IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Synthes USA HQ, Inc., :

Petitioner :

:

v. : No. 108 F.R. 2016

: ARGUED: June 11, 2020

Commonwealth of Pennsylvania, :

Respondent :

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge

HONORABLE RENÉE COHN JUBELIRER, Judge

HONORABLE P. KEVIN BROBSON, Judge 

HONORABLE PATRICIA A. McCULLOUGH, Judge

HONORABLE MICHAEL H. WOJCIK, Judge

HONORABLE CHRISTINE FIZZANO CANNON, Judge

HONORABLE ELLEN CEISLER, Judge

OPINION BY JUDGE CEISLER FILED: July 24, 2020

Synthes USA HQ, Inc. (Synthes) petitions for review from a decision of the 

Board of Finance and Revenue (Board). The Board affirmed a decision of the 

Department of Revenue (Department) denying a corporate net income tax refund 

sought by Synthes for the 2011 tax year.1 

The Commonwealth, through the Attorney General (Commonwealth), is the 

respondent before this Court.2 The Commonwealth has taken a position before this 

Court that would alter drastically the Department’s longstanding interpretation of a 

corporate net income tax provision applicable to pre-2014 tax years. The 

Department has therefore applied to intervene. This Court listed the application to 

intervene for disposition with the merits.

1

It is undisputed that the refund petition and all appeals were timely.

2 Rule 1571(c) of the Rules of Appellate Procedure requires that a petition for review by a 

taxpayer must name the Commonwealth (rather than the Department or the Board of Finance and

Revenue (Board)) as the Respondent. Pa. R.A.P. 1571(c).
2

After thorough review, we grant the Department’s application to intervene,

reverse the decision of the Board, and remand to the Board for a further remand to 

the Department to issue an appropriate tax refund to Synthes.

I. Background

Synthes, a Pennsylvania-based corporation, provides research, development, 

and management services to affiliates located outside Pennsylvania. In calculating 

its 2011 Pennsylvania corporate net income tax, Synthes determined its percentage 

of out-of-state sales of services by applying an interpretation of the Tax Reform

Code of 19713(Tax Code) that differed from the interpretation the Department had 

consistently applied for many years. Synthes later requested a refund because the 

Department’s interpretation of the Tax Code would have resulted in a lower tax. The 

Department denied the refund request because it found Synthes failed to present 

sufficient evidence to demonstrate where its sales occurred. 

Synthes appealed to the Board, which upheld the Department’s refund denial, 

agreeing that Synthes did not satisfy its burden of proof. See Br. of Resp’t at 10; 

Stipulated Facts ¶¶ 66, 68, Ex. D at 95, Ex. E, Ex. F at 101-02. Synthes then 

petitioned for review in this Court.4

The Commonwealth acknowledges that Synthes eventually established the 

evidence needed to support its refund claim under the Department’s interpretation 

of the Tax Code, once its claim had reached this Court. See Br. of Resp’t at 10; 

Stipulated Facts ¶¶ 12, 15-16, 18-20, 24-33, 63-64. The Department does not 

3 Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§ 7101 – 10004.

4 This Court reviews decisions of the Board de novo based on stipulated facts or a record 

created before this Court. Pa. R.A.P. 1571(h); Plum Borough Sch. Dist. v. Commonwealth, 860 

A.2d 1155 (Pa. Cmwlth. 2004), aff’d without op., 891 A.2d 726 (Pa. 2006). Here, the record 

consists of stipulated facts and stipulated documents.
3

contend otherwise. The Commonwealth argues, however, that the Department’s 

interpretation of the Tax Code was in error and is not entitled to any deference from 

this Court. Thus, the Commonwealth contends Synthes is not entitled to a tax 

refund, but for a different reason from that found by the Department and the Board.

The Department, as putative intervenor, maintains that its interpretation of the 

Tax Code concerning calculation of Synthes’s Pennsylvania sales was correct. 

Indeed, that interpretation was not placed at issue until the Commonwealth raised it 

before this Court. The Department therefore seeks to intervene and be heard on the 

issue along with the parties.

Synthes argues that regardless of which calculation method was correct, 

Synthes is entitled to the same tax break other taxpayers received from the 

Department.

II. Issues

Synthes asserts two arguments before this Court. First, Synthes contends the

Department’s interpretation of the Tax Code was correct regarding calculation of the 

sales factor for apportioning corporate net income tax among multiple states. Like 

the Department, Synthes argues its sales of services should be apportioned according 

to where customers received the benefits of Synthes’s services, not where Synthes 

incurred costs of performing those services.

Second, Synthes asserts it is entitled to a tax refund based on the Department’s 

interpretation of the Tax Code, even if the Department’s interpretation was incorrect 

and Synthes used the correct calculation method at the time it paid the tax. Synthes 

insists the Department must accord Synthes the same tax break it gave other 
4

corporate taxpayers, as required by the Uniformity Clause of Article VIII, Section 1 

of the Pennsylvania Constitution.

5

III. Discussion

A. Tax Code – Subparagraph 17

In Pennsylvania, a corporation with taxable business activities in more than 

one state must apportion its income among the applicable states for income tax 

purposes, using a formula provided in the Tax Code. The statutory formula includes 

a property factor, a payroll factor, and a sales factor. See Sections 401(3)2.(a)(2) 

and 401(3)2.(a)(9)(A)(iv) of the Tax Code, 72 P.S. §§ 7401(3)2.(a)(2),

7401(3)2.(a)(9)(A)(iv). Only the sales factor is at issue in this case.6

The taxpayer’s income from sales of services is taxed based on the proportion 

of its sales that occur in Pennsylvania. The sales factor is expressed as a fraction. 

The numerator is the dollar amount of the taxpayer’s sales in Pennsylvania for the

applicable tax year. The denominator is the taxpayer’s total sales everywhere for 

the tax year. 72 P.S. § 7401(3)2.(a)(15).

Synthes sells services to customer affiliates located in other states. Thus, the 

question here is whether sales of services by Synthes, a Pennsylvania corporation,

to businesses outside Pennsylvania constitute sales in Pennsylvania or sales where

the purchasing businesses are located, for purposes of calculating the sales factor.

5

“All taxes shall be uniform, upon the same class of subjects, within the territorial limits 

of the authority levying the tax, and shall be levied and collected under general laws.” PA. CONST. 

art. VIII, § 1.

6 All of Synthes’s $271 million in property is in Pennsylvania, and 95% of its 2011 payroll 

of $156 million was paid in Pennsylvania. Stipulated Facts ¶¶ 60-61.

(Footnote continued on next page...)
5

Under the Tax Code as it applies to this case,

7

a sale of a service occurs in 

Pennsylvania if: 

(A) The income-producing activity is performed in this State; or 

(B) The income-producing activity is performed both in and outside this 

State and a greater proportion of the income-producing activity is 

performed in this State than in any other state, based on costs of 

performance [(costs-of-performance method)].

72 P.S. § 7401(3)2.(a)(17) (Subparagraph 17). The Tax Code does not define either 

“income-producing activity” or “costs of performance.”

B. Intervention by the Department

In support of its application for intervention, the Department points out that it 

is the agency charged with settling and collecting taxes for the Commonwealth, as 

well as issuing refunds when appropriate.8 See Br. of Intervenor at 4-5 (citing

Sections 201 – 203 and 206 of the Fiscal Code,9 72 P.S. §§ 201-203, 206; Sections 

201-212, 401(7), 407.1, 407.3(d), 407.5, and 3003.1 of the Tax Code, 72 P.S. 

§§ 7201-12, 7401(7), 7407.1, 7407.3(d), 7407.5,10 and 10003.111). The Department 

7 The applicable provision, designated here and by the parties as Subparagraph 17, was 

amended by the legislature effective January 1, 2014. The amendment is discussed below.

8 Although the Attorney General asserts that its office is the entity charged with collecting 

taxes, Section 204(c) of the Commonwealth Attorneys Act, Act of October 15, 1980, P.L. 950, 71 

P.S. §§ 732-204(c), provides: “The Attorney General shall collect, by suit or otherwise, all debts, 

taxes and accounts due the Commonwealth which shall be referred to and placed with the 

Attorney General for collection by any Commonwealth agency.” (Emphasis added.) The 

Department did not place any tax with the Attorney General for collection. Rather, Synthes 

appealed from the Department’s refusal to refund taxes previously paid.

9 Act of April 9, 1929, P.L. 343, as amended.

10 Sections 407.1, 407.3, and 407.5 were added by Act of October 18, 2006, P.L. 1149.

11 Section 3003.1 was added by Act of July 1, 1985, P.L. 78.
6

also observes that it is a party to proceedings before the Board. Br. of Intervenor at 

5 (citing Section 704(d.1)(2) of the Fiscal Code, 72 P.S. § 704(d.1)(2)). As such, the 

Department was entitled to intervene as of right within 30 days after notice of filing 

of the petition for review, or thereafter by obtaining permission to intervene. Pa. 

R.A.P. 1531(a). However, the Department asserts it was not subject to the 30-day 

requirement because Synthes failed to name the Department as a Respondent and 

include a Notice to Participate directed to the Department. Br. of Intervenor at 6 

(citing Lautek Corp. v. Unemployment Comp. Bd. of Review, 583 A.2d 7, 9-10 (Pa. 

Cmwlth. 1990)).

Alternatively, the Department argues that even if it needs permission to 

intervene, this Court should grant such permission. The Department contends it did 

not become fully aware of the Commonwealth’s position concerning interpretation 

of Subparagraph 17 until the Commonwealth filed its brief in January 2020.12

12 The Commonwealth appears in this action through the Attorney General. Section 204(c) 

of the Commonwealth Attorneys Act, Act of October 15, 1980, P.L. 950, as amended, requires the 

Attorney General to represent a Commonwealth agency in any action brought by or against the 

agency. 71 P.S. § 732-204(c). We note with dismay the Attorney General’s assertion in this case 

of a legal position directly adverse to that of its client, the Department. Rather than advocating 

the Department’s longstanding construction of a tax statute, a matter peculiarly within the 

Department’s expertise, the Attorney General has forced the Department to seek intervention in 

order to defend its interpretation of the tax provision at issue.

We are unaware of any constitutional or statutory authorization or mandate for such 

conduct. Section 204 of the Commonwealth Attorneys Act requires an agency to follow the advice 

of the Attorney General when sought, or seek a declaratory judgment from this Court if the agency 

disagrees with the advice in question. 71 P.S. § 732-204(a)(1), (2). Here, however, neither the 

Department nor the Board sought the Attorney General’s advice concerning the proper 

interpretation of Subparagraph 17. Moreover, to the extent the Attorney General believed itself 

entitled to control the position to be advocated in this Court, and upon reaching a legal 

interpretation contrary to that of the Department, the Attorney General should have so advised the 

Department. The Department could then have initiated a request for a declaratory judgment as 

anticipated by Section 204(a).

(Footnote continued on next page...)
7

The Commonwealth has not taken a position either supporting or opposing 

the Department’s application for intervention. Synthes initially opposed the 

Department’s request for intervention, but withdrew its opposition at oral argument.

The Department has a clear interest in the Tax Code issue presented in this 

case. The Department was entitled to intervene as of right within 30 days after notice 

of the petition for review. No other party contends that any prejudice would arise 

from allowing the Department to intervene at this point. For these reasons, we grant 

the Department’s application for intervention.

C. Synthes’s Refund Request

The parties have stipulated that Synthes’s customers received the benefits of 

Synthes’s services outside Pennsylvania. See Stipulated Facts, ¶ 63, Ex. C. 

However, Synthes incurred costs in performing its services for its affiliate 

customers, and most of those costs were incurred in Pennsylvania. Thus, whether 

Synthes must calculate its sales factor using the costs-of-performance method or the 

benefits-received method has a major impact on the determination of its sales factor, 

and consequently on the amount of state income tax it must pay.

Although the Department never issued a regulation or formal policy

concerning its construction of Subparagraph 17, it interpreted and enforced 

Subparagraph 17 consistently for decades, including during the tax years relevant to 

Additionally, Section 204(c) of the Commonwealth Attorneys Act (Act of October 15, 

1980, P.L. 950, as amended), provides that “[t]he Attorney General may, upon determining that it 

is more efficient or otherwise is in the best interest of the Commonwealth, authorize the General 

Counsel or the counsel for an independent agency to initiate, conduct, or defend any particular 

litigation or category of litigation in his stead.” 71 P.S. § 732-204(c). Here, rather than acting 

directly adversely to its client’s position, the Attorney General could have authorized counsel for 

the Department or the Board to litigate this matter before this Court, thereby avoiding this 

unseemly conflict between the Commonwealth and its own agency concerning a statutory 

construction issue within the agency’s expertise.

(Footnote continued on next page...)
8

Synthes’s refund claims.

13 The Department treated each sales receipt as a separate 

income-producing activity. It then deemed each income-producing activity as 

having occurred at the location where the customer received the benefit of the service

(benefits-received method). Stipulated Facts, ¶ 37. In its brief before this Court, the 

Department asserts this same interpretation of Subparagraph 17.

Synthes originally calculated and paid its 2011 corporate net income taxes 

using the costs-of-performance method of determining the sales factor. Synthes 

subsequently sought a refund from the Department on the basis that the Department 

had consistently applied the benefits-received method of interpretation of 

Subparagraph 17. 

Notwithstanding its consistent application of the benefits-received method, 

the Department denied Synthes’s refund request because it found Synthes offered

inadequate evidence to establish where its sales occurred. The Board affirmed the 

Department’s decision on the same basis. Before this Court, however, the 

Commonwealth concedes, and the Department does not dispute, that Synthes has 

now supported its refund claim with sufficient evidence. Therefore, under the 

Department’s interpretation of Subparagraph 17, Synthes has established entitlement 

to a tax refund. If Synthes is entitled to use the benefits-received method, it will 

receive a refund of more than $2 million for the 2011 tax year.

Synthes also asserts that it is still entitled to a refund even if the Department

erred in applying the benefits-received method. Synthes argues that pursuant to the 

Uniformity Clause, it should be treated the same as other taxpayers for the same tax 

13 Synthes filed petitions for review in this Court concerning refunds for other tax years in 

addition to 2011. Those petitions have been stayed pending the outcome of this case. They are 

docketed at Nos. 107, 109, and 110 F.R. 2016.
9

year, whose taxes were calculated by the benefits-received method, as enforced by 

the Department and the Board. 

Nonetheless, as discussed above, the Commonwealth argues that the 

Department erred in applying the benefits-received method, and that Synthes was 

correct when it calculated its 2011 tax using the costs-of-performance method. 

D. Construction of Subparagraph 17

The Commonwealth acknowledges that the Department has consistently 

applied and enforced the benefits-received method of calculating the sales factor 

under Subparagraph 17. Where taxpayers have filed petitions for review, the Board 

has consistently upheld the Department’s position. If further petitions for review 

were filed with this Court, the Commonwealth reached compromise settlements with 

the petitioners. Stipulation of Facts ¶¶ 50(D), 51(D), 53(D). Thus, this case 

represents the first time this issue has reached this Court.

1. The Department’s Position

The Department, supported by Synthes, argues the benefits-received method 

of calculating the sales factor represents the correct interpretation of Subparagraph 

17. The Department asserts that the benefits-received method is consistent with the 

language of the Tax Code. The Department points out that as the agency charged 

with interpreting and applying the Tax Code, it is entitled to deference in its 

interpretation.

The Department begins from the premise that the Tax Code fails to define 

either “income-producing activity” or “costs of performance.” The Department 

reasons that under Subparagraph 17(A), “income-producing activity” for the sale of 

a service is the actual provision of the service to the customer, because that is what 

generates the taxpayer’s income. Therefore, the Department concludes that the place 
10

where the income-producing activity occurs is the place where the customer receives 

the benefit of the service, or in other words, where the customer is located. 

Accordingly, if a customer is outside Pennsylvania, Synthes’s income-producing 

activity regarding that customer occurs outside Pennsylvania.

As for the “costs of performance” under Subparagraph 17(B), the Department 

reasons that analysis applies only where a customer receives services both inside and 

outside of Pennsylvania. In that instance, the Department determines whether to 

allocate each sale of a service to Pennsylvania based on whether the seller incurred 

more costs of performing the service inside or outside Pennsylvania.

The Department argues the plain meaning of “performance” is “‘fulfillment 

or accomplishment of a promise, contract, or other obligation....’” Br. of Intervenor 

at 13 (quoting Black’s Law Dictionary (5th ed. 1979)). Therefore, the Department 

contends the location where performance is fulfilled, i.e., the location where the 

customer receives the service, is the location where income-producing activity is 

performed.

The Department asserts that its interpretation is consistent with our Supreme 

Court’s analysis in Commonwealth v. Gilmour Manufacturing Co., 822 A.2d 676 

(Pa. 2003). In Gilmour, the Supreme Court found that with regard to sales of 

personal property, “the numerator of the sales factor represents the contribution of 

Pennsylvania consumers and purchasers to the entity’s sales, while the denominator 

represents the contribution of all consumers and purchasers.” Id. at 683. The 

Department suggests there is no reason to calculate the sales factor differently 

regarding sales of services.

The Department further argues that the benefits-received method of 

calculating the sales factor apportions sales of services more fairly than the costs-of-
11

performance method advocated by the Commonwealth. Under the costs-ofperformance method, out-of-state corporations providing services to Pennsylvania 

customers would be able to avoid taxes on services that would be taxable if 

performed by a Pennsylvania corporation, thus imposing a disadvantage on

Pennsylvania businesses and providing a disincentive for businesses to locate in 

Pennsylvania. 

The Department also points out that although Pennsylvania did not formally 

adopt the Uniform Disposition of Income for Tax Purposes Act (Uniform Act),14 the 

language of Subparagraph 17 is taken directly from the Uniform Act. Br. of 

Intervenor at 22 (citing Gilmour). The Department posits that statutes uniform with 

those of other states should be construed to effect their general purpose of uniformity 

with the laws of those other states. Br. of Intervenor at 15 (citing 1 Pa. C.S. § 1927). 

The Department cites decisions from several other jurisdictions that have applied the 

Uniform Act consistently with the Department’s interpretation of Subparagraph 17. 

See Br. of Intervenor at 16-17 (citing, e.g., Walter E. Heller Western, Inc. v. Ariz. 

Dep’t of Revenue, 775 P.2d 1113, 1116 (Ariz. 1989) (consumer’s location controls 

allocation of sales other than tangible personal property; “the term, ‘income 

producing activity,’ in our regulation contemplates only direct sales payment activity 

by the consumer”); Bank of Am. Consumer Card Holdings v. N.J. Div. of Taxation, 

29 N.J. Tax 427, 464 (2016) (service fee is earned where customer receives the 

benefit of the service); DIRECTV, Inc. v. S.C. Dep’t of Revenue, 804 S.E.2d 633, 

640-41 (S.C. App. 2017) (sales factor for corporation providing service to customers 

14 The Uniform Disposition of Income for Tax Purposes Act (Uniform Act) was drafted by 

the National Conference of Commissioners on Uniform State Laws (National Conference). The 

National Conference recommended the Uniform Act in 1957 for adoption by all of the states. 

https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFile

Key=1ed71060-2212-9426-e7f7-e723d9cb4929&forceDialog=0 (last visited July 23, 2020).
12

in multiple states was calculated based on where customers receiving services were 

located)); cf. Ameritech Publ’g, Inc. v. Wis. Dep’t of Revenue (Wis. Ct. App. No. 

2009AP445, filed June 24, 2010), 2010 WL 2519583 at *12 (service provided by 

Wisconsin corporation distributing phone directory consisted of providing access to 

local Wisconsin directory market, not merely delivery of phone books in other states; 

therefore, sales factor was to be calculated based on fees paid by Wisconsin 

advertisers rather than phone book recipients).

Finally, the Department argues that as the agency charged with applying and 

enforcing the Tax Code, it is entitled to deference in its interpretation of the Tax 

Code’s provisions. Br. of Intervenor at 17 (citing Phila. Suburban Corp. v. 

Commonwealth, 601 A.2d 893, 898 (Pa. Cmwlth. 1992)). The Department observes, 

moreover, that because the Tax Code is technically complex, this Court should be 

even more reluctant to substitute its discretion for that of the Department, the agency 

with expertise in interpreting the Tax Code. Br. of Intervenor at 17-18 (citing Phila. 

Suburban; Smithkline Beckman Corp. v. Commonwealth, 482 A.2d 1344, 1353 (Pa. 

Cmwlth. 1984)).

2. The Commonwealth’s Position

The Commonwealth contends the Department’s interpretation of 

Subparagraph 17 is incorrect. The Commonwealth insists Synthes correctly 

calculated its sales factor for its 2011 taxes by applying the costs-of-performance 

method. Therefore, Synthes is not entitled to a refund.

The Commonwealth first asserts that the Department’s interpretation of 

Subparagraph 17 is not entitled to substantial deference because it was never adopted 
13

as a legislative regulation.15 Because the Department’s interpretation is merely an 

interpretive rule, it does not have the force of law. Br. of Resp’t at 17 (citing Dechert 

LLP v. Commonwealth, 998 A.2d 575, 584 n.8 (Pa. 2010); Graham Packaging Co., 

LP v. Commonwealth, 882 A.2d 1076, 1079 n.5 (Pa. Cmwlth. 2005)). The 

Commonwealth observes that a court may disregard an agency’s interpretive rule if 

it is unwise or violates the legislature’s intent. Br. of Resp’t at 17 (citing Gilmour, 

822 A.2d at 679; Girard Sch. Dist. v. Pittenger, 392 A.2d 261, 263 (Pa. 1978)).

The Commonwealth contends the Department’s application of the benefitsreceived method of calculating the sales factor fails to effectuate the legislature’s

intent. The Commonwealth acknowledges that the plain language of a statute is the 

best indication of legislative intent, but the terms “income-producing activity” and 

“costs of performance” in Subparagraph 17 are not defined in the Tax Code. The 

Commonwealth argues the Department’s interpretation of Subparagraph 17 is 

incorrect because it views Subparagraph 17 from the customer’s perspective rather 

than based on the taxpayer’s actions. The Commonwealth notes there is no express

“benefits-received” language in Subparagraph 17. The Commonwealth further 

asserts that Subparagraph 17 contains no language supporting the Department’s 

treatment of each service receipt as a separate income-producing activity.

The Commonwealth suggests the Department’s application of the benefitsreceived method produces a result the legislature could not have intended. Contrary 

to the Department’s argument that it properly construes Subparagraph 17 

consistently with the calculation of the sales factor for sales of tangible property, the 

15 The Commonwealth correctly points out that the Department’s interpretation of 

Subparagraph 17 is contained only in “general policy statements” such as “internal memoranda, 

instructions to auditors, correspondence, and Information Notice – Corporation Taxes 2014-01.” 

Br. of Resp’t at 18.
14

Commonwealth argues the two provisions have different language and the 

legislature would not have enacted two different provisions if it had wanted them to 

be applied the same way. Br. of Resp’t at 21 (citing 72 P.S. § 7401(3)2.(a)(16) & 

(17)).

The Commonwealth further observes that Subparagraph 17(B) expressly 

requires a costs-of-performance analysis if income-producing activities for sales of 

services occur both inside and outside of Pennsylvania. The Commonwealth 

contends that the Department’s interpretation of Subparagraph 17 would render this 

requirement of Subparagraph 17(B) meaningless. (However, as discussed above, 

the Department explained that Subparagraphs 17(A) and (B) apply in different 

situations.)

The Commonwealth concedes Subparagraph 17 is a verbatim adoption of the 

language of Section 17 of the Uniform Act. However, the Commonwealth argues

that Section 17 of the Uniform Act has drawn criticism because changes in 

economics, developing technology, and increasing globalization allow both goods 

and services to be supplied remotely to a much greater degree than was possible 

when the Uniform Act was originally drafted in the 1950s. 

In 2014, the Multistate Tax Commission (Commission), created in 1967 to 

promote uniform taxation of multistate businesses, recommended amending Section 

17 of the Uniform Act to a rule clearly sourcing service receipts to the state in which 

services were delivered. In other words, the Commission recommended an 

amendment clarifying application of the benefits-received rule, which the 

Department was already applying. 

Pennsylvania’s legislature enacted the recommended amendment to 

Subparagraph 17 effective January 1, 2014. For calculation of the sales factor, 
15

service receipts16 are now expressly sourced to Pennsylvania “if the service is

delivered to a location in this State. If the service is delivered both to a location in 

and outside this State, the sale is in this State based upon the percentage of total 

value of the service delivered to a location in this State.” See Act of July 9, 2013, 

P.L. 270, 72 P.S. § 7401(3)2.(a)(16.1)(C)(I).

The Commonwealth argues there would have been no need for the legislature 

to amend Subparagraph 17 if it already provided for application of the benefitsreceived method as the Department claims. Therefore, the Commonwealth insists 

the legislature’s amendment of Subparagraph 17 in 2014 demonstrates that the pre2014 version of Subparagraph 17 was not intended to have the meaning ascribed to 

it by the Department. The Commonwealth also asserts that although the legislature 

amended Subparagraph 17 regarding sales of services, the costs-of-performance 

method continues to apply to sales of intangibles. The Commonwealth contends this 

further demonstrates that the legislature previously intended the pre-2014 

Subparagraph 17 to apply the costs-of-performance method to sales of services.

In contrast to the Department’s citation of Gilmour as analogous, the 

Commonwealth cites RB Alden Corp. v. Commonwealth, 142 A.3d 169 (Pa. Cmwlth. 

2016), in which it contends this Court construed Subparagraph 17 in terms of 

performance costs, without mentioning the benefits-received method. We find the 

Commonwealth’s contention unpersuasive. RB Alden concerned taxation on the 

capital gain from the sale of a partnership interest. At issue was whether the 

proceeds of the sale should be sourced to New York, where the partnership (a 

16 The pre-2014 language of Subparagraph 17 continues to apply to sales other than those 

under Subparagraphs 16 (sales of tangible personal property) and 16.1 (the amended provision 

regarding sales of services). See 72 P.S. § 7401(3)2.(a)(17). Subparagraph 16.1 was added by the 

Act of July 9, 2013, P.L. 270.

(Footnote continued on next page...)
16

Delaware taxpayer) was headquartered, or Pennsylvania, where the real property 

from which the sale was derived was located.

17

 Id. at 172. The taxpayer argued that 

“all of the activities associated with the acquisition, holding and disposition of the 

[p]artnership interest occurred at the headquarters in New York.” Id. at 179. 

However, this Court found in RB Alden that the taxpayer’s income-producing 

activity, which was its operation and management of the real property from which 

the sale was derived, occurred in Pennsylvania, where the property was located. Id.

This Court observed further that the costs related to performing the taxpayer’s 

management services were also generated in Pennsylvania. Thus, both the costs of 

performing management services and the benefits of those services arose in 

Pennsylvania. Id. Accordingly, a choice between the costs-of-performance method 

and the benefits-received method under Subparagraph 17 was not at issue in RB 

Alden.

The Commonwealth counters the Department’s citation of decisions from 

other states applying the benefits-received method with its own list of decisions it 

claims have applied, either explicitly or implicitly, the costs-of-performance method. 

See Br. of Resp’t at 29-30 (citing Univ. of Phoenix, Inc. v. Ind. Dep’t of State 

Revenue, 88 N.E.3d 805, 810-12 (Ind. T.C. 2017); AT&T Corp. v. Dep’t of Revenue, 

358 P.3d 973, 982 (Or. 2015); Comcast Holdings Corp. v. Tenn. Dep’t of Revenue

(Tenn. Ct. App. No. M2017-02250-COA-R3-CV, filed April 25, 2019), 2019 Tenn. 

App. LEXIS 193; Corp. Exec. Bd. Co. v. Va. Dep’t of Taxation, 822 S.E.2d 918, 

921-23, 930 (Va. 2019)). University of Phoenix concerned an Indiana tax provision 

that specifically related to telecommunications and broadcast services and spoke 

expressly and exclusively in terms of costs of performance, regardless of whether 

17 Also at issue, although not relevant here, was whether the sale of the partnership interest 

generated business income or non-business income.
17

such costs were incurred inside or outside of Indiana. See Univ. of Phoenix, 88 

N.E.3d at 812 (citing Ind. Code § 6-3-2-2(f)(2)). AT&T and Comcast applied state

statutes that, unlike the Tax Code in Pennsylvania, expressly defined both “incomeproducing activity” and “costs of performance.” AT&T, 358 P.3d at 983-84 (quoting 

Or. Rev. Code 150-314.665(4)(2), (4)); Comcast, slip op. at __, 2019 Tenn. App. 

LEXIS 193 at *29-*31 (quoting Tenn. Comp. R. & Regs. 1320-06-01-.34). In

Corporate Executive Board, the court specifically observed that “there is no standard 

market sourcing rule akin to the cost-of-performance rule that used to be more 

prevalent.” Corp. Exec. Bd., 822 S.E.2d at 929. Rather, various states apply various 

rules, including the benefits-received approach, and in each state, differences may

exist even where the same approach is applied. Id. Thus, these decisions do not 

advance the Commonwealth’s position.

The Commonwealth also asserts that the Indiana Tax Court’s decision in 

University of Phoenix surveyed decisions from around the country and opined that 

the benefits-received method was supportable in states where a statute or a regulation 

imposed that interpretation. Br. of Resp’t at 31 (citing Univ. of Phoenix, 88 N.E.3d 

at 813). The Commonwealth posits that because the Department has not formally

enacted such a regulation, the costs-of-performance method necessarily applies to 

corporate taxpayersin Pennsylvania. However, University of Phoenix does not stand 

for such a proposition, and we are not persuaded by the Commonwealth’s reasoning.

3. Ambiguity of Subparagraph 17

A statute is ambiguous when it is reasonably susceptible of more than one 

interpretation or its language is vague, uncertain, or indefinite. McCloskey v. Pa. 

Pub. Util. Comm’n, 219 A.3d 692 (Pa. Cmwlth. 2019). Here, the Department and 

the Commonwealth assert differing interpretations of Subparagraph 17. Both are 
18

facially reasonable, especially because the Tax Code fails to define the terms 

“income-producing activity” and “costs of performance.” We therefore conclude 

Subparagraph 17 is ambiguous. Accord AT&T Corp., 358 P.3d at 982

(“[c]ommentators have routinely criticized [Section 17 of the Uniform Act] for its 

ambiguity”).

When a statute is ambiguous, courts generally defer to the expertise of the 

agency charged with interpretation and enforcement responsibilities with respect to 

that statute. In this case, that agency is the Department. See Stodghill v. Pa. Dep’t 

of Corr., 150 A.3d 547, 554 (Pa. Cmwlth. 2016) (citing 1 Pa. C.S. § 1921(c)(8);

Packer v. Bureau of Prof’l & Occupational Affairs, Dep’t of State, State Bd. of 

Nursing, 99 A.3d 965, 969 (Pa. Cmwlth. 2014), overruled on other grounds by 

McGrath v. Bureau of Prof’l & Occupational Affairs, State Bd. of Nursing, 146 A.3d 

310 (Pa. Cmwlth. 2016); Velocity Express v. Pa. Human Relations Comm’n, 853 

A.2d 1182, 1185 (Pa. Cmwlth. 2004)). Deference applies unless the agency’s 

interpretation of its enabling statute is erroneous or frustrates the legislature’s intent. 

Stodghill, 150 A.3d at 554 (citing Packer; Rosen v. Bur. of Prof. & Occupational 

Affairs, State Architects Licensure Bd., 763 A.2d 962, 968 (Pa. Cmwlth. 2000)).

The Commonwealth contends that the Department’s interpretation of 

Subparagraph 17 is not entitled to deference because it frustrates the legislature’s 

intent. The Commonwealth points to the legislature’s amendment of Subparagraph 

17 in 2014 to provide clearly for application of the benefits-received method. The 

Commonwealth argues that amendment would have been pointless if Subparagraph 

17 already required application of the benefits-received method. Thus, the 

Commonwealth asserts there was no other possible reason for the amendment other 

than to disapprove the Department’s prior interpretation of the pre-2014 version of 
19

Subparagraph 17. Therefore, the Commonwealth posits that the Department’s 

interpretation of Subparagraph 17 prior to its amendment must have been incorrect.

However, it is undisputed that the Department has consistently interpreted 

Subparagraph 17 as applying the benefits-received method for many years. The 

legislature acquiesced in that interpretation. In fact, the legislature’s amendment of 

Subparagraph 17 clarified, rather than altered, the application of the benefitsreceived method the Department was already applying and enforcing. When the 

legislature amends a statute that has been the subject of a longstanding 

administrative interpretation, but does not revise or repeal the agency’s 

interpretation, this is evidence that the legislature has acquiesced in the interpretation 

and that the interpretation is, in fact, the one the legislature intended. Gilligan v. Pa. 

Horse Racing Comm’n, 422 A.2d 487, 491 (Pa. 1980). We reject the 

Commonwealth’s argument that the legislature’s amendment of Subparagraph 17

disapproved the Department’s longstanding interpretation, because we find the 

legislative amendment did not change that interpretation, but merely eliminated any 

previous ambiguity, as recommended by the Commission. 

We conclude that the Department’s interpretation of Subparagraph 17 is not 

contrary to the legislature’s intent. Therefore, we uphold the Department’s 

application of the benefits-received method of calculating the sales factor. Inasmuch 

as the Commonwealth concedes that Synthes met its burden of showing entitlement 

to a refund under the benefits-received method, we reverse the Board’s decision and 

remand this matter for issuance of the appropriate tax refund to Synthes for tax year 

2011.
20

E. Uniformity Clause

Finally, because we agree with Synthes that it is entitled to the tax refund it 

seeks, we do not address its alternate argument under the Uniformity Clause. 

“‘When a case raises both a constitutional and a non-constitutional issue, a court 

should not reach the constitutional issue if the case can properly be decided on nonconstitutional grounds.’” Commonwealth v. Martinez, 147 A.3d 517, 530 (Pa. 2016) 

(quoting P.J.S. v. Pa. State Ethics Comm’n, 723 A.2d 174, 176 (Pa. 1999)).

IV. Conclusion

Based on the foregoing discussion, we grant the Department’s application to

intervene. Further, we find that the Department’s interpretation of Subparagraph 17, 

rather than the Commonwealth’s interpretation, is correct. Therefore, Synthes is 

entitled to the tax refund it seeks. Accordingly, we reverse the Board’s decision and 

remand to the Board for further remand to the Department to issue the appropriate 

tax refund.

__________________________________

ELLEN CEISLER, Judge

Judge Cohn Jubelirer dissents and wishes to be so noted. 
IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Synthes USA HQ, Inc., :

Petitioner :

:

v. : No. 108 F.R. 2016

:

Commonwealth of Pennsylvania, :

Respondent :

O R D E R

AND NOW, this 24th day of July, 2020:

The application of the Pennsylvania Department of Revenue (Department) for 

intervention is GRANTED. 

The order of the Commonwealth of Pennsylvania, Board of Finance and 

Revenue (Board), is REVERSED. 

This matter is REMANDED to the Board, and the Board is directed to remand 

this matter to the Department for issuance of a tax refund to Synthes USA HQ, Inc. 

for tax year 2011, in an amount to be determined by the Department consistent with 

the foregoing opinion.

Unless exceptions are filed within 30 days pursuant to Pa. R.A.P. 1571(i), this 

order shall become final.

Jurisdiction is relinquished.

__________________________________

ELLEN CEISLER, Judge
IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Synthes USA HQ, Inc., :

Petitioner :

:

v. : No. 108 F.R. 2016

: Argued: June 11, 2020 

Commonwealth of Pennsylvania, :

Respondent :

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge

HONORABLE RENÉE COHN JUBELIRER, Judge

HONORABLE P. KEVIN BROBSON, Judge

HONORABLE PATRICIA A. McCULLOUGH, Judge

HONORABLE MICHAEL H. WOJCIK, Judge

HONORABLE CHRISTINE FIZZANO CANNON, Judge

HONORABLE ELLEN CEISLER, Judge

CONCURRING OPINION

BY JUDGE BROBSON FILED: July 24, 2020

I wholeheartedly embrace the majority’s disposition of this matter. I write 

separately to emphasize my agreement with the majority’s conclusion that the 

Pennsylvania Office of Attorney General overstepped its authority under the 

Commonwealth Attorneys Act (CAA)1 by assuming the mantles of both counsel and 

client.

Section 204(c) of the CAA, 71 P.S. § 732-204(c), provides, in relevant part, 

that the Attorney General “shall represent the Commonwealth and all 

Commonwealth agencies . . . in any action brought by or against the Commonwealth 

or its agencies.” (Emphasis added.) This Court has noted: “The Commonwealth 

1 Act of October 15, 1980, P.L. 950, 71 P.S. §§ 732-101 to -506.
PKB-2

acts through the General Assembly and through the Commonwealth’s various 

agencies . . . and its departments . . . . Each of these entities is part of the 

Commonwealth . . . .” In re Condemnation No. 2 by Cmwlth. ex rel. Dep’t of Gen. 

Servs., 943 A.2d 997, 1001 (Pa. Cmwlth. 2007), appeal denied, 954 A.2d 578 (Pa.), 

cert. denied sub nom. Ate Kays Co. v. Pa. Dep’t of Gen. Servs., 555 U.S. 

1070 (2008). As the majority astutely points out, in matters of taxation, the General 

Assembly, through legislation, has empowered the Department of Revenue 

(Department), not the Office of Attorney General, to act for the Commonwealth. 

(See Maj. Op. at 5.) “[T]he Department . . . is charged with execution and application 

of the” Tax Reform Code of 1971 (Tax Code).2 Phila. Gas Works ex rel. City of 

Phila. v. Cmwlth., 741 A.2d 841, 844 (Pa. Cmwlth. 1999), aff’d, 757 A.2d 360 

(Pa. 2000). 

“[W]hen the legislature statutorily invests an agency with certain functions, 

duties and responsibilities, the agency has a legislatively conferred interest in such 

matters . . . . [U]nless the legislature has provided otherwise, such an agency has an 

implicit power to be a litigant in matters touching upon its concerns.” Pa. Game 

Comm’n v. Dep’t of Envtl. Res., 555 A.2d 812, 815 (Pa. 1989) (discussing agency 

standing). Recognizing this legislative designation of agency interests, we have 

specifically held that Section 204(c) of the CAA “does not vest in the Attorney 

General the administrative agency power to investigate or enforce a particular 

statute” or “to become the agency itself,” but only “to serve as the agency’s lawyer 

in actions at law or in equity.” Trometter v. Pa. Labor Relations Bd., 147 A.3d 601, 

2 Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§ 7101-10004.

(Footnote continued on next page...)
PKB-3

608 (Pa. Cmwlth. 2016) (emphasis in original).3 It would be incongruous to construe 

the Attorney General’s duty under Section 204(c) to “represent” the Commonwealth 

in legal proceedings as authority for the Attorney General to override, as it has done 

in this matter, the voice of the legislatively designated Commonwealth agency on a 

particular subject matter.

Here, there is no dispute between Synthes USA HQ, Inc. (Synthes), the 

appealing taxpayer, and the Department, acting for the Commonwealth as its 

legislatively authorized agent, as to the proper interpretation of the Tax Code 

provision that governs this tax dispute. The Board of Finance and Revenue (Board) 

applied the Department’s interpretation, and Synthes does not challenge that aspect 

of the Board’s decision on appeal. As the parties agree that Synthes has met its 

evidentiary burden and is entitled to a refund under the Commonwealth’s current 

interpretation of the applicable provision of the Tax Code, I concur in the majority’s 

disposition to reverse and remand. I would reach this result, however, without 

entertaining the Office of Attorney General’s collateral attack on the 

Commonwealth’s longstanding construction of the Tax Code provision. (Maj. Op. 

at 8-19.)

 

P. KEVIN BROBSON, Judge

3

In Trometter, we rejected an argument by the Pennsylvania Labor Relations Board that 

Section 204(c) of the CAA somehow vests the Attorney General with authority to pursue an 

agency’s legislative mandates. Trometter, 147 A.3d at 608. Instead, we held that 

Section 204(c) “provides only that the Attorney General must provide legal representation to the 

[Pennsylvania Labor Relations] Board in litigation” and makes the Attorney General “[the 

agency’s] lawyer by statutory default.” Id. (second emphasis added).
IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Synthes USA HQ, Inc., :

:

Petitioner :

:

 v. : No. 108 F.R. 2016

: Argued: June 11, 2020

Commonwealth of Pennsylvania, :

:

Respondent :

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge

HONORABLE RENÉE COHN JUBELIRER, Judge

HONORABLE P. KEVIN BROBSON, Judge

HONORABLE PATRICIA A. McCULLOUGH, Judge

HONORABLE MICHAEL H. WOJCIK, Judge

HONORABLE CHRISTINE FIZZANO CANNON, Judge

HONORABLE ELLEN CEISLER, Judge

CONCURRING AND DISSENTING OPINION 

BY JUDGE WOJCIK FILED: July 24, 2020

Section 204(c) of the Commonwealth Attorneys Act (CAA)1states, in 

relevant part, “The Attorney General shall represent the Commonwealth and all 

Commonwealth agencies and upon request, the Department[] of . . . State Treasury 

. . . in any action brought by or against the Commonwealth or its agencies[.]” 

Additionally, Section 401 of the CAA states, “Each independent agency may appoint 

. . . a chief counsel and such assistant counsel as it deems necessary to provide it 

with legal assistance or request such legal services from the Office of General 

Counsel.” 71 P.S. §732-401. Moreover, Section 204(c) also provides, “The 

1 Act of October 15, 1980, P.L. 950, 71 P.S. §732-204(c).
MHW - 2

Attorney General may, upon determining that it is more efficient or otherwise is in 

the best interest of the Commonwealth, authorize the General Counsel or the counsel 

for an independent agency to . . . conduct or defend any particular litigation . . . in 

his stead.”

2

However, Section 403 of the CAA addresses the interplay between the 

Attorney General’s representation of the Commonwealth’s and an agency’s interests 

in a matter, and the agency’s representation of its own interests, stating:

(a) Representation of agency by agency counsel.—

Whenever any action is brought by or against any 

independent agency[], the agency head may request in 

writing, setting forth his reasons, the Attorney General to 

authorize the agency counsel to supersede the Attorney 

General and represent the agency[.]

(b) Intervention by agency counsel.—If the Attorney 

General does not grant the request, the agency head may 

authorize the agency counsel to intervene in the litigation. 

Such intervention shall be a matter of right and when 

exercised, confer upon the agency counsel the obligation 

to represent the agency. The Attorney General shall at all 

times continue to represent the Commonwealth.

71 P.S. §732-403.

The import of the foregoing provision was explained by the 

Pennsylvania Supreme Court, as follows:

As [the Pennsylvania Turnpike Commission 

(Commission)] counsel concedes, [S]ection 204(c) of the 

[CAA], 71 P.S. §732–204(c), gives the Attorney General 

both the right and duty to assume the representation of the 

[Commission] when it has been sued. Section 403 of the 

2 See also Section 402(2) of the CAA, 71 P.S. §732-402(2) (“The chief counsel . . . [m]ay

request the assistance of the General Counsel or the Attorney General, or both of them, in any 

matter or action involving the agency. If advice is requested from the Attorney General, such 

advice when received shall be followed by the agency[.]”) (emphasis added).
MHW - 3

[CAA], while permitting the Attorney General to delegate 

that duty to agency counsel upon request, in no way affects 

the continued right of the Attorney General to represent 

the agency if he so chooses. The concluding language of 

[Section] 403(b) makes this clear by providing that the 

Attorney General shall “continue to represent the 

Commonwealth” when agency counsel intervenes. The 

preceding sentence, which states that the agency counsel 

shall be obligated to represent the agency when the right 

of intervention is exercised, speaks only to the duty of the 

agency counsel as intervenor, not to the position of the 

Attorney General in the litigation. Thus it is apparent that 

[S]ection 403(b) does not compel the ouster of the 

Attorney General when agency counsel intervenes. 

Rather, the [CAA] contemplates the possibility of dual 

representation where the Attorney General and the 

members of an agency disagree as to the agency’s interests 

or where . . . the members of an agency are themselves 

unable to agree upon the agency’s interests and the 

Attorney General disagrees with the agency’s chairman.

Fidelity Bank v. Pennsylvania Turnpike Commission, 444 A.2d 1154, 1160-61 (Pa. 

1982).

Based on the foregoing, I strongly disagree with the majority’s assertion 

that the Attorney General, while representing the interests of the Commonwealth, 

the Treasury Department, and the Department of Revenue in this matter, acted 

inappropriately by presenting a legal argument that conflicts with the position of the 

Department of Revenue below or that of the Office of General Counsel in its 

representation of the Department of Revenue on appeal. The CAA clearly and 

explicitly3 confers upon the Attorney General the primary authority to determine and 

3 See, e.g., Section 1921(a) of the Statutory Construction Act of 1972 (Construction Act), 

1 Pa. C.S. §1921(a) (“The object of all interpretation and construction of statutes is to ascertain 

and effectuate the intention of the General Assembly. Every statute shall be construed, if possible, 

to give effect to all its provisions.”); Pennsylvania Gaming Control Board v. Office of Open

Records, 103 A.3d 1276, 1285 (Pa. 2014) (“[S]tatutory language must be read in context, that is, 

in ascertaining legislative intent, every portion of statutory language is to be read ‘together and in 

(Footnote continued on next page...)
MHW - 4

present to this Court what he perceives those interests to be, in spite of what the 

Department of Revenue or the Treasury Department may perceive them to be, and 

specifically contemplates dual representation of the agencies where those perceived 

interests are conflicting. The majority’s contrary conclusion is patently incorrect. 

Nevertheless, based on the conflicting legal positions, the majority correctly granted 

the Department of Revenue’s application to intervene in this case, via representation 

by the Office of General Counsel, to present its own interests in this matter.

On the merits, I believe that the Attorney General has presented a 

convincing argument that although the Department of Revenue erred in its preamendment application of the Tax Reform Code of 19714

(Tax Code) in disposing 

of Synthes USA HQ, Inc.’s (Taxpayer) petition for a refund of its corporate net 

income tax (CNIT) paid for the 2011 tax year, the Board of Finance and Revenue’s 

(F&R) order denying Taxpayer’s petition for review of the Department of Revenue’s 

Board of Appeal’s order should be affirmed nonetheless.

5

 Taxpayer calculated its 

conjunction’ with the remaining statutory language, ‘and construed with reference to the entire 

statute’ as a whole.”) (citation omitted).

4 Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§7101-10004.

5 As we have explained:

 This Court’s review in this matter is “de novo in nature, with no 

record being certified by [F&R].” Pa. R.A.P. 1571. “Although the 

Court hears these cases under its appellate jurisdiction, the Court 

functions essentially as a trial court.” Our decision is based on 

either a record created before this Court or, as in this case, stipulated 

facts.

General Motors Corporation v. Commonwealth, 222 A.3d 454, 459 n.3 (Pa. Cmwlth. 2019) 

(citations omitted). Additionally, “[t]his Court has held that a reviewing court may affirm an order 

of an administrative agency if it is correct for any reason regardless of the reasons given by the 

(Footnote continued on next page...)
MHW - 5

CNIT for the 2011 tax year based, in part, on the definition of “Taxable income” 

provided in Section 401(3)2.(a)(17) (Subparagraph 17) of the Tax Code,

6 which was 

applicable before the General Assembly amended the Tax Code in 2013 by adding 

Section 401(3)2.(a)(16.1)(C) (Subparagraph 16.1).

7

 On its return, Taxpayer 

tribunal whose order is under review.” Millvale Health Center, Inc. v. Department of Public 

Welfare, 538 A.2d 625, 627 (Pa. Cmwlth. 1988) (citation omitted).

6 72 P.S. §7401(3)2.(a)(17). Section 401(3)2.(a)(17), defining “Taxable income,” states, 

in relevant part:

2. In case the entire business of any corporation . . . is not transacted 

within this Commonwealth, the tax imposed by this article shall be 

based upon such portion of the taxable income of such corporation 

for the fiscal or calendar year . . . and may be determined as follows

(a) Division of Income.

* * *

(17) Sales . . . are in this State if:

(A) The income-producing activity is performed in this State; or

(B) The income-producing activity is performed both in and 

outside this State and a greater proportion of the income-producing 

activity is performed in this State than in any other state, based on 

costs of performance. [(Emphasis added.)]

7 Added by the Act of July 9, 2013, P.L. 270, 72 P.S. §7401(3)2.(a)(16.1)(C). 

Subparagraph 16.1 states, in relevant part:

(C)(I) Sales from the sale of service, if the service is delivered to a 

location in this State. If the service is delivered both to a location in 

and outside this State, the sale is in this State based upon the 

percentage of total value of the service delivered to a location in this 

State.

(Footnote continued on next page...)
MHW - 6

properly applied Subparagraph 17 for apportioning income, including a sales factor 

among the three factors, and sourced all receipts to Pennsylvania because the 

greatest proportion of the costs of performing the services at issue was incurred here. 

This computation method, the “costs-of-performance” method, is inconsistent with 

the Department’s interpretation of Subparagraph 17, applying the “benefitsreceived” method for these services, as subsequently provided for in Subparagraph 

16.1 and applicable to Taxpayer’s CNIT following its enactment. See generally 

Honigman Miller Schwartz and Cohn LLP v. City of Detroit, ___ N.W.2d ___, ___

(Mich., Dkt. No. 157522, filed May 18, 2020), slip op. at 8-10 (outlining the 

evolution from the application of the costs-of-performance method to the benefitsreceived method of calculating CNIT for income derived from providing multistate 

services under the relevant Michigan tax statute); University of Phoenix, Inc. v. 

Indiana Department of State Revenue, 88 N.E.3d 805, 811-13 (Ind. T.C. 2017)

(analyzing a number of states’ interpretation of similar provisions and applying the 

costs-of-performance method under the relevant Indiana tax statute).

To my mind, the General Assembly’s 2013 enactment of Subparagraph 

16.1, while keeping Subparagraph 17 intact, demonstrates a legislative intent to alter

(II) If the state or states of assignment under unit (I) cannot be 

determined for a customer who is an individual that is not a sole 

proprietor, a service is deemed to be delivered at the customer’s 

billing address.

(III) If the state or states of assignment under unit (I) cannot be 

determined for a customer, except for a customer under unit (II), a 

service is deemed to be delivered at the location from which the 

services were ordered in the customer’s regular course of operations.

If the location from which the services were ordered in the 

customer’s regular course of operations cannot be determined, a 

service is deemed to be delivered at the customer’s billing address.

(Footnote continued on next page...)
MHW - 7

the calculation of CNIT for income received for the sale of services from the costsof-performance method to the benefits-received method by specifically adding this 

provision to the Tax Code, and by specifically excepting the application of 

Subparagraph 17 to income within the ambit of Subparagraph 16.1.

8 See, e.g.,

Masland v. Bachman, 374 A.2d 517, 521 (Pa. 1977) (“A change in the language of 

a statute ordinarily indicates a change in legislative intent.”); Haughey v. Dillon, 108 

A.2d 69, 72 (Pa. 1954) (“A change of language in subsequent statutes on the same 

matter indicates a change of legislative intent. Commonwealth v. Lowe Coal Co.,

[145 A. 916, 918-19 (Pa. 1929)]. Why else would the legislature change the 

language?”). See also Section 1921(c)(5) of the Construction Act, 1 Pa. C.S. 

§1921(c)(5) (“When the words of the statute are not explicit, the intention of the 

General Assembly may be ascertained by considering, among other matters . . . [t]he 

former law, if any, including other statutes upon the same or similar subjects.”); 

Section 1928(b)(3) of the Construction Act, 1 Pa. C.S. §1928(b)(3) (“All provisions 

of a statute of the classes hereafter enumerated shall be strictly construed: . . . (3) 

Provisions imposing taxes.”).

As a result, the Department of Revenue’s grant of Taxpayer’s refund 

application for the 2011 tax year would be void because its interpretation of 

Subparagraph 17 as requiring an assessment based on the benefits-received method 

of allocation is not supported by the express language of the applicable Tax Code 

provision in effect at that time. See 72 P.S. §7401(3)2.(a)(17) (“Sales . . . are in this 

State if . . . [t]he income-producing activity is performed in this State; or . . . [it] is 

8 The only amendment to Subparagraph 17 that was made by Section 19 of the Act of July 

9, 2013, P.L. 270, was the replacement of the phrase “other than sales of tangible personal 

property” in the first line with the phrase “other than sales under paragraphs (16) and (16.1).” No 

amendments were made to the relevant provisions of Subparagraph 17 that are stated above and 

that are at issue in this matter.
MHW - 8

performed both in and outside this State and a greater proportion . . . is performed in 

this State than in any other state, based on costs of performance.”) (emphasis added). 

As this Court has previously explained:

It is well-settled that administrative agencies, such 

as the Department, are creatures of the General Assembly 

and can only exercise the powers that are conferred upon 

them by statute. Small v. Horn, [722 A.2d 664, 669 (Pa. 

1998)]; Capital BlueCross v. Pennsylvania Ins. Dep’t, 937 

A.2d 552, 569 (Pa. Cmwlth. 2007)[.] The Department 

thus acts ultra vires when it acts either without statutory 

authority or contrary to statutory authority.

Grimaud v. Pennsylvania Insurance Department, 995 A.2d 391, 405 (Pa. Cmwlth. 

2010). See also SugarHouse HSP Gaming, L.P. v. Pennsylvania Gaming Control 

Board, 162 A.3d 353, 375-76 (Pa. 2017) (“[A]lthough we accord an administrative 

agency such as the [Gaming] Board substantial deference in construing the laws it is 

tasked with administering, ‘we need not defer uncritically, particularly if we find 

that the interpretation is imprudent or inconsistent with legislative intent.’”) (citation 

omitted).9

9 The Attorney General also sets forth a convincing argument that rejecting the Department

of Revenue’s past incorrect interpretation of Subparagraph 17, and directing a correct 

interpretation for the relevant tax year, does not present a Uniformity Clause issue. See 

Commonwealth v. Westinghouse Electric Corporation, 386 A.2d 491, 494 (Pa. 1978), wherein the 

Supreme Court stated:

Even if the Commonwealth erred in allowing the two 

corporations to deduct the foreign taxes, these isolated instances of 

taxpayers receiving deductions through the mistakes of the 

Commonwealth’s employees should not serve as a justification for 

this Court’s extension of relief and further mistake to appellant. The 

fact remains that “no errors or misinformation of (the 

Commonwealth’s) officers or agents can estop the government from 

collecting taxes legally due.” Commonwealth v. Western Maryland 

Railway[ Co., 105 A.2d 336, 341 (Pa. 1954)]. Moreover, appellant 

(Footnote continued on next page...)
MHW - 9

Accordingly, like the majority, I would grant the Department of 

Revenue’s application to intervene in this matter; however, unlike the majority, I 

would affirm F&R’s order on the merits.

MICHAEL H. WOJCIK, Judge

Judge Cohn Jubelirer joins in this Concurring/Dissenting Opinion.

failed to meet its burden of proving that the Commonwealth 

deliberately and purposefully discriminated against appellant.

See also Stilman v. Tax Review Board, City of Philadelphia, 166 A.2d 661, 662-63 (Pa. 1961) 

(“[T]o establish a denial of constitutional rights-in situations such as this-there must be a deliberate 

and purposeful discrimination in the application of the tax. Prior error by an administrative official 

when interpreting a valid tax statute is insufficient, in itself, to constitute a violation of the rights 

of due process and equal protection of the laws.”) (citation omitted).