Court Opinion

ID: 4963197
Source: CourtListenerOpinion
Date Created: 2021-09-24 15:25:01.684917+00
Date Added: 2024-06-11T08:15:56.740613
License: Public Domain

DISSENTING OPINION BY
Judge PELLEGRINI.
The plain language of the Pennsylvania Tax Code (Code)1 provides that the proportion of a truck company’s income and value for corporate taxes should be determined by the company’s activity in Pennsylvania. Activity under the Code is plainly based on comparing “revenue miles” in Pennsylvania with “revenue miles” outside of Pennsylvania. Because the majority’s apportionment calculation eliminates “revenue miles” as the basis of apportionment to one based on “gross receipts,” I respectively dissent.
FedEx Ground Package System, Inc. (Taxpayer) is a truck company that transacts business inside and outside Pennsylvania. To calculate the portion of a company’s business income2 attributable to Pennsylvania for corporate tax purposes, trucking companies use a special, single-factor apportionment fraction set forth in the Apportionment Statute. That statute provides, in pertinent part:
All business income of railroad, truck, bus or airline companies shall be apportioned to this Commonwealth by multiplying the income by a fraction, the numerator of which is the taxpayer’s total revenue miles within this Commonwealth during the tax period and the denominator of which is the total revenue miles of the taxpayer everywhere during the tax period. For purposes of this paragraph revenue miles shall mean the average receipts derived from the transportation by the taxpayer of persons or property one mile. (Emphasis added.)
The Department of Revenue (Department) audited Taxpayer’s corporate tax report for the tax year ended May 31, 1999, and issued an assessment notice. Taxpayer filed petitions for refund of its corporate taxes contending that its tax liability should be recomputed because the Department failed to follow the Apportionment *983Statute which inquires that average receipts per revenue mile in Pennsylvania and elsewhere be included in the calculation. It contended that in taking the average revenue mile, the apportionment factor should be calculated as follows:
Avg. receipts per x miles in PA mile in PA
Business Income x _ _ x Tax rate = Tax owed3
Avg. receipts per x mile everywhere miles everywhere
In this case, the average receipts per mile in Pennsylvania equaled $2.94, and the average receipts per mile everywhere equaled $3.93.4
The Department’s Board of Appeals denied the petitions and adopted the Commonwealth’s position that the apportionment formula is calculated by multiplying a taxpayer’s business income everywhere5 by the average receipts per mile everywhere multiplied by miles in Pennsylvania over the average receipts per mile everywhere multiplied by miles everywhere. The apportionment factor would be calculated as follows:
Avg. receipts per x miles in PA mile everywhere
Business Income x _ x Tax rate = Tax owed
Avg. receipts per x miles everywhere mile everywhere
Taxpayer appealed to the Board of Finance and Revenue, which also denied the petitions. Taxpayer then appealed to this Court and adopting the Taxpayer’s interpretation, we reversed in FedEx Ground Package System, Inc. v. Commonwealth, 898 A.2d 22 (Pa.Cmwlth.2006), stating:
*984[T]he numerator must equal the taxpayer’s total “revenue miles within this Commonwealth.” The phrase “within this Commonwealth” modifies “revenue miles,” the immediately preceding words in the statute. A “revenue mile” is defined as the average receipts derived from the transportation by the taxpayer one mile. If a “revenue mile” is defined as average receipts, then “total revenue miles within this Commonwealth,” means that the average receipts derived from the transportation in Pennsylvania must be multiplied by the total number of miles in Pennsylvania.
Id. at 25. (Emphasis in original.) This case is now before us on exceptions filed by the Commonwealth which contend that we erroneously adopted Taxpayer’s interpretation of what composes the apportionment fraction in contravention of the Apportionment Statute.
The majority denies the exceptions concluding that the apportionment fraction numerator must be computed by multiplying Taxpayer’s average receipts per mile for transporting property in Pennsylvania ($2.94) by the total number of miles that the property was transported in Pennsylvania (28,119,379 miles). I disagree because calculating the Apportionment Statute as the majority suggests transforms the apportionment factor from one based on “activity” to one based on “gross receipts.” 6
Section 401(3)2.(b)(l) of the Code contains two central concepts: revenue and miles. The statutory definition of a “revenue mile” is “... the average receipts derived from the transportation by the taxpayer of persons or property one mile.” The statute makes no reference to where the mile from which the receipts were derived may have been in the definition of “revenue mile.”
The majority adopts an interpretation which adds “Pennsylvania” to the numerator to create a new “Pennsylvania revenue mile.” Under this interpretation, Pennsylvania revenue per mile multiplied by Pennsylvania miles would always produce a numerator of Pennsylvania revenue, and revenue per total mile multiplied by total miles would always produce a denominator of total revenue, which, in effect, transforms the revenue miles apportionment fraction into a sales factor. Applying simple algebraic principles7 to the majority’s interpretation of the apportionment formula — the same multiplier in both the numerator and denominator operates so that the one cancels the other out — the majority’s *985apportionment factor would be calculated as follows:
Avg. receipts in PA
PA Rev Mile = _ x Miles in PA
Miles-in-PA
Business Income x - x Tax rate = Tax owed
Avg. receipts Everywhere everywhere
Rev Mile = _ x Miles everywhere
JVIilcs
everywhere
Nowhere does the Apportionment Statute provide that average receipts per mile in either the numerator or denominator are to be multiplied by miles, magically transforming the statute into essentially a tax on gross receipts in Pennsylvania.8 If that were the case, the General Assembly could have simply said that the apportionment fraction should be calculated by dividing the gross receipts in Pennsylvania over the gross receipts everywhere. The net effect is that the majority has rewritten the statute to read:
All business income of railroad, truck, bus or airline companies shall be apportioned to this Commonwealth by multiplying the income by a fraction, the numerator of which is the taxpayer’s total revenue miles average receipts derived from the transportation by the taxpayer of persons or property one mile within this Commonwealth during the tax period and the denominator of which is the total revenue miles average receipts denvedfrom the transportation by the taxpayer of persons or property one mile of the taxpayer everywhere during the tax period. For purposes of this paragraph-revenue mile shall-mean-the average receipts derived from the transportation by- the-taxpayer of persons or property one mile.
Having said all that, I recognize that there is an anomaly in the Commonwealth’s interpretation. While the Commonwealth’s apportionment fraction contains all the elements mentioned in the statute, the difficulty with it is that it includes average receipts per mile everywhere in both the numerator and denominator, and applying simple algebraic principles, the same multiplier in both the numerator and denominator operates so that the one cancels the other out. The Commonwealth is then left with the following formula:
Revenue Miles in PA
Business x _ x Tax rate = Tax owed income
Revenue Miles everywhere
The net effect is that the Commonwealth’s apportionment fraction makes the last pertinent sentence of the Apportionment Statute, which reads “for purposes of [the Apportionment Statute] revenue miles shall mean the average receipts derived from the transportation by the taxpayer of persons or property one mile,” a non-fac*986tor. Unlike Taxpayer’s interpretation, though, which requires a wholesale rewriting of the statute, the Commonwealth’s interpretation follows the Apportionment Statute’s plain language because all the required factors are included in the Commonwealth’s apportionment fraction, and the last pertinent sentence of the statute is only made a non-factor as a result of the required algebraic calculation.9
Accordingly, because the General Assembly intended the apportionment factor to be based on activity and not on gross receipts, and the Commonwealth’s apportionment fraction complies with the language of the Code, I would sustain the exceptions filed by the Commonwealth and affirm the order of the Board of Finance and Revenue.
Judges COHN JUBELIRER and SIMPSON join in this dissenting opinion.

. Section 401(3)2.(b)(1) of the Code, Act of March 4, 1971, P.L. 6, as amended, 72 P.S. § 7401(3)2.(b)(1) (Apportionment Statute).

. Section 401(3)2.(a)(l)(A) of the Code, 72 P.S. § 7401(3)2.(a)(1)(A), provides:
"Business income” means income arising from transactions and activity in the regular course of the taxpayer’s trade or business and includes income from tangible and intangible property if either the acquisition, the management or the disposition of the property constitutes an integral part of the taxpayer’s regular trade or business operations. The term includes all income which is apportionable under the Constitution of the United States.

.Even though the Apportionment Statute by definition deals with the apportionment of business income, apparently it is also used in allocation of the value of a company’s capital stock to calculate the Franchise Tax. Section 401(3)2.(a)(3) of the Code, 72 P.S. § 7401(3)2.(a)(3), provides:
For purposes of allocation and apportionment of income under this definition, a taxpayer is taxable in another state if in that state the taxpayer is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, or a corporate stock tax or if that state has jurisdiction to subject the taxpayer to a net income tax regardless of whether, in fact, the state does or does not.

.The calculation for arriving at those figures is as follows:
PA receipts on package pickup ($80,984,001)
+ PA receipts on package delivery ($84,519,768)
Average receipts in PA ($82,751,885)
Avg. receipts in PA $ 82,751,885
Revenue mile in PA = _= - = $2.94
Miles in PA 28,119,379
Avg. receipts everywhere $1,846,249,121
Revenue mile everywhere = -= - = $3.93
Miles everywhere 470,035,455

.“Everywhere” means in all states com- bined.

. An apportionment formula must be fair under both the Due Process Clause and the Commerce Clause of the United States Constitution. Exxon Corporation v. Wisconsin Department of Revenue, 447 U.S. 207, 100 S.Ct. 2109, 65 L.Ed.2d 66 (1980). In Container Coiporation of America v. Franchise Tax Board, 463 U.S. 159, 169-70, 103 S.Ct. 2933, 77 L.Ed.2d 545 (1983), the United States Supreme Court provided:
The Constitution does not invalidare] an apportionment formula whenever it may result in taxation of some income that did not have its source in the taxing State.... Nevertheless, we will strike down the application of an apportionment formula if the taxpayer can prove by clear and cogent evidence that the income attributed to the State is in fact out of all appropriate proportions to the business transacted in that State, or has led to a grossly distorted result.
(Internal citations and quotations omitted.) (Emphasis in original, bold added.)

. Taxpayer directs this Court to Lawrence S. Leff, College Algebra 43 (1995) (under cancellation law of algebra, factors common to both the numerator and denominator of a fraction are eliminated.) It should have also directed us to the bumper sticker that reads, “4 out of 3 people have trouble with fractions.”

. The term "miles” as used in this opinion included only those miles driven that generated revenue.

. In analyzing a statute, a court must give effect to the plain meaning of the statute whenever the words of the statute are clear and free from ambiguity. Allebach v. Department of Finance and Revenue, 546 Pa. 146, 683 A.2d 625 (1996); see also 1 Pa.C.S. § 1921. Where the statute in question is a tax statute, it must be strictly construed and any doubts as to the construction should be resolved in favor of the taxpayer. Id.; see also 1 Pa.C.S. § 1928(b)(3). Even if a statute is unclear because it does not contain a specific formula, we have to resolve any ambiguity in favor of the taxpayer. First Union National Bank v. Commonwealth, 885 A.2d 112 (Pa. Cmwlth.2005). Because the Commonwealth’s fraction is in accord with the plain language, we need not determine whether the statute was ambiguous. Even if it was ambiguous, we would not be required to interpret the Apportionment Statute in favor of Taxpayer because this involves a fraction that affects all trucking companies, some who would gain and some who would lose if business income is calculated as suggested by Taxpayer. An interpretation of the statute in this circumstance should not be determined by who gets to court first.