Court Opinion

ID: 6259981
Source: CourtListenerOpinion
Date Created: 2022-02-17 21:59:48.756592+00
Date Added: 2024-06-11T08:59:40.845744
License: Public Domain

*154Dissenting Opinion by
Mr. Justice Roberts:
I must respectfully dissent. Because of the Heller-town Manufacturing Company’s somewhat unique nature, I do not believe that it transacted business outside of the Commonwealth, and I do not believe that any portion of Hellertown’s receipts was negotiated or effected outside of the Commonwealth.
I
It is my view that Hellertown does not transact any portion of its business outside of the Commonwealth. As the wholly-owned subsidiary of its only customer, Hellertown exists solely at the whim of its parent. And as a company bereft of any marketing-distribution or technical capacity of its own, Heller-town is not a self-sustaining or independent economic entity. Viewed as only a production facility and not as an integrated economic entity, it is easily seen that Hellertown does not transact any business outside of the Commonwealth. Hellertown’s corporate activity consists solely of the physical fabrication of spark plugs. The sale of. these items, the formulation of administrative policy, and the general control of production methods are carried out by Hellertown’s parent and not by Hellertown. I am therefore convinced that Hellertown does not transact any business outside of the Commonwealth.
The majority bases its conclusion that Hellertown does transact business outside of the Commonwealth on the fact that the officers of Champion resident in Ohio formulate Hellertown’s executive policies and on the fact that other employees of Champion provide Hellertown with needed administrative and executive services. While I quite agree that the activities carried on in Ohio are necessary to the existence and functioning of the economic unit of which Hellertown is a con*155stituent part, I cannot agree that this activity is attributable to or a part of the Hellertown Manufacturing Company’s corporate activity. I believe that the management activities of Hellertown’s officers and the services of Champion’s employees are carried out on behalf of and are attributable to Champion. These activities are a part of Hellertown’s corporate activity only insofar as they are necessary to the smooth functioning of the larger economic entity of which Heller-town is a part.
This construct of the Hellertown-Champion arrangement is quite consistent with the manner in which the “parties” themselves apparently conceived of their relationship, since Hellertown was made to “purchase” the management services of Champion for a fee equal to fifteen per cent of the direct cost of labor and materials purchased by Hellertown. I do not believe that those few activities which might be carried on in Hellertown’s behalf and which are not part of the services paid for by the management fee, if there are indeed any activities at all which fit this description, constitute the transaction of business outside of the Commonwealth.
II
Even if it is assumed that Hellertown is entitled to utilize the allocation formula for determining its proper tax burden, I do not believe that any of its receipts are properly characterized as having been “negotiated or effected in behalf of the corporation by agents or agencies chiefly situated at, connected with, or sent out from, premises for the transaction of business maintained by the taxpayer outside of the Commonwealth. . . .” Act of May 16, 1935, P. L. 208, as amended, 72 P.S. §3420b(e) (3). Simply stated, I do not believe that the concepts of negotiation and effectuation *156utilized in this section of the allocation formula are applicable to the case at hand, since Hellertown is simply not an independent economic entity. Hellertown does no business with anyone other than Champion, has no bargaining power vis-a-vis Champion, is wholly owned by Champion, is completely subservient to Champion, and does not exist separate from Champion. In sum, Hellertown is Champion, and I would ignore its gossamer corporate veil. The statute itself contemplates situations in which not all three factors of the allocation formula are applicable, and I would therefore allocate Hellertown’s income—assuming that allocation is proper—according to the other two factors in the formula.
In this respect the facts of this case are similar to those in Commonwealth v. Safe Harbor Water Power Corp., 83 Dauph. 11, rev’d on procedural grounds, 419 Pa. 497, 223 A. 2d 223 (1965). There the Pennsylvania corporation’s sole activity was to supply its owners, two out-of-state public utilities, with electrical energy. The amounts of energy to be supplied were determined before the corporation was formed, and the price was fixed periodically by a regulatory body. The original contracts setting up the subsidiary and controlling its operation were negotiated and signed outside of the Commonwealth, and most of the administrative guidance came from outside the Commonwealth. Nevertheless, the trial court concluded, I believe correctly, that the subsidiary’s receipts were not properly characterized as having been negotiated or effected outside of the Commonwealth. See also Commonwealth v. Quaker Oats Co., 350 Pa. 253, 38 A. 2d 325 (1944).
In conclusion, it is my view that Hellertown does not transact business outside of the Commonwealth, and that, even if it is found that Hellertown is entitled to utilize the allocation formula, none of Hellertown’s receipts are properly seen as having been negotiated or effected outside of the Commonwealth.