Court Opinion

ID: 4952217
Source: CourtListenerOpinion
Date Created: 2021-09-24 13:15:02.215904+00
Date Added: 2024-06-11T08:15:25.939918
License: Public Domain

KELLEY, Judge,
dissenting.
I respectfully dissent.
I agree with the majority’s conclusion that the Pennsylvania Board of Finance and Revenue (board) and the Pennsylvania Department of Revenue (department) did not err in including interest income from United States securities in determining Consolidated Rail Corporation’s (Conrail) net worth for the three relevant tax periods. However, because I do not believe that the Tax Reform Code (Tax Code)1 authorizes the use of decimal equivalents in determining the average net income (ANI) of a corporation that has been in existence for more than five years, I must disagree with the majority’s conclusion to the contrary. Because I believe that the board erred in affirming the department’s use of decimal equivalents in determining Conrail’s ANI for the three relevant tax periods, I respectfully dissent.
As the majority notes, ANI is defined under section 601(a) of the Tax Code, in pertinent part, as follows:
The sum of the net income or loss for each of the current and immediately preceding four years, divided by five. If the entity has not been in existence for a period of five years, the average net income shall be the average net income for the number of years that the entity has actually been in existence ... The net income or loss of the entity for any taxable year shall be the amount set forth as income per books on the income tax return filed by the entity with the Federal Government for such taxable year....
72 P.S. § 7601(a).
In general, statutes in Pennsylvania are interpreted according to the Statutory Construction Act of 1972, 1 Pa.C.S. §§ 1501-1991. Tool Sales & Service Co., Inc. v. Commonwealth, 536 Pa. 10, 637 A.2d 607 (1993). When interpreting a statute, this court must ascertain and effectuate the intent of the General Assembly, and give full effect to each provision of the statute where possible. Doyle Equipment Co. v. Commonwealth, 117 Pa.Cmwlth. 38, 542 A.2d 644 (1988).
Words and phrases used in legislation are to be construed according to their common meaning and accepted usage. Id. Where the words of a statute are clear and free from ambiguity, the letter of the statute is not to be disregarded under the pretext of pursuing its spirit. Id. The General Assembly is presumed not to have intended a result which is absurd or unreasonable. Id.
Under the clear wording of section 601(a), to calculate its ANI a corporation must add “[t]he net income or loss for each of the current and immediately preceding four years”, and then divide this sum by five. In making this calculation, a corporation is to use the net income or loss for a taxable year as set forth as income per books on its federal income tax return. 72 P.S. § 7601(a). *730By its express terms, the statute incorporates the use of figures reported for a taxable year on a corporation’s federal tax return. Under the Internal Revenue Code, the taxable year for a taxpayer encompasses the period for which a return is made if it is made for a fractional part of a year. 26 U.S.C. §§ 441(b)(3), 7701(a)(28).
Under a plain reading of the definition of ANI found in section 601(a) of the Tax Code, it is clear that to calculate the ANI for a corporation that has been in existence for more than five years, the corporation must add the net income or loss for the current and preceding four taxable years, as reported on a federal tax return, and then divide this sum by five. 72 P.S. § 7601(a). For a corporation that has been in existence for more than five years, there is absolutely no language in section 601(a) which provides for the adjustment of either the figures reported on its federal tax return or the divisor of five in order to approximate its ANI over a five calendar year period. Accordingly, I believe that the department and the board erred in concluding that, under section 601(a), ANI is the average of net income over a five calendar year period, and in using decimal equivalents to calculate Conrail’s ANI for each of the three relevant tax periods.
The board contends that the department’s use of decimal equivalents in calculating Conrail’s ANI is supported by the regulation found at 61 Pa.Code § 155.26. As noted by the majority, this regulation reads, in pertinent part, as follows:
(e) In the case of a taxpayer which has not been in existence for a period of 5 calendar years, average net income is the average net income for the number of years that the taxpayer has been in existence. A taxpayer in existence for a part of a year shall be considered to have been in existence for that year based on the number of days in the year that the taxpayer was in existence.
Example 1. The taxpayer, incorporated August 1,1982, reports on a calendar year basis. Its net income for the period August 1 through December 31, 1982 (153 days) was $20,000. Its net income for 1983 was $50,000 and for 1984, $70,000. Average net income for 1984 would be $57,870 ($140,000 [divided by] 2 153/365).
Example 2. The taxpayer filed on a calendar year basis until December 1980. In 1981 it changed its filing period to a fiscal year ending June 30. In order to do so, it filed a short period report for January 1 through June 30, 1981. Thereafter, taxpayer continued to file on a fiscal year basis. In computing average net income for the period ending June 30, 1985, taxpayer would include its January 1 through June 30,1981 net income or loss as well as its July 1, 1981 through June 30, 1985 net income or loss and divide the result by 4 181/365.
61 Pa.Code § 155.26(e).
It is true that the legislative and administrative interpretation of the statute may be used in discerning the intent of the General Assembly. 1 Pa.C.S. § 1921(c)(8); Tool Sales & Service Co., Inc. In addition, it is a well settled principle of administrative law that agencies are entitled deference in interpreting the statutes they enforce. Id. In a ease such as this, where the subject matter is within the agency’s area of expertise and beyond general judicial competence, we give great weight to the agency’s interpretation. Philadelphia Suburban Corp. Thus, where the statutory scheme is as technically complex as the Tax Code, this court must be even more chary to substitute its discretion for the expertise of the administrative agency. Tool Sales & Service Co., Inc.
However, the validity of an agency’s interpretative rule depends upon the willingness of the reviewing court to find that it tracks the meaning of the statute it interprets. Philadelphia Suburban Corp. The department’s regulations interpreting the Tax Code will not be disregarded by this court unless they are clearly inconsistent with the Code. Id.
The statutory definition of ANI provides that “[i]f an entity has not been in existence for a period of five years, the average net income shall be the average net income for the number of years that the entity has actually been in existence.” The regulation found at 61 Pa.Code § 155.26(e) makes the *731same provision for calculating the ANI of entities that have been in existence for less than five years. In Doyle Equipment Co., we specifically authorized the use of decimal equivalents in calculating the ANI of entities that have been in existence for less than five years. Doyle Equipment Co., 542 A.2d at 646.
However, there is absolutely no statutory authority for the use of decimal equivalents in calculating the ANI of an entity that has been in existence for more than five years, whether or not the entity has changed its tax filing period. Thus, the regulation found at 61 Pa.Code § 155.26, as applied by the department and the board in this case, is clearly inconsistent with the Tax Code. Philadelphia Suburban Corp. As a result, I believe the majority erroneously affirms the board by relying on this regulation to support the use of a decimal equivalent in determining Conrail’s ANI for the three relevant tax periods.

. Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§ 7101-10004.