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decided: March 26, 1986.


Original Jurisdiction in case of Hellertown Manufacturing Company v. James I. Scheiner, Secretary, Pennsylvania Department of Revenue.


Michael A. Henry, with him, Donald LaBarre, Jr., for petitioner.

George T. Bell, Chief Counsel, with him, Allen S. Mengel, Assistant Chief Counsel, for respondent.

Judges Rogers and Doyle, and Senior Judge Kalish, sitting as a panel of three. Opinion by Judge Rogers.

Author: Rogers

[ 96 Pa. Commw. Page 157]

Hellertown Manufacturing Company (taxpayer) has filed a petition for review in the nature of an action in mandamus seeking an order directing the Pennsylvania Department of Revenue (department) to refund to the taxpayer $254,732.03 in taxes paid by it, plus settled credits on interest overpayments and plus interest. The taxes in question are the taxpayer's 1972 franchise tax and its corporate net income taxes for the years 1973 and 1975 through 1979. The department filed an answer and new matter. Both the taxpayer and the department have filed motions for judgment on the pleadings.

[ 96 Pa. Commw. Page 158]

This litigation concerns a former practice of the Pennsylvania Board of Finance and Revenue (board) known as the "throw-out" rule. The board invoked the "throw-out" rule of the department to revise upwards the taxpayer's statutory sales apportionment fractions used in calculating its corporate income tax liability by "throwing-out" of the denominators sales not subject to payment of income taxes in other states. The taxpayer contested the use of this so-called "throw-out" rule with respect to its 1971 corporate net income tax, a tax which is not involved in the litigation at hand. This court upheld the use of the rule with respect to the sales apportionment figures used in determining its 1971 tax liability in Hellertown Manufacturing Company v. Commonwealth of Pennsylvania, 25 Pa. Commonwealth Ct. 90, 358 A.2d 424 (1976). The Pennsylvania Supreme Court affirmed this court's order in a decision made July 14, 1978. Hellertown Manufacturing Company Page 158} v. Commonwealth of Pennsylvania, 480 Pa. 358, 390 A.2d 732 (1978).

The taxes which are the subject of the present litigation were contested by the taxpayer on the same ground as its 1971 taxes were contested in the Hellertown case. The taxpayer again claimed that its taxes were improperly computed by the department because of the department's misapplication of the throw-out rule. At the same time the present matters were before the board, there was pending before this court the appeal of Paris Manufacturing Company, Inc., challenging the application and validity of the throw-out rule on similar grounds as Hellertown. In an order dated March 5, 1982, this court affirmed the order of the board in the Paris matter, which had the effect of validating the board's application of the throw-out rule. Paris Manufacturing Company, Inc. v. Commonwealth, 65 Pa. Commonwealth Ct. 164, 441 A.2d 1368 (1982).

After this court's decision in Paris, the board resettled the taxpayer's franchise and corporate net income taxes described at the head of this opinion and invoked the "throw-out" rule in the process. The taxpayer appealed to this court. On June 13 and 17, 1983, the taxpayer and the Commonwealth entered into stipulations for judgment concerning the contested taxes and judgments were entered thereon by this court in favor of the Commonwealth and against the taxpayer. These judgments are to be found on our judgment dockets at 2234-, 2235-, 2236-, 2237-, 2238-, 2239-, and 2241 C.D. 1982. The judgments docketed at 2234-, 2236-, 2238-, and 2241 C.D. 1982 have been marked "satisfied in full."

[ 96 Pa. Commw. Page 159]

On April 2, 1984, following entry of the judgments just described, the Pennsylvania Supreme Court reversed this court's order in Paris, thereby invalidating the throw-out rule. The Supreme Court expressly overruled its prior 1978 decision in Hellertown. Paris Page 159} Manufacturing Company, Inc. v. Commonwealth, 505 Pa. 15, 476 A.2d 890 (1984). The taxpayer thereupon filed petitions for refund of the taxes which had been the subject of its stipulations and the judgments based thereon. On February 26, 1985, the board granted the taxpayer's refund petitions. The taxpayer then applied to the department for a cash refund of the credits resulting from the board's orders. On June 27, 1985, the board rescinded its February 26, 1985 refund orders, stating "[t]hat in light of the Stipulation[s] for Judgment[s] . . . the previous order[s] of the Board . . . [are] . . . rescinded for lack of jurisdiction. . . ."

The taxpayer's complaint in mandamus seeks an order of this court which would direct the department to issue refunds of the same taxes which were the subject of the stipulations between the taxpayer and the Commonwealth for, and entry of, judgments in favor of the Commonwealth and against the ...

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