APPEAL FROM THE DECISION OF THE BOARD OF FINANCE AND REVENUE FOR CORPORATE NET INCOME TAX.
Leon H. Kline, Philadelphia, for appellant.
Matthew W. Tomalis, Bryan E. Barbin, Deputy Attys. Gen., and Ernest D. Preate, Jr., Atty. Gen., Tax Litigation Unit, Office of Atty. Gen., Harrisburg, for Com.
Crumlish, Jr., President Judge, McGinley, J. (p.), and Narick, Senior Judge.
[ 126 Pa. Commw. Page 135]
Tranel, Inc. (Taxpayer) has petitioned for review of an order of the Board of Finance and Revenue denying its petition to resettle its Pennsylvania corporate income tax for the fiscal year ending August 31, 1972 (1972 fiscal year).
The parties have filed a detailed stipulation of facts, which we shall briefly summarize. Taxpayer is a New York corporation which owns two principal assets, a high-rise office building in New York and a high-rise office building in Philadelphia. For the 1972 fiscal year, it reported taxable income of $2,024.19 from the Pennsylvania building, resulting in a tax of $242.90. The Taxpayer maintained separate accounting for the New York and Pennsylvania properties and reported its income to Pennsylvania on a multiform basis. The Department of Revenue determined that the Taxpayer should have been using a unitary basis for taxation purposes, including income of $135,602 from the New York property, and settled Taxpayer's account by increasing the income to be apportioned between New York and Pennsylvania by that amount. This increase resulted in a corporate income tax liability of $10,793.11.
The Taxpayer employs management companies as agents in both New York and Pennsylvania to manage its properties. The agents' duties are spelled out in separate management contracts and generally include rental of units, collection of rent, payment of expenses and general maintenance. The personnel employed in the maintenance and operation of both properties are employees of the Taxpayer and not employees of either agent.
For the 1972 fiscal year, Taxpayer filed a consolidated return for federal tax purposes. Separate balance sheets, profit and loss statements, and receipts and expenses for the New York and Pennsylvania properties were included. Taxpayer reported its 1972 fiscal year income to New York
[ 126 Pa. Commw. Page 136]
State on a unitary basis, including income earned from its Pennsylvania real estate operations.
The issue we are called upon to decide in this case is whether the Taxpayer is entitled to multiform or unitary tax settlement. The amount of tax due under either method has been stipulated by the parties.
The Commonwealth contends that the taxpayer has not met its burden of proving entitlement to multiform tax settlement.*fn1 While it is clear that a state may not tax value earned outside its borders, see, e.g., Container Corp. v. Franchise Tax Board, 463 U.S. 159, 103 S.Ct. 2933, 77 L.Ed.2d 545 (1983), the Commonwealth argues that ...