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ELECTRO-SPACE FABRICATORS v. COMMONWEALTH PENNSYLVANIA (08/20/86)

decided: August 20, 1986.

ELECTRO-SPACE FABRICATORS, INC., PETITIONER
v.
COMMONWEALTH OF PENNSYLVANIA, RESPONDENT



Appeal from the Order of the Pennsylvania Board of Finance and Revenue in the case of In Re: Electro-Space Fabricators, Inc., Docket No. R-7322, dated November 29, 1983.

COUNSEL

Donald LaBarre, Jr., for petitioner.

Bryan E. Barbin, Deputy Attorney General, with him, LeRoy S. Zimmerman, Attorney General, for respondent.

Judges Craig and Doyle, and Senior Judge Barbieri, sitting as a panel of three. Opinion by Judge Doyle.

Author: Doyle

[ 100 Pa. Commw. Page 75]

This is an appeal by Electro-Space Fabricators, Inc. (Petitioner), a Pennsylvania corporation, from the order of the Pennsylvania Board of Finance and Revenue (Board) which refused to resettle Petitioner's capital stock tax liability for the year ending December 31, 1981. This case comes before us on a stipulation of facts submitted by both parties which we hereby adopt and presents as its sole issue whether a domestic corporation which is not subject to tax in any state except Pennsylvania may elect to use the "three factor apportionment method" set forth in Article IV of the Tax Reform Code of 1971 (Code)*fn1 to determine its tax liability under the capital stock tax.

Petitioner is incorporated in Pennsylvania and conducts all of its business from its headquarters in Topton, Pennsylvania. During the 1981 tax year, Petitioner was not subject to a net income tax, franchise tax, or corporate stock tax in any state other than Pennsylvania. For purposes of this appeal, the parties have stipulated that Petitioner's capital stock value is $6,000,000.00.

Under Section 602(a) of the Code,*fn2 the taxpayer's capital stock tax base is computed by multiplying the capital stock value by a single factor representing the fraction of non-exempt assets over total assets. This Section also provides, however, that a domestic corporation may elect to compute and pay its capital stock tax in accordance with the provisions of Sections 602(b) of the Code.*fn3 Section 602(b), which imposes tax liability upon foreign corporations through a franchise tax, provides that such tax shall be computed by employing the relevant factors set forth in Article IV of the Code. Under

[ 100 Pa. Commw. Page 76]

    this article, liability is computed by employing three factors representing the fractions of Pennsylvania non-exempt property, wages, and sales over total property, wages and sales. The average of these three fractions is multiplied by the capital stock value to arrive at the tax base.*fn4

In this case, Petitioner's use of the three-factor apportionment method would reduce its tax base considerably, because although it has no property and wages assignable to other states, all of its Pennsylvania property and wages are exempt from taxation through the manufacturing exemption.*fn5 Thus, two of the factors in the three-factor formula would be zero, thereby reducing

[ 100 Pa. Commw. Page 77]

    the average fraction.*fn6 Under the three-factor method Petitioner's actual tax liability would be $713.16 as opposed to ...


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