Court Opinion

ID: 6260930
Source: CourtListenerOpinion
Date Created: 2022-02-17 22:04:13.195158+00
Date Added: 2024-06-11T08:59:42.684215
License: Public Domain

Dissenting Opinion by
Mr. Justice Roberts:
I dissent. In my view, the majority erroneously affirms the order of the Commonwealth Court on the basis both of an erroneous assessment of the record and of a mistaken notion of this Court’s decision in Commonwealth v. ACF Industries, Inc., 441 Pa. 129, 271 A.2d 273 (1970).
This Court in ACF Industries reviewed in detail the Pennsylvania case law relating to section 2 of the Corporate Net Income Tax Act of 1935,1 the precise statutory provision at issue instantly. It then expli*206cated those principles which emerged from our cases as clear.
“First, if a multistate business enterprise is conducted in a way that one, some or all of the business operations outside Pennsylvania are independent of and do not contribute to the business operations within this State, the factors attributable to the outside activity may be excluded.
“Second, in applying the foregoing principle to a particular case, we must focus upon the relationship between the Pennsylvania activity and the outside one, not the common relationships between these and the central corporate structure. Only if the impact of the latter on the operating units or activities is so pervasive as to negate any claim that they function independently from each other do we deny exclusion in this context.
“Third, without attempting to preclude exclusion in any given case, we reiterate our statement above that the manufacturing, wholesaling and retailing (or manufacturing and selling) activities of a single enterprise are not fit subjects for division and partial exclusion. On the other hand, a truly divisionalized business, conducting disparate activities with each division internally integrated with respect to manufacturing and selling, may well be in a position to make a valid claim for exclusion. Id. at 142-43, 271 A.2d at 280.
Here, we need focus on only the first principle from ACF Industries. This initial principle contains two separate conditions before “the factors attributable to the outside activity may be excluded.” First, “one, some or all of the business operations [must be conducted] outside of Pennsylvania.” Second, those business operations must be “independent of and [can] not contribute to the business operations within this State.” Cf. Commonwealth v. Mundy Corp., 346 Pa. 482, 30 A.2d 878 (1943); Commonwealth v. Columbia *207Gas & Electric Corp., 336 Pa. 209, 8 A.2d 404 (1939); Commonwealth v. Baxter, Kelly & Faust, Inc., 53 Dauphin County Rptr. 73 (Pa. C.P. 1942).
“[W]e have specifically held that the taxpayer has the burden of showing that the Commonwealth’s computation of its Corporate Net Income Tax is incorrect.” Commonwealth v. National Advertising Co., 449 Pa. 59, 63, 295 A.2d 83, 85 (1972); Commonwealth v. R.S. Noonan, Inc., 419 Pa. 411, 417, 213 A.2d 787, 790 (1965); Deitch Co. v. Board of Property Assessment, 417 Pa. 213, 221, 209 A.2d 397, 402 (1965). “In determining the amount of property or net income allocable to the state the burden is on the taxpayer to show by clear and cogent evidence that the taxing formula resulted in extraterritorial values being taxed.” Commonwealth v. American Telephone & Telegraph Co., 382 Pa. 509, 516 n.2, 115 A.2d 373, 376 n.2 (1955); see Commonwealth v. Emhart Corp., 443 Pa. 397, 403-04, 278 A.2d 916, 918-19, cert. denied, 404 U.S. 981, 92 S. St. 451 (1971); cf. Butler Brothers v. McColgan, 315 U.S. 501, 62 S. Ct. 701 (1942).
The taxpayer has not here satisfied its burden of proof with respect to the critical issue whether “one, some or all of the business operations [was conducted] outside Pennsylvania.” The Commonwealth Court did not address this issue; that court made no specific finding of fact that the Electrolyzing Division did not do business within this state.2 Therefore, the taxpayer *208has not justified its being afforded multiform treatment.
The majority, however, apparently accepts the bald assertion in the taxpayer’s brief that the only activity its Electrolyzing Division conducted in Pennsylvania was the solicitation of business by mailing advertising material. For my part, I prefer to rely on what the record discloses.
*209To support its position that taxpayer’s Electrolyzing Division was doing business within Pennsylvania, the Commonwealth refers to the following testimony of the General Manager of that division.
“Q. [Commonwealth’s attorney] Were the plants at Providence and Chicago at this time [1966]? A. Yes, sir. Q. And your mail orders were sent throughout the United States? A. Yes. Q. Into Pennsylvania? A. Oh, yes. Q. Generally, who did you process for, what type of— A. Well, people in Pennsylvania— We didn’t do a great deal of business in Pennsylvania. Q. Don’t restrict it to Pennsylvania. A. Well, people like Boeing, Lockheed, Westinghouse, Pratt and Whitney Aircraft, Vertol Aircraft. Do you want any more, counselor? Q. I really meant what type of articles did you woi*k on? A. Oh, they were — could be missile parts, they could be washing machine parts, gears, shafts, anything that was exposed or subject to excessive wear.”
This portion of the record reveals that taxpayer’s Electrolyzing Division conducted business in Pennsylvania. The manager’s testimony indicates, at the very least, that the Electrolyzing Division processed parts and articles for Pennsylvania customers. Contrary to the majority’s statement, the record plainly shows that the taxpayer’s Electrolyzing Division did more than simply solicit business in Pennsylvania. Of course, it did solicit business, but that solicitation was merely the prelude to receiving parts and articles to be processed for Pennsylvania customers.
An essential prerequisite of multiform tax treatment under section 2 of the Corporate Net Income Tax Act of 1985 is a showing that the separate business sought to be excluded from Pennsylvania’s taxing jurisdiction bears no relation to Pennsylvania. It is incumbent upon the taxpayer to establish this fact.
*210Here, the taxpayer has failed to meet its burden of proof. In my view, the order of the Commonwealth Court should be reversed.
Mr. Justice Nix joins in this dissenting opinion.

 Act of May 16, 1935, P.L. 208, § 2, 72 P.S. § 3420b (1964), as amended 72 P.S. §§ 7401-12 (Supp. 1973). Section 2 of the 1935 Act in pertinent part provides: “Where a corporation . . . engages in a separate business outside of Pennsylvania, or owns property having a situs outside of Pennsylvania, which business or property bears no relation to the exercise of the Pennsylvania franchise, the department, with the approval of the Auditor General, may determine the base for the tax imposed by this act for the tax year by excluding from the net income of such corporation as returned to and ascertained by the Federal Government, the net income from the business or property which boars no relation to the exercise of the Pennsylvania franchise.”

 From the Commonweal til Court’s findings of fact, it is apparent that the factual issue whether taxpayer’s Electrolyzing Division did business within Pennsylvania was not considered.
“(1) AppeUant is a holding company which has two operating divisions, Keystone Bidgeway Company and Electrolyzing Company.
“(2) The Keystone Bidgeway Company division operates three plants in Pennsylvania which are engaged in the manufacture and sale of ceramic tiles used in building construction, bathrooms and any place that might require flooring of a waterproof nature.
*208“(3) The Certificate of Authority issued by the Commonwealth of Pennsylvania to the appellant as a foreign corporation permits appellant ‘to purchase, lease, produce, manufacture, sell and generaUy deal in and with building materials of all kinds.’
“(4) The Eleetorlyzing Company division maintains places of business in Illinois and Rhode Island and conducts business throughout the United States. The business of this division is to receive machines or machine parts, equipment and tools which are subject to wear abrasion and, by the electrolyzing process, plate the parts in order to increase their useful longevity.
“(5) The Certificate of Authority issued to appellant as a foreign corporation by the State of Illinois states the purposes for the transaction of business in the state to be: ‘To engage in the business of manufacturing, exploiting, producing, assembling, maintaining, processing, cleaning, milling, machining, repairing, improving, procuring, purchasing, disposing, selling and distributing of machines, equipment and tools of every kind and description and other goods, wares and products.’
“(6) There is no money flow, no transfer of working capital, no intradivision sales or purchases or no accounting transactions between Keystone and Electrolyzing.
“(7) There is no combined advertising or promotion program nor is there any common profit sharing or pension plan between Keystone and Electrolyzing.
“(8) No employe of either division performs any function for the other.
“(9) There is no guarantee by either division of the indebtedness of the other.
“(10) There is no interaction of the sales or purchasing departments between divisions.”
Advance-Wilson Indus., Inc. v. Commonwealth, 7 Pa. Commonwealth Ct. 14, 15-17, 297 A.2d 835, 836-37 (1972).