Appeals from the Orders of the Board of Finance and Revenue in the cases of C. C. Collings & Co., Inc., Docket Nos. 5797 and 5798; A. E. Masten & Company, Inc., Docket Nos. R-4541 and R-4865, and Commonwealth Securities & Investments, Inc. (formerly Henry Fisher & Co., Inc., d/b/a Henry Fisher Municipals), Docket Nos. R-4521A and R-4625.
P. J. Di Quinzio, with him, Francis Mazzola and Eileen Kennedy, Dechert, Price & Rhoads, for petitioner, C.C. Collings & Co., Inc.
Foster S. Goldman, Jr., with him, Robert T. Harper and Robert W. Thomas, Berkman, Ruslander, Pohl, Lieber & Engel, for petitioner, A.E. Masten & Company, Inc.
John D. O'Brien, O'Brien & Friedlander, for petitioner, Commonwealth Securities & Investments, Inc. (formerly Henry Fisher & Co., Inc., d/b/a Henry Fisher Municipals).
Paul S. Roeder, Deputy Attorney General, with him, Michael A. Roman, Deputy Attorney General, and LeRoy S. Zimmerman, Attorney General, for respondent.
President Judge Crumlish, Jr. and Judges Rogers, Williams, Jr., MacPhail, Doyle, Barry and Colins. Opinion by Judge Rogers. This decision was reached prior to the resignation of Judge Williams, Jr.
[ 88 Pa. Commw. Page 186]
In these consolidated appeals,*fn1 a number of the Commonwealth's corporate taxpayers engaged in the business of underwriting and trading in municipal obligations seek review of orders of the Board of Finance and Revenue which orders sustained the action of the Department of Revenue in disallowing in the 1978-79 tax years a deduction*fn2 for the purposes of the corporate net income tax of profits from the sale of obligations issued by the Commonwealth, political subdivisions of the Commonwealth and their authorities, commissions, boards and other agencies.
The facts thought by the parties to be pertinent to a decision are contained in stipulations of the parties which we adopt as our findings. The following excerpts from the Stipulation of Facts filed in the appeals docketed to Nos. 1027 and 1028 C.D. 1982 (in which we have made certain mild stylistic alterations) are typical:
2. Petitioner [taxpayer] is a registered securities dealer which trades in and underwrites bonds, the interest on which is exempt from Federal Income Tax. Such bonds include obligations issued by the Commonwealth of Pennsylvania ("Commonwealth"), public authorities, commissions, boards and other agencies created by the Commonwealth, political subdivisions of the Commonwealth and public
[ 88 Pa. Commw. Page 187]
authorities created by such political subdivisions (hereinafter collectively referred to as "Pennsylvania State and Municipal Bonds").
3. Petitioner's business, insofar as it concerns Pennsylvania State and Municipal Bonds, occurs in the following manner:
a. The bonds are negotiable bearer bonds with interest coupons.
b. Petitioner buys such bonds for its own account, but these purchases are for resale and not for investment.
c. Petitioner's purchases of such bonds are made in two ways:
(i) Petitioner buys blocks of bonds from investors or other brokers for resale. The bonds are kept in Petitioner's inventory until resold, and Petitioner takes off the coupons for any interest that may come due while it holds the bonds.
(ii) Petitioner acts as part of a group of underwriters (or the sole underwriter) of an original bond issue, and a portion, or all, of the bonds are purchased by Petitioner from the issuer and are resold to individuals or to institutional investors.
4. The statutes pursuant to which the Pennsylvania State and Municipal Bonds were issued during the period in question were similar. The General State Authority Act of 1949 is a representative example of a statute under which Pennsylvania Authority Bonds were issued. Section 15 of the Act provides as follows:
[T]he bonds issued by the Authority, their transfer, and the income therefrom (including any profits made on the sale thereof) shall at
[ 88 Pa. Commw. Page 188]
all times be free from taxation, other than inheritance and estate taxation, within the Commonwealth of Pennsylvania.
Except for the phrase "other than inheritance and estate taxation," similar language is contained in other statutes, including: The Municipal Authorities Act of 1945, Act of May 2, 1945, P.L. 382, as amended, Section 15; The Parking Authority Law, Act of June 5, 1947, P.L. 458, Section 15; Metropolitan Transportation Authorities Act of 1963, P.L. 984, Section 39; the Pennsylvania Turnpike Philadelphia Loop Extension Act, Act of May 15, 1956, P.L. 1589, § 14. The now repealed General Borough Act of May 4, 1927, P.L. 519, § 2422, provided only that the bonds issued pursuant to that Act "shall be exempt from taxation for any purpose."
5. The invitations for proposals to purchase and official statements promulgated by the issuing authority, contain language similar to that in the above quoted statutes. For example:
(1) The following excerpt from the "Official Statement, $50,000,000, the General State Authority of the Commonwealth of Pennsylvania Twenty-ninth Series, Serial Bonds," dated February 15, 1968 under the signature of Governor Raymond P. Shafer, as President of the Authority, and Honorable John K. Tabor, as Secretary of the Authority, is typical of statements contained in ...