Gilmour Manufacturing Co. v. Commonwealth

finding The formula for a value is

based on the assessed value as estab- GILMOUR MANUFACTURING lished Board Revision of Taxes COMPANY, Petitioner, for Real City purposes. Any Estate tax argument appellant [Provident] Pennsylvania, COMMONWEALTH of may have that the assessed value is not Respondent. properties the actual value must presented Pennsylvania. procedure under the for determining ap- the market value to be Submitted on Briefs Dec. 1998. plied a property in an assessment 1,May Decided appeal set forth the General Coun- ty Law, Assessment Act of May

1993[1933], amended, P.L. 852[853]as

P.S. Sec. 5020[-].518.2.

The formula then calls the as- value multiplied by

sessed to be

published Equalization State Tax Board Philadelphia

ratio County. factor

P.S. 4656.1-4656.17. The assessed value

represents a determination of the Board

of Revision of Taxes of the value of the

property, adjusted by the State

Equalization Board. This method

computing the real estate transfer tax is

reliable, uniform and not in violation Constitution. Opinion

Common Pleas Court at 6-7. We

agree, the Tax was neither nor inflated uniformity

violative of the clause.9

Accordingly, we affirm.

ORDER NOW, April,

AND day 28th

the order Court Common Pleas

Philadelphia County above-cap-

tioned matter affirmed. argues ap- expect City

9. Provident that it unable was ment. It is unrealistic to peal Properties simply when the be- were assessed reduce the Tax because there was a However, standing. length subsequent cause it lacked arm’s sale for less than Properties owner of the time the assessed value when the formula was in opportunity applied had appeal correctly assessment to determine challenge accuracy Tax. assess- Moody, Kevin J.

Joseph Bright C. Philadelphia, petitioner. Weitzel, Harrisburg, re- L.

Carol spondent. DOYLE, Judge, and

Before President J., McGINLEY, J., SMITH, COLINS, J., J., KELLEY, PELLEGRINI, J., FLAHERTY, J.

DOYLE, Judge. President excep- en Before banc the Court (Gilmour) Manufacturing tions of Gilmour order of this September of the Board affirming decision (Board), which Finance Revenue partial re- petition for denied Gilmour’s net income corporate fund of its (CNI) opinion1 initial tax. As this Court’s out, presented pointed the sole issue sales to out-of-state whether Gilmour’s up pick products purchasers who out- Pennsylvania ultimately sell them in the included the state should be side its CNI tax. calculation of corporation Pennsylvania is a Gilmour and garden lawn manufactures Somerset, Penn- facility in products at its throughout products its sylvania, and sells gen- Gilmour Although the United States. ships erally products pays through carriers common shipping, for the some freight charges up pick more convenient to find it chasers loading from Gilmour’s having them Pennsylvania rather than to transactions shipped. refers Cmwlth.1998). Manufacturing Company v. Com- 1. (Pa. Pennsylvania, 717 A.2d 619 monwealth of picks were, therefore, valid, which the up product customer Reform Code and sales,” provides as “dock and Gilmour rejected juris- and we law case from freight allowance its dock-sale custom- interpreting provisions dictions similar ers. Some Gilmour’s dock-sale custom- exceptions their revenue codes. These ers come into from out of September 1,1998 order followed. pick up products state to the and immedi- In exceptions, argues its that: ately Pennsylva- take the outside (1) every state that has examined similar nia resale. These transactions are statutory language or identical con- has presently the heart the case before the pur- cluded that dock to sales out-of-state Court. factor; chasers are excluded from the sales to Pursuant Section 401 of the Tax Re- (2) Department’s the regulation is not enti- (Tax Code), form Code Reform tled to interpreta- deference because the company does not all transact of its question tion of the statute at issue is Commonwealth, business within the the law; (3) the statute es- company to apportion is entitled its tax tablishes a destination test as a matter of liability upon based its relationship of law. total to business that transacted within the Gilmour’s exceptions present us with an 1991, Commonwealth.3 Gilmour was impression, issue of first proper con- apportionment entitled to such an because 401(3)2(a)(16) struction of Section of the all of its sales were in Pennsylvania. Code, Tax Reform provides: which return, timely In its filed tax Gilmour ex- cluded from the numerator of the sales personal of tangible property Sales factor, is., portion of the factor which are in property this State if the deliv all represents within sales the Common- ered to a shipped purchaser, within wealth, dock pur- all sales to out-of-state f.o.b.[4] this of the State chasers, $2,385,362. The approximately or other considerations sale. Department CNI settled Gilmour’s 1991 7401(3)2(a)(16)(footnote added). § 72 P.S. by including tax the dock to out-of- sales above, Although, as noted the Courts of as in-state sales. this Commonwealth have not had occasion paid After tax as settled to examine this section of the Tax Reform petition it filed a for a Code, there are two sources available $17,912, seeking refund tax the amount of to guidance proper ascertain the construc- pur- attributed to dock sales to out-of-state tion of the statute. The first source is the chasers; petition, denied the Board regulations promulgated Depart- by Court, appealed and Gilmour to this as- Specifically, ment of Revenue. 61 Pa.Code serting Department of Revenue’s § 153.26provides as follows: regulations, adopt which did not a destina- (b) test, personal tangible property. Sales tion with Tax were inconsistent following The shall apply sales factors Reform Code. personal of tangible property. sale 1998, September On this issued (1) personal tangible When sales affirming an order decision of property are in entering judgment Board and this Commonwealth. favor personal Specifically, tangible Commonwealth. this Sales Department’s are in this prop- Court concluded Commonwealth the regulations erty tracked intent delivered or to a 4, 1971, amended, Act payroll 2. of March P.L. and the factor. Section §§ Code, 72 P.S. 7101-10004. Tax Reform 72 P.S. sales only factor is the factor at case. issue this 3. There three are are factors which utilized to apportioned determine total amount of 4.''F.o.b.” short for "free on board.” factor, factor, tax due: the the sales Pittenger, ute. School District re- Girard chaser this Commonwealth within (1978). Based 392 A.2d or other 481 Pa. gardless of sale.... which upon conditions of the argues that Gilmour’s (2) promulgated, has tangible General rule. Sales of sales classified as clearly in the state personal property are Pa. under 61 oc- the Commonwealth within therefore, prop- and, curs. were Code 153.26 the sales numerator of erly allocated taxpayer produces A Example: factor. sells the Taxpayer beer New York. beer a distributor located guidance as to source of second Commonwealth. Distributor sends Section proper construction taxpayer’s truck York to into New 401(3)2(a)(16), upon by and one relied the up brings to the plant pick beer Gilmour, jurisdictions cases from other is the beer back to interpreted identical or similar which have Delivery has oc- business location. Brewing Company language. Olympia taxpay- curred in York and these New Revenue, 326 N.W.2d v. Commissioner of er’s are in New York. sales (Minn.1982), brewing company dis- 642 a (3) following The words Definitions. in its sales puted the inclusion in-state terms, chapter, when used in this who came distributors to out-of-state the following meanings,

have the unless in their up to the beer pick into Minnesota clearly context indicates otherwise: provided at own trucks. statute issue (i) physical Delivered—The transfer as follows: possession tangible personal prop- (b) personal property of tangible Sales erty purchaser. proper- the are made within this (ii) Purchaser —The includes the term a ty by purchaser at is received following: state, taxpayer the is this within (A) recipient The ultimate of the state, in this taxable taxpayer, designa- if the at sale, point, other conditions of purchaser, tion of the delivers prop- or the ultimate destination in this the ultimate Commonwealth to erty. recipient. taxpayer A in this Example: Com- 290.191(l)(b). the Com- Like Minn.Stat. to a pur- monwealth sold merchandise case, com- present monwealth Taxpayer chaser York. directed New Brewing that argued Olympia missioner the manufacturer of the merchandise required the statute proper reading to ship the merchandise Ohio that customer in this Common- purchaser’s are “delivered or goods purchaser’s wealth under instructions. state,” it is sale within ... this within taxpayer in this The sale Com- state, dis- the out-of-state here monwealth. delivery and takes obviously tributor course, Department’s construction Of Minnesota, within possession of the beer deference, Section 401 is entitled Olympia’s Minnesota precise, at vio- unless the Court determines loading dock. legislative the statute or intent of lates Brewing, 326 N.W.2d Suburban Philadelphia unwise. See noted Revenue, Supreme Court The Minnesota Finance and Corp. Board of the statute establishes construction Pa. A.2d 116 535 635 out- an products that however, a distinction between de- validity regulation, of this up using its own picks of-state distributor upon this Court’s conclusion pends distribu- the same truck of the stat- meaning regulation tracks 952

tor supplier Further, receives from the via 1973 common amendment. there carrier. Specifically, the Court concluded: nothing legislative history, regula- tions,

We believe fatal weakness in the articles commentators case position inability compels interpretation commissioner’s is his law that justify treating differently urged by a sale the statute commission- picks up out-of-state distributor er. goods in his own trucks from a sale Id. at 647. Similar results were reached in where the same distributor has a com- jurisdictions which examined this is- mon or pick contract truck carrier up involving sue or identical similar statutes. dock, the goods at the same f.o.b. seller’s See, e.g., Douglas Corporation McDonnell True, of business. the statute Board, v. Franchise Tax Cal.App.4th says the f.o.b. or other conditions 1789, Texaco, (1994); 33 Cal.Rptr.2d 129 considered; of sale should not be none- Inc. v. Groppo, 215 Conn. 574 A.2d theless, anomaly which inheres in (1990); Department Florida Reve- argument commissioner’s makes Co., nue v. Parker Banana So.2d such a necessary. consideration Assume (Fla.App.1980); Brewing Pabst Co. v. Wis- position the commissioner’s to be cor- Revenue, consin 130 Wis.2d rect: that “within this state” modifies 291, (1986), denied, review N.W.2d shipped” “delivered or so that trig- 130 Wis.2d 391 N.W.2d 209 gering purchaser’s event is the taking Although by we are bound holdings not physical possession within Minnesota. any cites, of the which cases we delivery When made is f.o.b. seller’s persuasive do find them to be and instruc- place business, physical delivery is tive on the issue.5 tendered within Minnesota to the same Likewise, case, in present we pickup extent as for a dock sale. The are troubled by Commonwealth’s ina buyer in place-of-busi- an seller’s f.o.b. bility provide practical a reason for the ness transaction in effect takes tangible personal prop distinction between through agent, his the carrier. Yet the erty that tangible personal is commissioner concedes that an f.o.b. property purchaser. is received seller is an transaction out-of-state sale brief, In its the Commonwealth asserts where a or contract common carrier is used. This result makes the selection of [c]learly, when a non-resident comes into mode transportation dispositive, retail, purchase at which, as even the commissioner con- subject sale Pennsylva- to sales tax in cedes, contrary would be to the statuto- nia. possession The focus is on where ry language. tangible personal property is trans- We think distinguish that to between a ferred and not purchaser to the on the sale within or without the state on the residence of the transportation— basis of the mode to take the property. intends whose truck the transporting does —is (Commonwealth’s 17.) an It untenable distinction. is not in As brief noted in keeping general policies Olympia with the if Brewing, property of the brief, correctly guage nearly In its the Commonwealth at issue here verbatim from the Therefore, points out that some of the cases to Uniform we Act. believe that we may properly cited involved Uniform Division constructions of consider (UDITPA). Purposes of Income language jurisdic- for Tax Act same or similar from other Statutory The tions. of the Commonwealth further notes that Penn- See Section 1927 Con- sylvania adopted has not in struction UDITPA its en- Act of Pa.C.S. ("Statutes tirety. Although the Commonwealth is cor- uniform with those of other states respect, rect in we find this fact shall be and construed to be of to effect consequence, appears general little it purpose as clear to us their to make uniform the them”). that the Commonwealth has taken the lan- laws of those which enact states conclu dockside, support Further for this delivery occurs shipped f.o.b. of the CNI purpose in sion is found on its places when the seller noted, tax is have itself. As Courts pick by a carrier up common docks com the amount of designed to measure who, essence, as an goods receives the activity entity engages an mercial buyer. Conversely, agent of accordingly. during year and tax given a product buyer’s is delivered Co. v. Common business, Commonwealth, Buckeye Pipeline See outside (Pa.Cmwlth.1997). wealth, is not within the the sale Commonwealth. noted, Brewing Therefore, As the is correct corporation appor statute, permitting a statutes in its construction of ex- are purposes the CNI tion its sales pressed regulation, then sales of represent the contribution of designed to differently depending are treated to the statute, however, purchasers point. various consumers on the f.o.b. Specifically, entity’s sales. provides overall specifically that the f.o.b. Pennsylvania, the numerator It elementary a consideration. is an of Penn represents factor the contribution principle statutory that we construction sylvania purchasers consumers and presume Assembly are to General sales, rep entity’s while the denominator words of a statute are intended all all the contribution of consumers resents intended to have meaning Accordingly, including purchasers. surplusage. Hopkins mere See Public Board, corporation’s Pennsylvania sales transac Employes’ School Retirement (Pa.Cmwlth.1996). come tions out-of-state who A.2d 1197 Com- Commonwealth, pick-up product into phrase monwealth’s reads the Com point” and leave the “regardless of the f.o.b. out of the Therefore, argues, artificially inflates statute. monwealth because Common- Pennsylvania consumers contribution of interpretation, argued wealth’s both as in purchasers entity’s sales. and its brief contained in 61 Pa.Code 153.26, § is inconsistent with P.S. that, brief, in Finally, we note 7401(3)2(a)(16), § reject we it and must utilizing posits state,” phrase conclude “in this the statute would Gilmour’s construction of 7401(3)2(a)(16) § in 72 it is used P.S. modi- difficult, perhaps impossible, task create a “purchasers” applies fies to both deliv- up once products of end tracking personal of shipments tangible eries and Although the Commonwealth. they leave rephrase holding, To our we property. agree potential that the exists for such we (3)2(a)(16) Tax deem Section 401 Re- a would rest on problems, such burden not form Code should be read without It is well settled the Commonwealth. comma, misplaced as follows: in the Com proving of error burden personal property of tangible Sales entity’s of an cor monwealth’s settlement property in this State if the is delivered liability or in the porate net income tax purchased a within this ] or computation personal property of tangible regardless of f.o.b. or State taxpayer. fraction Common is on the of other considerations the sale. Noonan, 411, 213 419 Pa. wealth v. R.S. (1965). Therefore, 7401(3)2(a)(16). Likewise, § the Common 72 P.S. initially that to assert may which wealth continue is to a who is or is sale Pennsylvania are Commonwealth, products it is a received not not within purposes for state,” Pennsylvania sales “in this sale CNI, ability to have the entity and the will of sale. Ac- point or considerations or shipping records through to out-of- cordingly, Gilmour’s dock-sales demonstrate tangible personal includ- other evidence purchasers properly were of the Com- was taken outside property sales. ed jurisdic- taxpayer’s monwealth resale another is the erator total sales Penn tion. sylvania period, tax during

denominator the taxpayer’s total sales everywhere period. during the same Sec ORDER 401(3)2(a)(15) Code, tion of the Tax 72 P.S. NOW, 1,May exceptions 7401(3)2(a)(15); § Mfg. Hellertown Co. v. Manufacturing Company Gilmour in the 480 Pa. 390 A.2d 732 above-captioned granted. matter are panel of this court in decision challenge regulation Gilmour’s is to a Manufacturing Company Common Revenue reason- (Pa. Pennsylvania, wealth 717 A.2d 619 ably interpreted the relevant section of the Cmwlth.1998) vacated, the order Code, 153.26(b)(2). 61 Pa.Code the Board of Finance Revenue is re regulation provides: tangible “Sales versed. personal property are in the state which Judgment on entered behalf of Gilm- delivery occurs.” The our Manufacturing Company in the parties stipulated that Gilmour’s $17,912plus amount of interest. personal property, constitute but tangible argues is in- SMITH, Judge, dissenting. 401(3)2(a)(16) consistent with Section I from majority’s dissent decision to 7401(3)2(a)(16). Code, the Tax 72 P.S. grant exceptions filed Gilmour Man- That section provides as follows: “Sales of ufacturing Company Sep- to this Court’s tangible personal are in tember affirming 1998 order a decision State is delivered or Board of Finance and Revenue shipped to a purchaser, within this State (Board). pe- This Court denied Gilmour’s regardless of the f.o.b. other con- $17,912, tition representing refund of added.) I (Emphasis ditions the sale.” portion corporate of its 1991 net income disagree with Gilmour’s assertion and the (CNI) inquiry tax. The sole matter majority’s conclusion that the language is whether Gilmour’s 1991 CNI tax should “within this State” must be by including calculated made to modify “purchaser” the word rather than Pennsyl- who are located in shipped” the words “delivered or as the vania who delivery but take of their Department correctly asserts. Gilmour loading chased at Gilmour’s any interpretation maintains that in Pennsylvania transport it of outside would contravene the remainder of the Pennsylvania. majority has Because statutory that directive attribution should or ignored princi- overlooked fundamental “regardless of the be determined construction, ples statutory of I am com- other conditions of sale” and thus pelled to dissent. with the render inconsistent statute. purposes calculating Pennsylva

For of tax, nia any corporation CNI that does not This bear in mind that Court should Pennsyl its entire Department’s regulation represents transact business within an ex- interpretive apportionment, rule-making vania is entitled to as Gilm- ercise of its' au- 408(a) here, Code, thority. our of accord of Tax was its taxable income Section 7408(a); ing applicable Philadelphia method set forth 72 P.S. see also 401(3)2(a)-(d) Section of the Tax Reform v. Board Finance and Corp. Suburban of (Tax (1993). Code), 4, Revenue, 298, of 1971 Act of 635 A.2d 116 Code March 535 Pa. 1971, 6, amended, traditionally as 72 P.S. some def- P.L. While courts accord 7401(3)2(a)-(d). by interpretation a statute by method used erence to of required agency charged with administration Gilmour to calculate an of factor, statute, meaning fraction. The num a statute is is a of

955 tangible property should essentially question personal law the court sales of of country Rela- Pennsylvania decide. Human to the state or apportioned to be Area destination, long tions Commission Uniontown opposed delivery, so Dish, 52, 156 455 Pa. 313 A.2d School taxpayer subject to tax (1973). an disregard are free Courts country destination. Gilmour state or regulation only interpretative agency’s purposes that to effectuate asserts it is or viola- when convinced that unwise uniformity in taxa- the UDITPA Id. legislative tive of intent. laws, provi- challenged statutory tion consistently that purpose Gilmour contends should sion sales factor in the for Penn calculation argument those of other states. This with purchas sylvania CNI tax is to reflect the other states have lacks merit because location, majority er’s and Gilmour provisions in a uni- interpreted similar tax rely Olympia Brewing on Co. v. Commis Reve- way. Compare form (Minn. Revenue, sioner 326 N.W.2d 642 Co., nue Florida v. Parker Banana 1982), However, support position. (Fla.Dist.Ct.App.1980); Olympia So.2d Brewing controlling is neither by An Brewing. analysis cases cited persuasive. In that case Minneso nor dem- jurisdictions from other also Supreme that ta Court determined in those onstrates that the states involved statutory language provision of a similar adopted have the UDITPA or cases provision not identical to the Tax but Code explicitly “in was the modifier this state” ambiguous. at issue here was The court particular words.2 attached practical considering resolved issue not, initially concerns but did as Gilmour persuasive argument against The most contended, adopt the test. It “destination” Pennsylva- majority’s decision is shipment determined instead that the adopted nia has not the UDITPA. Welded pur terminates for tax Minnesota Co. America v. Tube ini poses once is determined where the A 101 Pa.Cmwlth. tial located. Id.1 twenty-three jurisdictions current table of shows adopted which have UDITPA majority accepting also erred in among them. argument pro- that the statutory Gilmour’s of this Commonwealth are instruct- Courts question vision is derived from the Uni- statutes, tax narrowly ed to construe Purposes form Division For of Income (Part I) v. Board Finance (UDITPA), Corp. Ross-Araco 7A Act U.L.A. Revenue, (1999), Pa. 674 A.2d 691 adopted in originally (1996), presume provision implements rule that and we must that since 401(3)2(a)(16) my majority’s analysis gives provides that a sale is in view the ("free controlling weight to the f.o.b. on in this if it is delivered to state state, board”) claiming point, Thus, it does the while point. f.o.b. opposite. tangible personal property If is to goods, though the picks up even purchaser plant delivered f.o.b. to the seller’s in be location, might be at its the statute Pennsylvania, general possession passes at in state, in the that event to be sale defines purchaser all risk the assumes reasonably gives Department’s regulation In absence of contractual of loss. some effect to statute. restriction, may dispose any point. goods in after that If manner among include others: 2. Gilmour’s citations goods are to delivered f.o.b. at the be Texaco, Groppo, v. 215 Conn. 574 Inc. state, out of chaser’s of business (1990); v. Rohm 1293 Revenue Cabinet risk responsibility has assumed for and seller Inc., Kentucky, 741 929 S.W.2d and Haas shipping goods, title does in them Brewing; McDon- (Ky.Ct.App.1996); pass they They received. are not not until Board, Douglas Corp. v. Franchise Tax nell state. See delivered (2d Cal.Rptr.2d 129 Cal.App.4th Dist.1994); Section Code, of the Uniform Commercial Banana; 2319; Star and Lone Parker Co. Canadian Pa.C.S. Swift Dolan, (Colo.1983). Banet, (3d Cir.1955). v. 668 P.2d 916 Section Steel Co. F.2d 36 legislature adopted has not the UDIT- flict with the Tax Code or otherwise be jurisdic- interpretation by Nonetheless, PA and its other erroneous. because De- tions, the legislature does not intend to partment’s interpretation not inconsis- rule apportioning follow destination with the Tax not tent Code and does vio- of tangible personal property intent, legislative majority late has purposes. Therefore, CNI tax the re- committed a fundamental error disre- quirement that uniform those statutes with garding Department’s regulation in fa- of other states shall adopted vor of another uniformity among construed effect Department. essence, majority in this case. See controlling states is not injects interpretation its own Section Statutory 1927 of Section Construction 401(3)2(a)(16). deny I would ex- Gilmour’s 1972,1 Act of Pa.C.S. ceptions and reaffirm the Board’s order. I administrative Finally, note that ease defining occurs as joins Judge FLAHERTY in this dissent. compared uncertainty inherent determining the destination of taxpayer’s loading

relinquished favoring Department’s

is a factor inter-

pretation as existing regula- codified alone, however,

tion. This factor

determinative, nor I that an- can conclude interpretation necessarily con- would

Case Details

Case Name: Gilmour Manufacturing Co. v. Commonwealth

Court Name: Commonwealth Court of Pennsylvania

Date Published: May 1, 2000

Citation: 750 A.2d 948

Court Abbreviation: Pa. Commw. Ct.