The opinion of the court was delivered by: P. Kevin Brobson, Judge
BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge HONORABLE DAN PELLEGRINI, Judge HONORABLE ROBERT SIMPSON, Judge HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE P. KEVIN BROBSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE JOHNNY J. BUTLER, Judge*fn1
"The hardest thing in the world to understand is the income tax." These words by Albert Einstein ring particularly true in this case. On its face, the Pennsylvania personal income tax (PIT) seems simple enough. Residents and nonresidents are obligated to remit a tax on each dollar of income at a rate of 3.07%.*fn2 For residents, that percentage applies to all income received in a taxable year. For nonresidents, the percentage applies only to income from sources within the Commonwealth. As this case illustrates, however, particular circumstances can morph a relatively simple mathematical computation into a Gordian knot. Here, the Court must consider application of the PIT to a nonresident, who invested as a limited partner in a Connecticut limited partnership, which owned a building in the City of Pittsburgh, which went into foreclosure.
Petitioner Robert J. Marshall, Jr. (Marshall) challenges a Board of Finance and Revenue (Board) Order, which confirmed a decision by the Department of Revenue (Revenue) imposing PIT on Marshall, a nonresident,*fn4 for "income" from the foreclosure of a commercial property in the City of Pittsburgh (Property) in 2005. 600 Grant Street Associates Limited Partnership (Partnership), organized under Connecticut law, purchased the Property for $360 million.*fn5 Of this $360 million purchase price, the Partnership financed $308 million with a Purchase Money Mortgage Note (PMM Note) secured only by the Property. The PMM Note was non-recourse, meaning that the Partnership and the lender agreed that the lender‟s only recourse for nonpayment of the obligations under the PMM Note was to pursue foreclosure of the Property. As the name of the Partnership suggests, the Partnership‟s primary purpose was the ownership and management of the Property.
Interest on the PMM Note accrued on a monthly basis at a rate of 14.55%. If, however, the monthly accrued interest exceeded the net operating income of the Partnership, the Partnership was not required to pay the excess (i.e., the amount of monthly accrued interest less monthly net operating income). Instead, the accrued but unpaid excess would be deferred and, thereafter, compounded on an annual basis subject to the same interest rate as the principal amount of the PMM Note. The original maturity date of the PMM Note was November 1, 2001. In 1998, the lender and the Partnership amended the PMM Note to extend the maturity date to January 2, 2005.
Marshall purchased a limited partnership interest (one unit) in the Partnership on or about January 24, 1985, for $148,889--$5,889 in cash and a promissory note of $143,000. His one unit limited partnership interest amounted to a 0.151281% interest in the Partnership. Marshall paid the promissory note in full on or about May 13, 1992. In March 1989, the Partnership returned a portion of Marshall‟s capital contribution in the amount of $6,184. Marshall was a passive investor in the Partnership. He never participated in the management of the Partnership or the Property.
Over the years, the Partnership‟s net income from operations did not keep pace with projections. The Partnership actually incurred losses from operations for financial accounting, federal income tax, and PIT purposes every year of its existence. For PIT purposes, the Partnership allocated its annual losses from operations to each partner, including Marshall. During this same time, Marshall had no other Pennsylvania source of income or loss. Marshall thus did not file a PIT return for tax years 1985 through 2004.
Because of the Partnership‟s dismal operations, the Partnership paid less monthly interest on the PMM Note than it had projected. Under the terms of the PMM Note, this led to a greater amount of accrued but unpaid interest over the years. According to the Offering Memorandum, the Partnership projected accrued but unpaid interest on the PMM Note at maturity (November 1, 2001, later extended to January 2, 2005) to be approximately $300 million. It also projected that upon sale of the Property at maturity, there would be enough proceeds to pay off the principal and accrued interest on the PMM Note, with additional funds available to distribute to the partners as a return on their investment. (Stip. ¶¶ 32, 33.) At the date of foreclosure, the Partnership had an accrued but unpaid interest obligation of approximately $2.32 billion. (Id. ¶ 37.) The Partnership had used approximately $121,600,000 of this amount to offset its income from operations that would otherwise have been subject to PIT. Neither the Partnership nor Marshall derived any PIT benefit from the remainder. (Id. ¶ 38.)
The lender foreclosed on the Property on June 30, 2005. By that time, what began as a $308 million Partnership liability on the PMM Note had grown into a liability of more than $2.6*fn6 billion, of which only $308 million represented principal. Neither the Partnership nor its individual partners received any cash or other property as a result of the foreclosure. That same year, the Partnership terminated operations and liquidated. Marshall did not recover his $142,705 capital investment (original investment less return of capital) in the Partnership at foreclosure or liquidation. Indeed, Marshall did not receive any cash or other property upon liquidation of the Partnership.
In a Notice of Assessment dated March 28, 2008, Revenue assessed Marshall $165,055.24 in PIT for calendar year 2005 (inclusive of penalties and interest) as a result of the foreclosure on the Property (Assessment). Marshall filed a petition for reassessment with Revenue‟s Board of Appeals (BOA), challenging the imposition and, in the alternative, amount of PIT set forth in the Assessment. On September 12, 2008, BOA struck the penalties from the Assessment, but otherwise held that the amount of PIT due, with interest, was proper. Marshall appealed BOA‟s determination to the Board, which denied Marshall‟s request for relief from the BOA‟s determination on December 16, 2008. This appeal*fn7 followed.
Marshall raises several issues for our consideration, which we will restate for purposes of our analysis. First, Marshall argues that because neither the Partnership nor the partners received any cash or other property upon foreclosure of the Property, no PIT is owed as a result of the foreclosure. Second, Marshall argues that imposition of an income tax on a taxpayer, like himself, who actually derived no income from his investment is prohibited by our prior decision in Commonwealth v. Rigling, 409 A.2d 936 (Pa. Cmwlth. 1980), and the court of common pleas‟ decision in Commonwealth v. Columbia Steel & Shafting Co., 83 Pa. D. & C. 326 (Dauphin 1951), exceptions dismissed, 62 Dauph. 296 (Dauphin 1952). In his third issue, Marshall argues that application of the PIT to him in this instance is unconstitutional, because it treats him differently from the partners who reside in Pennsylvania.*fn8 Fourth, Marshall claims that Revenue failed to apply the tax benefit rule--both generally and as set forth in the Pennsylvania Personal Income Tax Guide (PIT Guide),*fn9 which Revenue publishes on its website--in calculating the amount of PIT Marshall owes. Finally, Marshall argues that he is not subject to the PIT because he lacked sufficient minimum contacts with Pennsylvania.
We are compelled to take Marshall‟s arguments out of order, because if he is not subject to PIT, it matters not whether Revenue properly calculated his PIT liability. Marshall argues that he is not subject to PIT because he is not a resident of the Commonwealth and does not have sufficient minimum contacts with the Commonwealth, such that the Commonwealth may tax him without violating the Commerce and Due Process Clauses of the United States Constitution.*fn10 Relying on paragraph 9 of the Stipulation, Marshall‟s argument is as follows:
Here, Mr. Marshall had no minimum contacts with Pennsylvania. He did not reside in or conduct any activities in Pennsylvania. Similarly, his interest in the Partnership was never employed as capital or localized in connection with a trade or business so as to establish a business situs for the interest of Pennsylvania. Without such minimum contacts, a state may not tax an individual whose only connection with the state is a passive limited partnership interest in a partnership doing business in that state.
(Marshall Br. at 28 (emphasis added).)
We conclude that Marshall has waived his Commerce Clause challenge. In Quill Corporation v. North Dakota, 504 U.S. 298 (1992), the United States Supreme Court held that "the Due Process Clause and the Commerce Clause are analytically distinct" and, thus, analysis of the two should not be intermingled.
Quill, 504 U.S. at 305-06. In his Brief, Marshall argues only that he lacks "minimum contacts" with the Commonwealth. "Minimum contacts" is the test to determine whether application of a state‟s tax scheme to a nonresident violates due process. See id. at 306; Equitable Life Assurance Soc'y of the U.S. v. Murphy, 621 A.2d 1078, 1091 (Pa. Cmwlth. 1993). Whether a taxing scheme violates the Commerce Clause requires application of a four-part test, the first prong of which requires a court to consider whether the tax "is applied to an activity with a substantial nexus with the taxing State." Quill, 504 U.S. at 311; Equitable Life, 621 A.2d at 1093. Though the "minimum contacts" test and the "substantial nexus" prong are similar in phrasing, the Supreme Court in Quill rejected the State of North Dakota‟s argument that they are one and the same: "The two standards are animated by different constitutional concerns and policies." Quill, 504 U.S. at 312. In light of Quill, because Marshall failed to present any separate argument in his brief directed to his Commerce Clause challenge, that challenge is waived. Pa. R.A.P. 2119; see Purple Orchid, Inc. v. Pa. State Police, 572 Pa. 171, 176-77, 813 A.2d 801, 804 (2002) (holding issue waived by failure to address and develop in appellate brief).
This leaves Marshall‟s constitutional challenge to the PIT on due process grounds.*fn11 In Equitable Life, we explained the minimum contacts test in relation to extra-territorial taxation as follows:
[The Due Process Clause] protects citizens from unfair tax burdens by limiting the power of states and their political subdivisions to impose extra-territorial taxation. In order to comply with due process requirements, the United States Supreme Court has determined that such taxation be restricted to cases where there exists "some definitive link, some minimal connection, between the state and the person, property or transaction it seeks to tax," and has required the taxes imposed bear a "rational relationship" to the protections, opportunities and benefits given by the taxing authority. The simple but controlling question is whether the taxing authority has given anything for which it can ask in return.
Equitable Life, 621 A.2d at 1091 (citations omitted) (quoting Miller Bros. Co. v. Maryland, 347 U.S. 340 (1954), and Moorman Mfg. Co. v. Bair, 437 U.S. 267 (1978)) (emphasis in original). We are also guided by the United States Supreme Court‟s observations in Kulko v. Superior Court of California:
Like any standard that requires a determination of "reasonableness," the "minimum contacts" test . . . is not susceptible of mechanical application; rather, the facts of each case must be weighed to determine whether the requisite "affiliating circumstances" are present. We recognize that this determination is one in which few answers will be written "in black and white. The greys are dominant and even among them the shades are innumerable."
With this guidance, we conclude that imposition of the PIT on Marshall, as a limited partner of the Partnership, as a result of the disposition of the Property at foreclosure does not violate Marshall‟s due process rights. Marshall would have us focus solely on his status as a limited partner in the Partnership and, consequently, his limited, if not nonexistent, right to control the Partnership‟s business affairs. That, however, is a superficial analysis. Marshall did not simply passively invest in a Connecticut limited partnership, as one would trade stocks on a stock exchange. To the contrary, he invested in a specific and limited purpose Connecticut limited partnership, whose "primary purpose was ownership and management" of a substantial commercial property in the City of Pittsburgh--"a sixty-four story office tower and related site improvements, known as the United States Steel Building . . . and the underlying parcel of land of approximately 2.676 acres." (Stip. ¶ 11 & Ex. "G" at 3.)*fn12 The investment objectives and policies of the Partnership were directed to maximizing the partners‟ return on their investment through the Partnership‟s ownership of the Property. Marshall knew all of this when he chose to invest in the Partnership as a limited partner. He purposefully availed himself of the opportunity to invest in Pennsylvania real estate through a partnership. These are sufficient minimum contacts for the imposition of a tax on Marshall and his fellow partners upon disposition by the Partnership of the Property.*fn13
B. PIT AND FORECLOSURE INVOLVING NON-RECOURSE DEBT
Marshall‟s first two issues raise the question of whether the foreclosure on the Property triggered any PIT obligation under the governing statute and regulation. The first issue invites the Court to construe Section 103.13 of Revenue‟s regulations (Regulations), 61 Pa. Code § 103.13, which modifies Section 303(a)(3) of the Code, added by the Act of August 31, 1971, P.L. 362, as amended, 72 P.S. § 7303(a)(3), relating to income from the disposition of property.*fn14
Section 302 of the Code provides for the imposition of the PIT as follows:
(a) Every resident individual, estate or trust shall be subject to, and shall pay for the privilege of receiving each of the classes of income hereinafter enumerated in section 303, a tax upon each dollar of income received by that resident during that resident‟s taxable year at the rate of three and seven hundredths per cent.
(b) Every nonresident individual, estate or trust shall be subject to, and shall pay for the privilege of receiving each of the classes of income hereinafter enumerated in section 303 from sources within this Commonwealth, a tax upon each dollar of income received by that nonresident during that nonresident‟s taxable year at the rate of three and seven hundredths per cent.
(Emphasis added.) As the language of this section suggests, Section 303 of the Code sets forth eight separate classes of income subject to taxation under Section 302 of the Code. The third class of taxable income is at issue in this appeal.
The statutory language defining this third class of taxable income is quite lengthy. For purposes of our analysis, we will focus on the following relevant statutory language:
Net gains or income from disposition of property. Net gains or net income, less net losses, derived from the sale, exchange or other disposition of property, including real property, tangible personal property, intangible personal property or obligations issued on or after the effective date of this amendatory act by the Commonwealth; any public authority, commission, board or other agency created by the Commonwealth; any political subdivision of the Commonwealth or any public authority created by any such political subdivision; or by the Federal Government as determined in accordance with accepted accounting principles and practices. For the purpose of this article:
(i) For the determination of the basis of any property, real and personal, if acquired prior to June 1, 1971, the date of acquisition shall be adjusted to June 1, 1971, as if the property had been acquired on that date. If the property was acquired after June 1, 1971, the actual date of acquisition shall be used in determination of the basis.
Section 303(a)(3) of the Code. The relevant portion of Section 103.13 of the Regulations provides:
(a) Gain or loss. A gain on the disposition of property is recognized in the taxable year in which the amount realized from the conversion of the property into cash or other property exceeds the adjusted basis of the property. A loss is recognized only with respect to transactions entered into for gain, profit or income and only in the taxable year in which the transaction, in respect to which loss is claimed, is closed and completed by an identifiable event which fixes the amount of the loss so there is no possibility of eventual recoupment.
(c) Basis. If property is acquired by a taxpayer by inheritance, the basis shall be the fair market value at the date of death. If property is acquired by a taxpayer by gift, the basis shall be the same as it would be if the property had remained in the hands of the donor. Otherwise, the basis shall be the cost.
(e) Gain or loss on property acquired on or after June 1, 1971. The amount subject to tax shall be the net gains or net income less net losses derived from the sale, exchange or other disposition of property--real or personal, tangible or intangible--to the extent that the value of that which is received or receivable is greater than or, in the case of a loss, less than the basis of the taxpayer. The basis shall be increased by capital expenditures made after the property was acquired and decreased by depreciation or amortization, allowed or allowable, after the property was acquired.
In his statutory construction argument, Marshall asks this Court to focus specifically on the following language in Section 103.13 of the Regulations: "A gain on the disposition of property is recognized in the taxable year in which the amount realized from the conversion of the property into cash or other property exceeds the adjusted basis of the property." (Emphasis added.)
Marshall‟s argument is simple. In this case, the Property was not converted into cash or other property. The lender foreclosed on the Property. Because neither the Partnership nor its partners received any cash or property as proceeds from the foreclosure, Marshall argues that, under Revenue‟s regulation, there cannot be any taxable gain.
Revenue*fn15 counters that the Partnership realized a discharge of indebtedness in an amount exceeding $2.6 billion, and Marshall‟s distributive share of this amount was $3,976,417. Under federal law, foreclosure is treated as a sale or exchange of the foreclosed property for an amount equal to the outstanding balance of the mortgage. Revenue takes the position that the discharge of a debt must be construed as a valid form of consideration when property is sold, or, as in this case, foreclosed upon. Otherwise, Revenue argues, the PIT "has a huge hole built right into it" that would allow the use of debt discharge to avoid the tax. Revenue applies a rule of statutory construction to suggest that the regulation should not be interpreted as intending "a result that is absurd, impossible of execution or unreasonable." 1 Pa. C.S. § 1922(1). In support of its argument,
Revenue relies heavily on the United States Supreme Court‟s opinion in CIR v. Tufts, 461 U.S. 300 (1983) (Tufts). Revenue contends that, under Tufts, where a lender forecloses on property securing a non-recourse loan of a partnership, for tax purposes the amount realized by the partnership from the disposition of the property is the full amount of the non-recourse obligation.
In response, Marshall contends that the regulation does not use the word "consideration"; rather, it uses the words "cash or other property." In addition, Marshall claims that Tufts is inapposite, or, in the alternative, it has limited application. Specifically, Marshall emphasizes that in Tufts, the Supreme Court held that the entire amount of the non-recourse obligation at issue in that case should have been the amount realized for tax purposes because the owners used all of those funds to purchase the property at issue, thus including that amount of the indebtedness in the basis*fn16 of the property. Here, however, the only portion of the loan obligation the Partnership received and booked as basis in the Property was the principal amount. Even if Tufts is applicable, then, Marshall argues that it does not allow Revenue to include in the amount realized from foreclosure the accrued but unpaid interest on the non-recourse obligation.
In interpreting Section 103.13 of the Regulation and its application in this setting, we are guided by the following:
Well-settled precedent establishes that courts defer to an administrative agency‟s interpretation of its own regulations unless that interpretation is unreasonable. The task of the reviewing court is limited to determining whether the agency‟s interpretation is consistent with the regulation and with the statute under which the regulation was promulgated. The United States Supreme Court has referred to this deference as the interpretive lawmaking power of administrative agencies and has characterized it as a "necessary adjunct" of the authority to promulgate and enforce regulations.
Dep't of Envtl. Prot. v. N. Am. Refractories Co., 791 A.2d 461, 464-65 (Pa. Cmwlth. 2002) (citations omitted) (citing Martin v. Occupational Safety and Health Review Comm'n, 499 U.S. 144 (1991)).
In this matter, Revenue has interpreted Section 103.13(a) of its Regulations as applying to real property foreclosures, even when the mortgagor does not receive any cash or other property (i.e., proceeds) upon foreclosure. This is a reasonable interpretation. In reaching this conclusion, we are persuaded by the similarities between the language in the state tax scheme and its federal counterpart.*fn17 As noted above, Section 103.13(a) of the Regulations provides that "[a] gain on the disposition of property is recognized in the taxable year in which the amount realized from the conversion of the property into cash or other property exceeds the adjusted basis of the property." (Emphasis added.) Marshall would have this Court focus on the "cash or other property" phrase, as if the inclusion of this phrase was somehow unique to Pennsylvania tax law. It is not. Section 1001 of the Internal Revenue Code (IRC), 26 U.S.C. § 1001, provides the following with respect to computation of gains or losses from sale or disposition of property, in relevant part:
(a) Computation of gain or loss.--The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in section 1011 [26 U.S.C.] for determining gain, and the loss shall be the excess of the adjusted basis provided in such section for determining loss over the amount realized.
(b) Amount realized.--The amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received. . .
(Emphasis added.) Like Pennsylvania tax law, then, federal tax law also references receipt of cash ("money") or "property (other than money)" in order to determine how to calculate a gain or loss from the sale or disposition of property. Federal courts construing these like provisions, however, have not adopted the narrow interpretation that Marshall advocates in this case. Indeed, Marshall concedes in paragraph 54 of the Stipulation that "[f]or federal income tax purposes, a foreclosure on a non-recourse mortgage is treated as a sale or exchange of the foreclosed property for an amount equal to the outstanding balance of the mortgage." Though not technically a fact, this concession of the law by Marshall is accurate. See, e.g., Cox v. C.I.R., 68 F.3d 128, 133 (5th Cir. 1995) ("It is a well-established rule that a foreclosure sale constitutes a disposition of property‟ within the meaning of I.R.C. § 1001."). Accordingly, because Revenue‟s interpretation of its regulation is consistent with well-settled interpretations of similar federal tax provisions, Revenue‟s interpretation of Section 103.13 as applying to real property foreclosures, even when the mortgagor does not receive any cash or other property (i.e., proceeds) upon foreclosure, is reasonable and will not be disturbed by this Court.
Notwithstanding the foregoing, in his second issue on appeal Marshall argues that under Rigling and Columbia Steel, Revenue is prohibited from taxing him because he actually derived no income from his investment of $142,705 in the Partnership. In fact, Marshall lost the entirety of his investment. In response, Revenue eschews Marshall‟s reliance on Rigling and Columbia Steel, distinguishing both cases on their facts. We agree with Revenue that Rigling and Columbia Steel do not support Marshall‟s argument.
Marshall conflates the alleged loss of the money he paid to purchase his limited partnership interest with his tax liability as a partner in the Partnership. In Smith v. Commonwealth, we observed several relevant principles of law pertaining to partnerships. The Partnership Code [15 Pa. C.S. § 8311] defines a partnership as an association of two or more persons to carry on as co-owners a business for profit.*fn18 A partnership, unlike a corporation, is not recognized as an entity that is separate and distinct from that of the individuals who compose it.
684 A.2d 647, 648-49 (Pa. Cmwlth. 1996) (emphasis in original) (citation omitted). We then noted how this principle is followed in the Section 306 of the Code, added by the Act of August 31, 1971, P.L. 362, as amended, 72 P.S. § 7306, which provides:
A partnership as an entity shall not be subject to the tax imposed by this article, but the income or gain of a member of a partnership in respect of said partnership shall be subject to the tax and the tax shall be imposed on his share, whether or not distributed, of the income or gain received by the partnership for its taxable year ending within or with the member‟s taxable year.
(Emphasis added.) At issue in this case is whether the Partnership experienced a taxable gain for PIT purposes upon foreclosure of the Property, not whether Marshall, individually, received a positive return on his investment in the Partnership. If the Partnership experienced a taxable gain, under Section 306 of the Code Marshall is responsible to pay his share (based on his percentage ownership interest in the Partnership) of the Partnership‟s tax liability on that gain. Whether Marshall suffered a loss of the amount he invested in the Partnership, though unfortunate, is simply not relevant to the PIT question before us in this case.
Rigling and Columbia Steel do not compel a different conclusion. In Rigling, individual taxpayers challenged Revenue‟s calculation of PIT due on the 1972 sale of stock acquired prior to June 1, 1971. At issue was Revenue‟s application of Section 303(a)(3)(i) of the Code, which provides:
For the determination of the basis of any property, real or personal, if acquired prior to June 1, 1971, the date of acquisition shall be adjusted to June 1, 1971, as if the property had been acquired on that date. If the property was acquired after June 1, 1971, the actual date of acquisition shall be used in determination of the basis.
Revenue assessed PIT liability on the individual taxpayers, using the cost of the stock had it been purchased on June 1, 1971. The taxpayers argued, however, that doing so created an artificial gain where none existed, because the taxpayers‟ actual purchase price for the stock exceeded the cost as of June 1, 1971. As we noted: "As a result, the Department subtracted from sale price the artificially low June 1, 1971 basis and imputed to taxpayers a recognized gain that was greater than the gain they actually realized." Rigling, 409 A.2d at 939.
We held that this result was unreasonable and absurd and, therefore, could not have been what the General Assembly intended when it amended the Code to include the statutory language in question:
Since the unrealized and unrealizable "benefit" taxed by the Department is not income within the meaning of Article III of the Code, and since the taxation of such as "income" would be, in our view, both absurd and unreasonable, we hold that the General Assembly did not intend through its amendment to Section 303(a)(3) to substitute June 1, 1971 value for actual acquisition cost of property acquired prior to that date in those instances in which actual acquisition cost exceeds June 1, 1971 value. To put it another way, we construe the Section 303(a)(3) basis language to mean that, as to property acquired prior to June 1, 1971, gain should be measured using either value at acquisition date or value as of June 1, 1971, whichever is greater; in no case may the June 1, 1971 value be imposed to create and tax gain never in fact realized by the taxpayer.
In so holding, we note that both the Supreme Court of the United States and the appellate courts of other states have considered income tax statute basis provisions similar to Pennsylvania‟s basis provision and have interpreted them consistent with the construction we here adopt.
Because Marshall lost the entirety of his $142,705 investment in the Partnership, he claims that he is similarly situated to the taxpayers in Rigling and that we, therefore, should similarly find the imposition of a PIT against him in this case absurd. But the PIT at issue in this case is not PIT on a phantom gain on Marshall‟s investment in the Partnership; rather, it is PIT attributable to Marshall as a partner in the Partnership on the occasion of a taxable event--the disposition of Partnership property. What Marshall actually paid for his interest in the Partnership is irrelevant to the calculation of the gain or loss occasioned by this disposition of the Partnership‟s property. It does not factor into the amount realized from the disposition (i.e., what the Partnership realized upon foreclosure of the Property), the original basis of the Property,*fn20 or the adjusted basis of the Property.*fn21 Accordingly, neither the Court‟s holding nor its rationale in Rigling can be applied in this case to preclude imposition of the PIT. The issue here is whether the Partnership encountered a gain on disposition of the Property, not whether Marshall recovered the purchase price of his Partnership interest or, stated otherwise, suffered a loss on his investment.
The 1951 decision of the Court of Common Pleas of Dauphin County in Columbia Steel deserves much less attention, because the court‟s analysis in that case turned on an interpretation of a corporate tax statute that is not at issue in this case (and has long since been repealed by the General Assembly). The holding in Columbia Steel--i.e., that under the statute in question, the corporate net income tax could not be assessed against a corporation that did not, by definition under the statute, have income--has no bearing on to the questions now before the Court. Accordingly, Marshall‟s reliance on Columbia Steel is misplaced.
Having established that Revenue is not precluded from imposing a PIT on Marshall, we now turn to the related question of whether Revenue has appropriately calculated the PIT due in this case.*fn22 Resolution of this question requires the Court first to resort to the relevant portions of the Code and the Regulations.
Section 103.13 of the Regulations provides when a gain from disposition of property is recognized. Simply stated, a gain is recognized where the amount realized from the disposition of the property exceeds the adjusted basis of the property at the time of disposition. Stated in mathematical terms:
Amount Realized - Adjusted Basis
The Partnership did not acquire the Property by inheritance or by gift. Accordingly, under Section 103.13(c) of the Regulations, the basis of the Property is the Partnership‟s cost in acquiring the Property. Under Section 103.13(e) of the Regulations, because the Partnership acquired the Property after June 1, 1971, the original basis must be increased by any capital expenditures that the Partnership made after it acquired the Property and decreased "by depreciation or amortization, allowed or allowable," after the Partnership acquired the Property. To calculate the Partnership‟s adjusted basis in the Property, then, the Court (and Revenue) must know the following facts: (1) the actual purchase price of the Property, (2) the amount of any capital expenditures by the Partnership ...