Court Opinion

ID: 6259597
Source: CourtListenerOpinion
Date Created: 2022-02-17 21:58:25.163998+00
Date Added: 2024-06-11T08:59:40.188635
License: Public Domain

Opinion by
Mr. Justice Roberts,
This appeal involves the question whether a foreign corporation, subject to the franchise tax, which does not actually engage in manufacturing in Pennsylvania is nonetheless entitled to the manufacturing exemption with respect to certain tangible property owned by it in Pennsylvania and with respect to compensation paid to several employees in Pennsylvania. The Commonwealth Court answered the question in the negative and entered final judgment for the Commonwealth, from which the taxpayer appealed.
Appellant, Weldon Pajamas, Inc. (“Weldon, N.Y.”), is a New York corporation organized, inter alia, for *483manufacturing purposes and authorized to transact business in Pennsylvania. Its principal office is in New York City. Appellant in its New York office purchases cloth suitable for use in pajamas and bathrobes and ships it to Williamsport, Pennsylvania, where Weldon Manufacturing Company of Pennsylvania (“Weldon, Penna.”), a Pennsylvania corporation which is a wholly-owned subsidiary of appellant, manufactures the cloth into finished products and stores them in its own warehouse. Upon receipt by appellant of an order, finished products are shipped directly to the customer from Weldon, Penna.’s warehouse in Williamsport. The cloth furnished to Weldon, Penna. by appellant remains the property of appellant through all the stages of manufacture into the finished product. Three employees of appellant, one of whom is also President of Weldon, Penna. work at Weldon’s plant in Pennsylvania to coordinate the activities of the two corporations.
Weldon, Penna. receives the manufacturing exemption on its capital stock tax for all the assets owned by it and used in manufacturing in Pennsylvania. This does not include the raw material, work in process and finished inventory inasmuch as those assets are owned by appellant. In preparing its franchise tax report for the fiscal year ended June 30,1959, appellant (Weldon, N.Y.) excluded from the numerator of the tangible property fraction the average value of the raw material, work in process and finished inventory located at Weldon’s plant in Pennsylvania and excluded from the numerator of the wages and salaries fraction the compensation paid to its employees working in Pennsylvania. The above items were excluded in the taxpayer’s return on the basis that they were actually and exclusively used in manufacturing.
The franchise tax is imposed on foreign corporations doing business in Pennsylvania. While it dif*484fers in certain respects from the capital stock tax which is applicable to domestic corporations, both taxes are governed by the same basic statute, the Act of June 1, 1889, P. L. 420, §21 (b), as amended, 72 P.S. §1871. It has been frequently pointed out that these two taxes were designed to subject domestic and foreign corporations to substantially similar tax burdens. Commonwealth v. National Biscuit Co., 390 Pa. 642, 136 A. 2d 821 (1957); Commonwealth v. Columbia Gas Corp., 336 Pa. 209, 8 A. 2d 404 (1939). Thus, despite some differences in statutory language, we are convinced that the Legislature intended the manufacturing exemption to be administered uniformly and in accordance with the same basic principles, regardless of whether the taxpayer was a domestic or a foreign corporation.
Historically, the manufacturing exemption, with but one exception, has been reserved to those corporations organized for manufacturing purposes and actually engaged in manufacturing in Pennsylvania. The exception to this rule relates to a corporation organized for manufacturing purposes and owning a manufacturing plant which is leased to another corporation which is actually engaged in manufacturing. See Act of July 11, 1901, P. L. 668, 72 P.S. §1893. We view this policy as being a fulfillment of the legislative intent and in furtherance of the purpose to be served by the exemption.
Appellant is organized for manufacturing purposes but is not actually engaged in manufacturing in Pennsylvania or elsewhere. Nor does it own a manufacturing plant which is leased to a manufacturer. It argues-, however, that the raw material, work in process and finished inventory which it owns in Pennsylvania are actually and exclusively used in manufacturing and that its employees working in Pennsylvania are exclusively engaged in manufacturing.
*485Our analysis of the statute and its long and involved history convinces us that, but for the exception already noted, the Legislature intended the manufacturing exemption to apply only to those corporations actually engaged in manufacturing in Pennsylvania.
The point raised, therefore, falls within the scope of the decision in Commonwealth v. Williamsport Rail Company, 18 Dauphin 189 (1915), aff’d, 250 Pa. 596, 95 Atl. 795 (1915). In that case the taxpayer, organized for manufacturing purposes, purchased raw material which was shipped to Sweets Steel Company where it was manufactured into finished products. The products were then sold by the taxpayer. The argument was made that the raw materials and finished products were exempt as being employed in manufacturing. In affirming the denial of the exemption by the court below, this Court spoke as follows on page 600:
“No portion of the capital stock of the defendant company is employed in the manufacture of anything within this State. It does not manufacture, or pretend to manufacture, anything anywhere. Its capital is actually employed in purchasing raw material and paying another corporation for converting the same into a product which it sells. Though it was incorporated as a manufacturing company, the correct conclusion of the court below was that it is ‘carrying on nothing more than a mercantile business.’ ”
Appellant attempts to overcome the impact of the Williamsport Bail case by trying to distinguish the facts from the present case and by arguing a supposed conflict between that case and the holding of the earlier Commonwealth v. Cambria Iron Co., 5 Dauphin 101 (1902). Whatever factual distinctions may exist, the holding of this Court in Williamsport Bail is broad enough to cover the present situation. The pertinent facts are the same: appellant does not manufacture, *486or pretend to manufacture, anything anywhere. Nor do we view the holding in Williamsport Rail to be in conflict with the Cambria Iron case. That latter case held that a corporation not actually engaged in manufacturing is still entitled to the exemption if its capital is invested in a manufacturing plant which is used in the manufacturing business of another corporation.
As previously noted, the statutory language can be reasonably construed to authorize this exception to the general rule that a corporation must be actually engaged in manufacturing to be entitled to the exemption. But the ownership. of raw materials which are converted by another into a manufactured product is far different from the ownership of a manufacturing plant used by another to produce a manufactured product. In the latter instance, the owner of the plant has invested its capital in such a dedicated and permanent way for the furtherance of manufacturing that the Legislature, in its sole discretion, could conclude that such is the equivalent of “manufacturing.”
The appellant challenges the validity of the Williamsport Rail case on the basis of an amendment to the statute as applied to foreign corporations. The franchise tax provisions of the Act of 1889, P. L. 420, were added in 1935 at the same time as the manufacturing exemption with respect to domestic corporations was suspended. Consequently, no language pertaining to the exemption was incorporated in the franchise tax. The language granting the exemption to foreign corporations as well as domestic corporations was added in 1943 and was designed to accommodate to the particular features of the franchise tax. That language has remained basically unchanged.
Thus, there has been no amendment removing the requirement that the property be actually used in the manufacturing business of the taxpayer.
*487Appellant argues that the Act of 1889, P. L. 420 should he construed so as to grant the exemption to a corporation even though it performs no manufacturing. In this connection, our attention is called to the situation where a corporation which leases a manufacturing plant to another for use in manufacturing is still entitled to the exemption. As noted above, this result is specifically dictated by the Act of 1901. While we are mindful that certain language in Commonwealth v. Jeca Corp., 81 Dauphin 36 (1963), indicates that the Act of 1889, itself might produce such a result, the specific language of the Act of 1901 clearly governs the matter and makes it unnecessary for us to so construe the Act of 1889.
Appellant also argues that its business and that of its subsidiary corporation is an integrated one and that if it were conducted by one corporation, the exemption would apply with respect to the tangible property and wages and salaries involved here. While this statement, indeed, is true, it has little bearing on the issue involved in this case. Our reports contain many cases where corporations have been denied the manufacturing exemption even though the same assets, in the hands of a manufacturer, would have been exempt.
The principle underlying these cases was stated by the Superior Court in Hazen Engineering Co. v. Pittsburgh, 189 Pa. Superior Ct. 531, 540, 151 A. 2d 855, 859 (1959), where the following language appears:
“Doing the same thing by different people under different circumstances has been held to be manufacturing in one case and not manufacturing in the other.”
Appellant, for reasons best known to itself, has elected to divide the enterprise into two separate, legal entities, one engaged in manufacturing and one engaged in owning and selling. Having done this, appellant cannot now insist that the Commonwealth ig*488nore the legal entities set np by appellant so as to find appellant to be something that it is not. See Tax Review Board v. Automatic Plating Co., 423 Pa. 283, 223 A. 2d 854 (1966); Shelburne Sportswear, Inc. v. Philadelphia, 422 Pa. 199, 220 A. 2d 798 (1966).
The result we reach today maintains harmony between the capital stock tax manufacturing exemption and the franchise tax manufacturing exemption. Generally, in each instance, the taxpayer must actually be engaged in manufacturing in Pennsylvania to qualify for the exemption.
Judgment affirmed.
Mr. Justice Musmanno did not participate in the decision of this case.
Mr. Justice Cohen took no part in the consideration or decision of this case.