Court Opinion

ID: 9645240
Source: CourtListenerOpinion
Date Created: 2023-08-22 21:18:05.621998+00
Date Added: 2024-06-11T18:11:25.893052
License: Public Domain

Dissenting Opinion by
Mr. Justice Roberts:
The majority has mischaracterized the business of taxpayer and has misapprehended the nature and purpose of the franchise tax at issue. This is not a case like Commonwealth v. Columbia Gas & Electric Corporation, 336 Pa. 209, 8 A. 2d 404 (1939), where the taxpayer operated an active manufacturing business within Pennsylvania, while performing a holding company business outside of the state. Nor is this case like Commonwealth v. Mundy Corporation, 346 Pa. *109482, 30 A. 2d 878 (1943), winch involved a company that had an investment operation outside of the state while doing a general real estate business within. Taxpayer Kirby Estates is an investment company pure and simple; its purchase of Pennsylvania real estate was nothing more than an additional investment similar to its security holdings.
It is clear that a stockholder does not take an active part in the operation of the corporation in which he invests. He holds the stock and waits for income (i.e., dividends) and/or capital appreciation. This of course is the posture of taxpayer as to its out of state security holdings. Its real estate purchase created no change in taxpayer’s business operation. It purchased the property, then left its management to an agent. There is no indication that taxpayer had anything more to do with its real estate holding than purchasing the property and finding an agent to operate it, just as it has nothing more to do with a corporation in which it holds stock once it has bought the securities. It then awaited a return on its investment, just as it awaits a return on its security holdings.
Viewed in this light, it becomes apparent that the income produced in any given year by the real estate is not necessarily a guide to how lucrative an investment the property has become. A steady increase in capital appreciation, most likely through an increase in land value, will evidence a wise investment by taxpayer, regardless of the income produced. Similarly, taxpayer in its securities investments has no doubt bought the stock of some corporations because of its dividend record, and the stock of other corporations because of its capital growth potential.
Regardless, a franchise tax is not based on the income produced by the business. It is a tax on the privilege to do business in Pennsylvania. It is per-*110Imps -unfortunate that taxpayer’s Pennsylvania investment did not produce much income in the year in question, although it is possible that income production was in no way taxpayer’s motive in making the investment. Next year, taxpayer may do better. The franchise tax is not tied to the success of taxpayer’s Pennsylvania investment. Taxpayer does an investment business, and its Pennsylvania investment is an integral part of this. When it brought its investment business into Pennsylvania, it became liable for a franchise tax based on the entire business.
The majority’s attempt to justify its result by analogizing this case to one where a hypothetical corporation manufactures space rockets in Pennsylvania and clothing in Idaho misses the mark by enough to embarrass even the most errant of those space projectiles. Taxpayer is not doing two separate and distinct businesses. It is similar to a corporation that manufactures the nose of the rocket in one state and the tail in another. It does not matter that taxpayer is investing in different types of things, any more than it would be relevant if it held only oil company stock in one state and only communications stock in another. “Manufacturing” is a generic category that can cover variant operations. Investing however requires doing essentially the same task in all events—purchasing property, be it land, securities, or even warehouse certificates for Scotch whiskey, waiting for it to produce income or appreciate in value, and deciding whether to hold or sell. This is the one and only business that taxpayer did and the statute dictates that it should pay its franchise tax based on all of this business.
I dissent.
Mr. Justice Musmanno joins in this dissent.