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Upper Moreland Township v. 7 Eleven, Inc.

Commonwealth Court of Pennsylvania

April 13, 2017

Upper Moreland Township, Appellant
v.
7 Eleven, Inc.

          ARGUED: October 19, 2016

          BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge, HONORABLE RENÉE COHN JUBELIRER, Judge, HONORABLE P. KEVIN BROBSON, Judge, HONORABLE ANNE E. COVEY, Judge, HONORABLE MICHAEL H. WOJCIK, Judge, HONORABLE JULIA K. HEARTHWAY, Judge, HONORABLE JOSEPH M. COSGROVE, Judge.

          OPINION

          JULIA K. HEARTHWAY, JUDGE

         Upper Moreland Township (Township) appeals the decision of the Court of Common Pleas of Montgomery County invalidating the Township's tax assessment of 7-Eleven, Inc. We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

         The trial court made the following findings of fact. 7-Eleven is a Texas corporation with a registered business address in Dallas. 7-Eleven owns and operates convenience stores throughout the United States. Some 7-Eleven stores are "corporate stores, " which are owned and operated by 7-Eleven directly. Other 7-Eleven stores are "franchise stores, " which are licensed to franchisees and operated according to the terms of a franchise agreement. Pursuant to the terms of the franchise agreement, franchise stores pay to 7-Eleven a fee known as the "7-Eleven Charge, " in exchange for various services provided to franchise stores by 7-Eleven.

         From 2003 to 2011, the years relevant to this appeal, 7-Eleven maintained a regional office for its Northeast Division in the Township. The Northeast Division included 7-Eleven stores in Pennsylvania and New England. Also within the Township was one corporate store and one franchise store. During those years, 7-Eleven filed business privilege tax (BPT) returns with the Township; these returns reported receipts generated by sales at the corporate store within the Township, but did not include the 7-Eleven Charges collected by 7-Eleven from franchise stores in the Northeast Division.

         Following an audit, the Township made an assessment of delinquent BPTs based on 7-Eleven's receipt of 7-Eleven Charges from stores in the Northeast Division. The Township's BPT is assessed at a rate of 3.5 mills on taxable gross receipts. Pursuant to regulation, [1] the Township calculates the gross receipts of businesses with multistate offices engaged in interstate commerce by combining (1) all receipts from within Pennsylvania; and (2) receipts from outside of Pennsylvania multiplied by an apportionment factor. The regulation defines the apportionment factor as the average of the following percentages:

(i) Wages, salaries, commissions and other compensation in Township, as a percentage of total wages, salaries and other compensation.
(ii) Receipts in Township as a percentage of total receipts.
(iii) Value of the tangible personal and real property owned or leased as situated within the Township as a percentage of total tangible personal and real property owned or leased.

         Regulations at ¶ 2. However, in this case, the parties agreed to use only factor (ii), receipts in Township as a percentage of total receipts, for determining the apportionment factor. The Township then calculated the apportionment factor by dividing the yearly 7-Eleven Charge gross receipts from within the Township by the yearly 7-Eleven Charge gross receipts of the Northeast Division. Applying the resulting apportionment factor to the 7-Eleven Charges from the Northeast Division, the Township assessed 7-Eleven for the years 2003 to 2011, as follows:

Total Principal Tax $726, 461.69
Total Tax Penalties $ 80, ...

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