in the numerator and denominator of the sales factor described by Section 401(3)2.(a)(15) of the Tax Reform Code of 1971 (Tax Reform Code), Act of March 4, 1971, P.L. 6, as amended, P.L. 1287, 72 P.S. $7401(3)2.(a)(15).
The parties submitted the following stipulations of facts which we adopt as our findings of facts:
1. Petitioner, SmithKline Beckman Corporation (formerly SmithKline Corporation and referred to hereinafter as "SmithKline"), is a Pennsylvania Corporation having its principal office at One Franklin Plaza, Philadelphia, Pa. 19103. During 1977, the taxable year here involved, taxpayer's principal office was located at 1500 Spring Garden Street, Philadelphia, Pa. 19130.
2. Except as the context indicates otherwise, all facts stated herein in the present tense are equally applicable to the year 1977.
3. SmithKline is principally engaged in the manufacture and sale of pharmaceutical products and does business and is subject to corporate business taxes in Pennsylvania and elsewhere. In addition, SmithKline has numerous wholly-owned U.S. and non-U.S. subsidiary corporations, which are principally engaged in the manufacture and/or sale of pharmaceutical and other health care products, as well as diagnostic, analytical, electronic and ultrasonic products and the furnishing of clinical laboratory services.
4. During 1977 SmithKline received corporate dividends from the following sources and in the following amounts:
U.S. subsidiary corporations
Menley and James Laboratories, Ltd. $5,400,000
Norden Laboratories, Inc. 3,770,000
Avoset Food Corp. 1,000,000
SK&F Export Corp. 1,691,847
Non-U.S. subsidiary corporations
Edmonton Laboratories, Ltd. 360,000
Krautkramer G.m.b.H. 3,747,134
5. The businesses of the subsidiary corporations listed in paragraph 4 above are as follows:
(a) Menley and James Laboratories, Ltd. ("M&J") is a distributor of proprietary pharmaceutical products manufactured by SmithKline. M&J is headquartered in Philadelphia, Pennsylvania, and sells to wholesale customers and retail drug chains throughout the United States from distribution points which in 1977 were all located outside Pennsylvania. In 1977 M&J also marketed a line of cosmetic products.
(b) Norden Laboratories, Inc. manufactures veterinary pharmaceutical products at its plant in Lincoln, Nebraska, and sells such products to customers throughout the United States.
(c) Avoset Food Corp. (disposed of by SmithKline in 1978), manufactures food products at its plant in Oakland, California and sells them to customers throughout the United States.
(d) SK&F Co. manufactures ethical pharmaceutical products in Puerto Rico and sells them to customers throughout the United States.
(e) Edmonton Laboratories, Ltd., situated in Edmonton, Alberta, performs clinical diagnostic testing for the medical profession in Canada.
(f) Krautkramer G.m.b.H. manufactures and sells equipment for non-destructive testing and thickness guaging [sic] of metals, doing so in the Federal Republic of Germany.
(g) SK&F Export Corp, is a Domestic International Sales Corporation, as defined in Section 992(a) of the U.S. Internal Revenue Code, which in 1977 was based in Reno, Nevada and through which export sales are made by SmithKline and Several of SmithKline's other domestic subsidiary corporations.
6. None of the subsidiary corporations described in paragraph 5 hereof is incorporated under Pennsylvania law. With the exception of M&J, none of the said subsidiaries files corporate tax reports in Pennsylvania. M&J files corporate tax reports in Pennsylvania and in seven other states.
7. During 1977 SmithKline received interest totaling $56,446 on short-term obligations of the United States.
8. On or about October 16, 1978, pursuant to an extension granted it by the Department of Revenue, SmithKline filed its combined Pennsylvania Capital Stock-Loans-Corporate Net Income tax report for the calendar year 1977. SmithKline reported therein a Capital Stock Tax liability of $56,081 based on a capital stock value ...