Glatfelter Pulpwood Co. v. Commonwealth
2011 Pa. Commw. LEXIS 216
| Pa. Commw. Ct. | 2011Background
- Glatfelter Pulpwood Company (Taxpayer) is a Pennsylvania subsidiary of Maryland-based Parent, engaged in procuring pulpwood for the Parent's paper mill in Spring Grove, PA.
- Timberlands are located in Delaware, Maryland, Pennsylvania, and Virginia; in 2003 Taxpayer divested timberland holdings under a plan to reduce pulpwood from company-owned timberlands from ~25% to ~5%.
- 2004 Delaware timberland sale: 4,882 acres sold for $56,586,000, net gain $55,355,452; most Maryland timberland had been sold to The Conservation Fund, with a 10-year note as consideration; Taxpayer retained other timberlands.
- Taxpayer reported prior pulpwood sales as apportionable business income; 2004 Delaware Sale gain was initially treated as nonbusiness income on amendment to tax return, later shifted by the Department to apportionable business income, creating additional tax liability.
- Board of Finance and Revenue denied nonbusiness income treatment, determining the Delaware sale was business income under the transactional and functional tests; Taxpayer appealed; court majority affirmed Board, concluding the sale produced business income as part of a unitary enterprise.
- Judges McGINLEY, SIMPSON, and LEAVITT dissented.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2004 Delaware timberland sale qualifies as business income under the transactional test. | Taxpayer: sale was not a regular, recurring real estate transaction. | Commonwealth: sale was a regular part of Taxpayer's integrated timberland management. | No; transactional test not satisfied. |
| Whether the sale qualifies as business income under the functional test. | Taxpayer: assets disposed did not constitute integral part of regular trade; not a unitary activity. | Commonwealth: disposition of property integral to regular operations; sale produced business income. | Yes; sale produced business income under functional test. |
| Does Laurel Pipe Line control compel nonbusiness treatment for asset liquidation scenarios? | Taxpayer: Laurel Pipe Line requires nonbusiness treatment for partial liquidation. | Commonwealth: Laurel Pipe Line distinguishable on facts; not liquidation here. | Laurel Pipe Line distinguished; not controlling—income is business income. |
| Is the Delaware gain fairly apportioned and compliant with due process and Commerce Clause limits? | Taxpayer: apportionment overstates Pennsylvania tax burden; undue double taxation risk. | Commonwealth: unitary enterprise with Pennsylvania activities ties to income; apportionment valid. | Yes; no constitutional violation found. |
Key Cases Cited
- Welded Tube Co. of America v. Commonwealth, 101 Pa.Cmwlth. 32, 515 A.2d 988 (Pa. Cmwlth. 1986) (established transactional and functional tests for business income)
- Laurel Pipe Line Co. v. Board of Finance and Revenue, 537 Pa. 205, 642 A.2d 472 (Pa. 1994) (sale of asset as liquidation is nonbusiness income under transactional/functional tests)
- Commonwealth v. ACF Industries, Incorporated, 441 Pa. 129, 271 A.2d 273 (Pa. 1970) (apportionment considerations for multistate operations)
- Canteen Corp. v. Commonwealth, 818 A.2d 594 (Pa. Cmwlth. 2003) (statutory changes to business/nonbusiness definitions; agency interpretations issue)
- Container Corp. of America v. Franchise Tax Bd., 463 U.S. 159, 103 S. Ct. 2933 (Supreme Ct. 1983) (tests for fair apportionment under Commerce Clause)
- Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (Supreme Ct. 1977) (four-part test for constitutional validity of state taxation)