Court Opinion

ID: 9737292
Source: CourtListenerOpinion
Date Created: 2023-08-26 19:20:48.623569+00
Date Added: 2024-06-11T07:23:57.885540
License: Public Domain

Justice NIGRO
dissenting.
In assessing the Pennsylvania franchise tax in the instant case, the Department of Revenue (Department) added the capital stock value of the parent corporation and more than 100 foreign subsidiary corporations in calculating the tax base. However, the Department then calculated Pennsylvania’s share of the tax base, i.e., that portion attributable to business activity in this state, using an apportionment fraction composed of the property, payroll, and sales of only one corporation, the parent. Common sense suggests that this tax base/apportionment factor mismatch renders the taxing scheme fundamentally unfair and, in my view, unconstitutional. Accordingly, I must respectfully dissent.
The Pennsylvania franchise tax was designed to tax out-of-state corporations for the privilege of conducting business within Pennsylvania and is imposed on the capital stock value of a corporation. See Clairol, Inc. v. Commonwealth, Bd. of *169Finance & Review, 513 Pa. 74, 518 A.2d 1165 (1986).1 Because a state may not constitutionally tax value earned outside of its borders, the capital stock of a multi-jurisdiction unitary enterprise must be apportioned so that Pennsylvania taxes only that portion of capital stock value attributable to the enterprise’s business activities within the state. See Container Corp. v. Franchise Tax Bd., 463 U.S. 159, 164, 103 S.Ct. 2933, 77 L.Ed.2d 545 (1983). At the same time, the Due Process and Commerce Clauses of the U.S. Constitution do not allow a state to assess a tax on the interstate activities of an enterprise unless there is a nexus between the interstate activities and the taxing state, and a rational relationship between the portion of the tax base attributed to the taxing state and the intrastate values of the enterprise. See U.S. Const, art. I, § 8, cl. 3; U.S. Const, amend XIV, § 1; Hunt-Wesson, Inc. v. Franchise Tax Bd. of California, 528 U.S. 458, 463-64, 120 S.Ct. 1022, 145 L.Ed.2d 974 (2000) (citations omitted).2 Although a state has wide latitude in fashioning an *170apportionment formula, a formula will be held invalid where a taxpayer proves by clear and cogent evidence that the income attributed to the state is “out of all appropriate proportion to the business transacted by the [taxpayer] in that state,” Hans Rees’ Sons, Inc. v. North Carolina ex rel. Maxwell, 283 U.S. 123, 135, 51 S.Ct. 385, 75 L.Ed. 879 (1931), that application of the formula has led to a grossly distorted result for a taxpayer in a particular case, Norfolk & Western Ry. Co. v. Missouri State Tax Comm’n, 390 U.S. 317, 326, 88 S.Ct. 995,19 L.Ed.2d 1201 (1968), or that the apportionment scheme is “inherently arbitrary” or its application “produce[s] an unreasonable result,” Moorman Mfg. Co. v. Bair, 437 U.S. 267, 274, 98 S.Ct. 2340, 57 L.Ed.2d 197 (1978) (quoting Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113, 121, 41 S.Ct. 45, 65 L.Ed. 165 (1920), and citing Norfolk & Western Ry. Co. v. North Carolina ex rel. Maxwell, 297 U.S. 682, 56 S.Ct. 625, 80 L.Ed. 977 (1936); Bass, Ratcliff & Gretton v. State Tax Comm’n, 266 U.S. 271, 45 S.Ct. 82, 69 L.Ed. 282 (1924)).
In the instant case, Unisys reported its average net income on a separate company, unconsolidated basis and therefore, did not include as income dividends it received from subsidiaries. Unisys likewise reported its net worth on a separate company, unconsolidated basis and apportioned its capital stock value using the statutory three-factor formula. In settling Unisys’s franchise tax for the applicable years, the Department increased the amount reported by Unisys as net worth to include the value of Unisys’s investments in its subsidiaries and increased the amount reported as average net income by adding the amount of dividends paid to Unisys by *171its subsidiaries. The Department then calculated Unisys’s property, payroll and sales apportionment factors on a separate company basis, that is, the factors included only the property, payroll and sales of Unisys itself and not the property, payroll and sales of its subsidiaries. The Department’s methodology in that regard was consistent with its practice of computing the apportionment factor by looking only at the activity of the reporting corporation.3 On appeal here, Unisys claims that this tax base/apportionment factors “mismatch” offends due process notions of fairness and violates the constitutional requirement that a state tax levied upon a multijurisdictional business be rationally related to values connected to that state.
The majority concedes that the inherent rationality of factor representation in apportionment cannot be disputed, and recognizes that there is a mismatch in the Department’s application of Pennsylvania’s apportionment formula because the tax base includes value that is not included in the apportionment factors. The majority further states that Pennsylvania’s franchise taxation scheme “may be less than ideal” and even “unconstitutional in some applications.” Nevertheless, the majority reinstates the Department’s settlement of Unisys’s franchise tax liability, concluding that Unisys failed to meet its burden of proof. I disagree with this conclusion for several reasons.
In my view, if the majority had applied the unitary business principle to all aspects of Pennsylvania’s franchise tax scheme, it would have reached a different result. Instead, the majority discounted the integrated relationship between the value of a unitary business and formula apportionment, and in the process, undermined the underlying foundation of the unitary *172business principle. See Jerome R. Hellerstein & Walter Hellerstein, State Taxation, § 9.15(2) (3d ed.1998); E. George Rudolph, The Unitary Business Concept and Affiliated Corporate Groups, 25 Tax. L.Rev. 171, 205 (1970). As I see it, where the theoretical predicate for apportioning dividend income is that the payors of the intangible income are subsidiary corporations engaged in a unitary business with the parent company, it follows as a matter of principle that the subsidiaries’ factors must be included in the formula employed to apportion such value.4 When a formula, such as the one at issue here, fails to recognize the payroll, property, and sales of the subsidiaries that helped generate apportionable value for a unitary enterprise, there ceases to be a rational relationship between the value being taxed and the activities that gave rise to the value and, in my opinion, the inescapable consequence is that unitary value is not apportioned in a constitutional manner.5 See Paul H. Frankel et al., Factor Representation: Respecting Both Legs of the Unitary Business Principle, 10 J. Multistate Tax’n 6 (Sept.2000) (states that include intangible income in taxpayer’s apportionable tax base without providing representation in the apportionment formula for the factors *173that generated the income eviscerate the unitary business principle and transgress constitutional limits on state taxation).
This position is supported by several state courts that have held that an apportionment scheme is unconstitutional when the composition of the apportionment factors is inconsistent with the tax base, and that mismatch distorts the tax base. See E.I. DuPont de Nemours & Co. v. State Tax Assessor, 675 A.2d 82, 89 (Me.1996) (failure to adjust apportionment factors to properly reflect in-state value may result in taxation of extraterritorial value and therefore, violates the fundamental fairness requirements of the Due Process Clause);6 American Telephone & Telegraph Co. v. Wisconsin Dep’t of Revenue, 143 Wis.2d 533, 422 N.W.2d 629, 634-36 (Ct.App.1988) (tax base/apportionment factor mismatch inherently unconstitutional under Due Process and Commerce Clauses); People v. Knapp, 230 N.Y. 48, 129 N.E. 202, 206 (1920) (consistency between tax base and apportionment fraction is constitutional requirement); see also Homart Development Co. v. Norberg, 529 A.2d 115 (R.I.1987) (not reaching constitutional issue, but concluding that failure to use factor representation results in inherent and manifest distortion).7
*174These state courts applied the same reasoning expressed by U.S. Supreme Court Justice John Paul Stevens, the only Justice of the U.S. Supreme Court to address the issue Unisys raises here. Addressing a taxing scheme with a base/apportionment factor mismatch similar to the one here, Justice Stevens stated in his dissent in Mobil Oil Corp. v. Comm’r of Taxes of Vermont, 445 U.S. 425, 100 S.Ct. 1223, 63 L.Ed.2d 510 (1980):
Unless the sales, payroll, and property values connected with the production of income by the payor corporations are added to the denominator of the apportionment formula, the inclusion of earnings attributable to those corporations in the apportionable tax base will inevitably cause Mobil’s Vermont income to be overstated. Either Mobil’s worldwide “petroleum enterprise,” is all part of one unitary business, or it is not; if it is, Vermont must evaluate the entire enterprise in a consistent manner. As it is, it has indefensibly used its apportionment methodology artificially to multiply its share of Mobil’s ... taxable income perhaps as much as tenfold. In my judgment, the record is clearly sufficient to establish the validity of Mobil’s objections to what Vermont has done here.
Id. at 460-61, 100 S.Ct. 1223 (Stevens, J., dissenting) (internal citations and footnotes omitted).8 In my view, Justice Stevens’ cogent analysis is equally applicable to the instant case.9
*175To demonstrate the weight of that logic as applied to Pennsylvania’s scheme, one need only consider the practical application of taxing dividends paid by subsidiaries to the parent company of a unitary enterprise. Where out-of-state income paid to the parent company in the form of dividends increases, the result is an increase in the capital stock value subject to taxation by Pennsylvania, whether or not the unitary enterprise’s in-state activities increase. In other words, although the tax base increases, there is no corresponding increase in the denominator of the apportionment formula to account for the out-of-state production of the value. In fact, given this mismatch, an enterprise’s Pennsylvania tax liability could increase even while its in-state property, payroll, and sales were decreasing.10 The inherent distortion of such a system is even more apparent where a parent company, such as Unisys, has a large number of subsidiaries.
Unlike the majority, I believe that the systemic deficiency in the Department’s application of the apportionment formula will inevitably cause unconstitutional miscalculations of the *176franchise tax. In my view, the unitary concept, at least to the extent it is applied in computing the tax base, necessarily must carry through to all aspects of the tax computation. Thus, both practical and theoretical consistency, as well as the Due Process and Commerce Clauses, require that some form of factor representation be used in the franchise tax apportionment formula to account for out-of-state value production.
While Pennsylvania’s scheme will no doubt produce constitutional results in some instances, the practical effect of such a scheme on other occasions is the unconstitutional taxation of out-of-state value and impermissible double taxation. See Norfolk & Western, 390 U.S. at 327, 88 S.Ct. 995 (“The facts of life do not neatly lend themselves to the niceties of constitutionalism; but neither does the Constitution tolerate any result, however distorted, just because it is the product of a convenient mathematical formula”). In my judgment, the complete absence of the subsidiaries from the apportionment formula makes it facially apparent that the Pennsylvania statute reaches beyond constitutional limits and taxes value outside its borders. See Norfolk & Western, 390 U.S. at 325, 88 S.Ct. 995 (apportionment formula must be rationally related, both on its face and in its application, to values connected with the taxing state); see also Armco Inc. v. Hardesty, 467 U.S. 638, 644-45, 104 S.Ct. 2620, 81 L.Ed.2d 540 (1984) (a tax that unfairly apportions income from other states is a form of discrimination against interstate commerce, and discrimination can be proved from the face of the tax statute); cf. Fulton Corp. v. Faulkner, 516 U.S. 325, 331, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996) (quoting Oregon Waste Systems, Inc. v. Dep’t of Envtl. Quality of Oregon, 511 U.S. 93, 99, 114 S.Ct. 1345, 128 L.Ed.2d 13 (1994)) (“State laws discriminating against interstate commerce on their face are ‘virtually per se invalid.’ ”); Trinova Corp. v. Michigan Dep’t of Treasury, 498 U.S. 358, 374, 111 S.Ct. 818, 112 L.Ed.2d 884 (1991) (quoting Jenkins, State Taxation of Interstate Commerce, 27 Term. L.Rev. 239, 242 (I960)) (a tax imposed “on sleeping measured by the number of pairs of shoes you have in your closet is a tax on shoes”); PPG Industries, Inc. v. Commonwealth, Bd. *177of Finance & Revenue, 567 Pa. 580, 790 A.2d 261, 264 (2001) (holding manufacturing exception to Pennsylvania’s capital stock and franchise taxes unconstitutional because it facially discriminated against interstate commerce).
In reaching its conclusion here, the majority stresses the U.S. Supreme Court’s caveat that all apportionment formulas are necessarily imperfect. Such a pronouncement does not, however, cure the constitutional infirmity of Pennsylvania’s scheme. Moreover, while it is true that the U.S. Supreme Court has held that a “rough approximation rather than precision” is sufficient to satisfy constitutional demands, to be granted that leeway the formula must first be designed to tax only the value of intrastate business activity. See International Harvester Co. v. Evatt, 329 U.S. 416, 421-22, 67 S.Ct. 444, 91 L.Ed. 390 (1947) (quoting Illinois Central R. Co. v. Minnesota, 309 U.S. 157, 161, 60 S.Ct. 419, 84 L.Ed. 670 (1940)); see also Jerome R. Hellerstein & Walter Hellerstein, State Taxation, § 9.15[4][a] (3d ed.1998) (“rough approximation” standard is designed to provide states with a “margin of error” in implementing theoretically sound formulas). As I see it, Pennsylvania’s mismatched apportionment formula is not designed to tax only in-state activity, and the theoretically unsound taxation scheme is therefore unconstitutional on its face.
The majority ultimately rejects Unisys’s claim that the apportionment scheme is unconstitutional on its face because Unisys used what the majority considers unreasonable methods in calculating the tax base for comparison to the Department’s methodology.11 In so concluding, the majority states that Unisys “presented baseline figures predicated solely upon full factor representation of subsidiaries, while failing to estáb*178lish an adequate correlation between the hybrid, adjusted tax base ascribed to it and factor representation on such terms.” 12 I disagree with the majority’s analysis in dismissing Unisys’s claim.
The reasonableness test the majority applies to Unisys’s baseline figures has no precedential basis and, in my view, its application imposes an additional burden on a taxpayer challenging the constitutionality of a tax apportionment scheme and grants the government too much leeway in assessing the franchise tax. Under the majority’s new test, the Department can impose a franchise tax using virtually any apportionment formulation, unless and until a taxpayer comes forward with a taxing scheme that meets not only the majority’s reasonableness threshold, but also well-established constitutional requirements. Thus, the majority essentially relieves the Department of its primary responsibility for imposing taxes in a constitutional manner, see Container Corp., 463 U.S. at 164, 103 S.Ct. 2933; Hunt-Wesson, 528 U.S. at 463-64, 120 S.Ct. 1022, and creates a bright-line rule requiring precision from taxpayers in an area of tax law in which the majority concludes it is impossible for the Department to be precise. I simply cannot agree with this shifting of the burden onto Unisys to formulate a constitutionally valid system of taxation to compare with the Department’s facially unconstitutional system.
Moreover, in my estimation, the fact that Unisys calculated its franchise tax liability with full factor representation while failing to compensate for the “hybrid” nature of the franchise tax base is not necessarily fatal to its entire claim. Given the *179facial inadequacy of the Department’s methodology, Unisys’s failure to advance a perfect taxation scheme is not dispositive of the constitutional inquiry at issue here. Cf. International Harvester Co. v. Dep’t of Treasury, 322 U.S. 340, 343, 64 S.Ct. 1019, 88 L.Ed. 1313 (1944) (Rutledge, J., concurring in part and dissenting in part) (“If there is a want of due process to sustain” a tax, “by that fact alone any burden the tax imposes on the commerce among the states becomes ‘undue’ ”). Because I would find the Department’s application of the franchise tax statute unconstitutional, the only remaining consideration on remand should be, in my mind, whether the Department should implement full factor representation or some hybrid form of factor representation.
I also believe the majority erred in giving substantial weight to Unisys’s actual franchise tax liability in addressing its constitutional claim. For example, the majority discredits Unisys’s methodology due to its failure to account for the statutory 25% reduction in the net worth of the unitary enterprise when calculating capital stock value under the franchise tax statute. See 72 P.S. § 7601(a). While the 25% reduction ultimately reduces the tax due, I believe the majority overstates its relevance here because the capital stock value formula set forth in § 7601(a) was merely the legislature’s method of establishing the proper tax base, and the 25% reduction of the entire tax base does not impact the calculation of a constitutionally valid apportionment fraction. I am also puzzled by the majority’s reliance on the fact that Unisys’s subsidiaries experienced negative average net income in certain tax years.13 The General Assembly concluded that one of the relevant factors in determining capital stock value is net income, see id., a determination which necessarily requires accounting for a company’s costs, operating expenses, and potentially, losses. Irrespective of profitability, under the taxing statute a company incurs franchise tax liability based on the average of net income and net worth. See id. As *180such, the fact that a subsidiary incurs a net loss does not necessarily skew the apportionment of value.
Furthermore, I do not agree with the majority that the statutory provision of exemptions, deductions and adjustments for determining the tax base creates a “margin of error” for a constitutional assessment of apportionment under the Due Process and Commerce Clauses. The whole purpose of the apportionment formula is to identify in-state commerce and not, as the majority seems to suggest, to simply reduce the tax burden to a level that in all likelihood does not overstep constitutional bounds. Thus, the proper inquiry is whether the apportioned tax base fairly represents the in-state business activity of a taxpayer and not whether the actual dollar amount of the assessed tax adequately represents in-state activity irrespective of the constitutionality of the apportionment factor. See Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 265, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984) (where tax has differential impact on in-state and out-of-state activities, the determination of constitutionality does not depend upon whether one focuses upon the benefited or the burdened); cf. Boston Stock Exchange v. State Tax Comm’n, 429 U.S. 318, 331, 97 S.Ct. 599, 50 L.Ed.2d 514 (1977) (discriminatory character of the challenged provisions was demonstrated by the fact that they “foreclose tax-neutral decisions” about where to transact business).
Based on the foregoing analysis, I would hold that factor representation is constitutionally required when taxing a multi-state unitary business, and that Unisys met its burden of showing by clear and cogent evidence that the Department’s application of Pennsylvania’s franchise tax apportionment scheme violates the Due Process and Commerce Clauses of the U.S. Constitution.14

. In its simplest algebraic form, the Pennsylvania franchise tax is expressed as: capital stock value x apportionment factor x statutory tax rate = tax due. See 72 P.S. §§ 7601-7605. A corporation’s capital stock value, i.e., the tax base, is determined by a fixed formula based on: (1) the corporation's net worth, (2) the net worth of any subsidiary of the reporting corporation, and (3) the corporation’s average net income, which includes dividends received from its subsidiaries. See 72 P.S. § 7601(a); 61 Pa.Code § 155.26(a). The apportionment factor is computed by means of a statutory apportionment formula that averages three ratios: (1) the corporation’s property within Pennsylvania to total property everywhere, (2) the corporation's payroll incurred in Pennsylvania to total payroll incurred everywhere, and (3) the corporation's sales within Pennsylvania to total sales everywhere. See 72 P.S. §§ 7602(b), 7401(3)2.(a)(9)(B), 7603. For the tax years in question, the tax rate was 10 mills. See id. § 7602.

. See also Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768, 772, 112 S.Ct. 2251, 119 L.Ed.2d 533 (1992) (state may tax a proportionate share of the income of a nondomiciliary corporation that carries out a particular business both inside and outside that state); Goldberg v. Sweet, 488 U.S. 252, 260-61, 109 S.Ct. 582, 102 L.Ed.2d 607 (1989) (central purpose behind apportionment requirement is to ensure that each state taxes only its fair share of interstate transactions); Container Corp., 463 U.S. at 164, 169, 103 S.Ct. 2933 (state may not "tax value outside its borders”; due process requires fair apportionment of unitary business income); Moorman Mfg. Co. v. Bair, 437 U.S. 267, 273, 98 S.Ct. 2340, 57 L.Ed.2d 197 (1978) (“income attributed to the State for *170tax purposes must be rationally related to values connected with the taxing State”).
In essence, the three-factor apportionment formula represents a balance between a state's revenue raising taxation power and the taxpayer's right to be protected from extraterritorial taxation. See Kraft General Foods, Inc. v. Iowa Dep’t of Revenue, 505 U.S. 71, 112 S.Ct. 2365, 120 L.Ed.2d 59 (1992) (formula serves as mechanism for limiting state tax to the portion of income attributable to business activity within the state); Container Corp., 463 U.S. at 170, 103 S.Ct. 2933 (even though the formula does not produce perfectly accurate taxable income figures, “it has become ... something of a benchmark against which other apportionment formulas are judged”).

. As consistently interpreted and applied by the Department, the property, payroll and sales figures that comprise the three apportionment fractions represent only the property, payroll and sales of the taxpayer itself, and not of the taxpayer’s subsidiaries. See Unisys Corp. v. Commonwealth, 726 A.2d 1096, 1099 (Pa.Commw.1999). Thus, under the Department’s method, the net worth of and dividends paid by certain subsidiaries of a corporation are included in the corporation’s actual value, but the property, payroll and sales of those subsidiaries are not considered in the apportionment factor. See id.

. The rationale for apportioning intangible income when the payor and payee are engaged in a unitary business is that such income is, in substance, the operating income of the unitary enterprise, even though it takes the form of intangible income paid by the subsidiary to its parent. See Mobil Oil Corp. v. Comm'r of Taxes of Vermont, 445 U.S. 425, 440-41, 100 S.Ct. 1223, 63 L.Ed.2d 510 (1980).

. Indeed, the U.S. Supreme Court has endorsed three-factor apportionment formulas "precisely because payroll, property, and sales appear in combination to reflect a very large share of the activities by which value is generated.” Container Corp., 463 U.S. at 170, 103 S.Ct. 2933. It is apparent to me that if property, payroll, and sales are the basic ingredients of a fully functioning company, the same factors necessarily represent the basic ingredients of a unitary enterprise composed of multiple companies. However, the majority allows the Department to have it both ways: it includes the value of subsidiaries in the parent’s apportionable tax base on the theory that the parent and the subsidiary are engaged in a unitary business, but then ignores the unitary business principle by apportioning that value by factors that reflect only the parent’s own operations on a separate company basis. See Randy M. Grimshaw & Maxwell A. Miller, Having Your Cake & Eating It Too: State Taxation of Corporate Intangible Income Without Factor Representations, 1 The State & Local Tax Lawyer 1 (1996).

. The Supreme Court of Maine first reached this conclusion in Tam-brands, Inc. v. State Tax Assessor, 595 A.2d 1039 (Me.1991). As the majority correctly notes, in DuPont the Maine Supreme Court abandoned its internal consistency analysis set forth in Tambrands, but specifically affirmed its prior holding as to the external consistency of an apportionment scheme, stating:
At the same time, we reaffirm the ultimate conclusion in Tambrands that the Assessor's failure to adjust a taxpayer's apportionment factors to reflect the taxpayer's activities both within and without the state of Maine may result in the taxation of extra-territorial value and, therefore, may run afoul of the fairness principles of the Due Process Clause.
DuPont, 675 A.2d at 89. Although the Commonwealth Court below and the Department on appeal here both asserted that the Supreme Court of Maine "abandoned” Tambrands, a careful reading of DuPont clearly refutes that position.

. Although the Commonwealth Court below held that factor representation was not a constitutional requirement for an apportionment formula, it observed:
*174Since the purpose of the formula is to apportion the value of the unitary business enterprise among different jurisdictions, it can hardly be subject to dispute that an apportionment formula which includes data from the entire enterprise will yield a more accurate result than a formula based solely upon the parent corporation's operations.
Unisys, 726 A.2d at 1101.

. The majority in Mobil Oil concluded that the constitutional claim had been waived, and therefore did not address that issue. Mobil Oil, 445 U.S. at 441 n. 15, 100 S.Ct. 1223.

. Additionally, two state taxation scholars have expressed sentiments that I find particularly compelling:
Some state courts have rejected a parent's right to include in its apportionment formula a proportionate share of the subsidiary's factors when payor-payee unity is the predicate for the apportionability of intangible income. They have done so without providing a *175satisfactory explanation of the basis for the rejection. These courts have instead taken refuge in the doctrine that "rough approximation, not precision” is the standard for unconstitutional apportionment; that the application of an apportionment formula will be struck down only if the taxpayer can prove "by clear and cogent evidence” that the income attributed to the state is “out of all appropriate proportion to the business transacted ... in that State” or has "led to a grossly distorted result”; or that the apportionment in question falls "within the substantial margin of error inherent in any method of attributing income among the components of a unitary business.” What these opinions fail to consider, however, is that the "rough approximation” standard is designed to provide states with a "margin of error” in implementing theoretically sound formulas that may on occasion produce results that fall short of perfection. The standard should not be employed as a safe harbor for analytically indefensible apportionment regimes that happen to produce results that are not "grossly distorted” in a constitutional sense.
Jerome R. Hellerstein & Walter Hellerstein, State Taxation, § 9.15[4][a] (3d ed.1998) (footnotes and citations omitted).

. Based on the Department’s calculations, the only circumstance in which Pennsylvania fairly taxes in-state value is if, by mere fortuity, the percentage of ihe parent company's business that is conducted in Pennsylvania happens to correspond with the percentage of the unitary enterprise’s in-state business activity.

. As discussed in the majority opinion, the U.S. Supreme Court has addressed challenges to apportionment formulas using percentage comparisons. However, those cases are irrelevant in the sense of numerical comparison because none dealt with an inconsistency between the tax base and an apportionment formula like in the instant case. Moreover, in my view, when a taxing scheme violates the underlying principle of three-factor formulation, i.e., fair apportionment, requiring proof of gross distortion from that formula is nonsensical.

. Importantly, there is no evidence, or even any allegation, that Unisys presented misleading, inaccurate, or patently false numbers. Rather, the majority concludes that Unisys failed to provide a "proper baseline” in terms of the assets it included in its calculation of capital stock value and, due to the unreasonableness of its calculations, there was no legitimate calculations with which to compare the Department's methodology.
I would also note that the calculations provided by Unisys were part of the stipulations of fact that the parties submitted for administrative and judicial review of the Department’s settlement of the franchise tax assessments in this case.

. Under the statutory formula, yearly net losses are included in calculating book value, but the five-year average of net income cannot be less than zero.

. While the Commonwealth would be left with the unenviable task of producing a specific apportionment formula, I would conclude that if value generated by foreign subsidiaries is used to calculate the capital stock value of a unitary enterprise, there must be some type of factor representation in the apportionment formula in order to calculate a constitutionally fair franchise tax on the in-state business activities of a multi-jurisdictional enterprise. Given this conclusion, I would not *181reach the issue of whether Unisys was entitled to relief under the statutory fair apportionment provisions set forth in 72 P.S. § 7401(3)2.(a)(18).