Opinion ID: 2301352
Heading Depth: 1
Heading Rank: 4

Heading: This Court Should Interpret the Statute to Disallow Use of the Headquarters Subfactor

Text: Reviewing courts have a duty to declare a statute constitutional if this can reasonably be done, Triumph Hosiery Mills v. Commonwealth, 469 Pa. 92, 96, 364 A.2d 919, 921 (1976)(quotation omitted), as it is presumed `[t]hat the General Assembly does not intend to violate the Constitution'.... Id. (quoting Statutory Construction Act, 1 Pa.C.S. § 1922(3)). Presently, this can reasonably be done in the following manner. As previously discussed, Section 602(b) of the Tax Code, 72 P.S. § 7602(b), declares that the manufacturing exemption must be implemented via exclusion from the apportionment factor numerators of all payroll, property, and sales attributable to manufacturing activities. While the functions of a corporation's free-standing, mixed-use headquarters, such as planning and coordination of manufacturing operations extrinsic to the headquarters, are arguably attributable to the company's manufacturing activities in a broad sense, it must not be overlooked that the manufacturing exemption imported into Section 602(b) is restrictively defined in Section 602(a). The exemption applies only to capital stock that is invested purely in manufacturing activities, and actually and exclusively employed in carrying on those activities, in the first instance. 72 P.S. § 7602(a); see § 7602(b) (importing the exemption from Section 602(a)). Furthermore, as with all tax exemptions, where there is any doubt as to its applicability, the manufacturing exemption at issue must be strictly construed against the taxpayer. See 1 Pa.C.S. § 1928(b)(5); Commonwealth v. Peters Orchard Co., 511 Pa. 465, 473, 515 A.2d 550, 554 (1986); cf. Commonwealth v. Greenville Steel Car Co., 469 Pa. 444, 451, 366 A.2d 569, 573 (1976)( noting that, [a]s applied to a domestic corporation electing to be treated as a foreign corporation the use of the three factor apportionment formula ... is in the nature of an exemption or deduction and, as such, must be strictly construed). Where, as here, a corporation's manufacturing operations take place at locations extrinsic to its mixed-use headquarters, there is indeed some doubt that the headquarters-based administrative undertakings relative to those operations are strictly incident or appurtenant to the manufacturing business, or that the headquarters property and payroll are exclusively and actually employed in carrying on manufacturing, for purposes of Section 602, 72 P.S. § 7602. [9] Such doubt, as noted, should be resolved in favor of taxation by holding that none of PPG's headquarters qualifies for the manufacturing exemption, thus eliminating the exemption's purported discrimination against interstate commerce. As the statute is not otherwise facially discriminatory, it should be upheld.