Opinion ID: 2301352
Heading Depth: 1
Heading Rank: 3

Heading: The Majority's Holding Rests Entirely Upon an Analysis of the Headquarters Subfactor

Text: In its interim decision, this Court relied for its holding exclusively upon the fluctuation in PPG's headquarters' tax liability occasioned by changes in location of PPG's manufacturing facilities extrinsic to those headquarters, such fluctuation being a consequence of the headquarters subfactor method employed by the Department. The Court stated: [B]y use of the Department's sub-apportionment methodology, PPG's headquarters' tax increases as PPG expands out-of-state activity which lacks tax nexus to Pennsylvania, even if there is no equivalent increase in headquarters' payroll. PPG I, ___ Pa. at ___, 790 A.2d at 258, 1999 WL 396902 at  (quoting Brief for PPG at 20-21)(emphasis added). This holding depends upon an interpretation of the statutory manufacturing exemption under which business operations extrinsic to a corporation's headquarters are permitted to reach back to the headquarters and determine the exempt portion of the latter. Were it not for this reach-back capabilityembodied in the headquarters subfactor methodology developed by the Departmentthere would be no change to a company's Pennsylvania tax liability when a manufacturing facility is built, expanded, or reduced in-state or out-of-state. The reason is, as previously noted, that all manufacturing property, payroll, and sales (whether in-state or out-of-state) are excluded from the apportionment fraction numerators. Hence, but for the Department's use of the headquarters subfactor methodology, there would have been no basis upon which to conclude that the exemption operates to discriminate against out-of-state commerce. [8] The parties do not dispute that use of the headquarters subfactor constituted an administrative solutiona secondary apportionment factor developed by the Department specifically to handle taxation of PPG's headquarters, see Stipulation of Facts (S/F) 28-30, R.R. 24athe primary apportionment method being the averaging of the payroll, property, and sales figures as prescribed by Section 401(3)2.(a) of the Tax Code, 72 P.S. § 7401(3)2.(a); nor do the parties dispute that, apart from the use of the headquarters subfactor, the statute is constitutional. See R.R. at 41A, 72A. There is also no doubt that the Court's evaluation of the effect of the headquarters subfactor formed the basis of its invalidation of the statutory manufacturing exemption in PPG I. Therefore, as the Department correctly observes, the PPG I decision must have been based upon an assumption that the secondary apportionment scheme used by the Department relative to PPG's headquarters comprised an integral part of the primary scheme as set forth in the statute. See Brief for Appellee at 7-11. A review of PPG I confirms that such was an assumptionand not a holdingas that opinion is devoid of any discussion of the question or any analysis by which a conclusion can be drawn that the secondary apportionment factor is statutorily required.