Com. v. Eastman Kodak Co.
| Decision Date | 25 June 1956 |
| Citation | 124 A.2d 100,385 Pa. 607 |
| Parties | COMMONWEALTH of Pennsylvania, Appellant, v. EASTMAN KODAK COMPANY. |
| Court | Pennsylvania Supreme Court |
Edward Friedman, Deputy Atty. Gen., and Herbert B. Cohen, Atty. Gen., for appellant.
Sanford D. Beecher, Duane, Morris & Heckscher, Philadelphia, for appellee.
Before STERN, C. J., and JONES, BELL, CHIDSEY, MUSMANNO and ARNOLD, JJ.
The Commonwealth sought to tax defendant, a foreign corporation engaged in interstate commerce, on its net income for the year 1951 under the Corporation Income Tax Law of (December 27) 1951. 1 The lower Court held that the resettlement and imposition of the tax by the fiscal officers of the Commonwealth violated the Interstate Commerce Clause since it imposed a tax on the defendant's privilege of engaging in interstate commerce. From a judgment entered in favor of Eastman Kodak Company the Commonwealth has appealed.
Defendant is a business corporation which is engaged in interstate commerce. It is organized under the laws of New Jersey and has its business office and manufacturing plant in Rochester, N. Y. It is engaged in the business of manufacturing and selling photographic equipment and supplies and certain other products. All manufacturing of business products and research activities are performed wholly outside of Pennsylvania. It maintains no office or place of business in Pennsylvania; it is not registered to do business in Pennsylvania; it makes no contracts in Pennsylvania. All of its assets are owned, held and used by it wholly outside of Pennsylvania, with the exception of 10 automobiles which are used by defendant's employes who solicit business mostly in Pennsylvania. Five of those automobiles were used regularly in Pennsylvania by defendant's salesmen; the remainder were used partly in Pennsylvania and partly in other States. Those 10 automobiles, valued at $13,569, were the only tangible property of the defendant located in Pennsylvania. 2 The value of all tangible and intangible property and real estate of the defendant outside of Pennsylvania was $533,370,496.
Defendant employed, in the year 1951, three salesmen who resided in Pennsylvania, one of whom performed all of his services in Pennsylvania; and 11 technical representatives who resided in Pennsylvania and who demonstrated to dealers and other users of photographic products the proper method of using defendant's products. Four of these employes performed all their services in Pennsylvania; the other 7 performed their services in Pennsylvania and in other States. In every instance defendant's products were shipped by mail or by common carrier into Pennsylvania from outside the State. All of Eastman's employes who perform any services in Pennsylvania are connected with and sent out, and all of their activities are supervised and directed from premises for the transaction of business maintained by Eastman in New York City and Rochester, N. Y.
The principles in this fertile field of taxation of interstate commerce are easy to state, but often very difficult to apply. It has been aptly described as a field of 'nice distinctions'. Keystone Metal Co. v. City of Pittsburgh, 374 Pa. 323, 327, 97 A.2d 797; McLeod v. J. E. Dilworth Co., 322 U.S. 327, 329, 64 S.Ct. 1023, 88 L.Ed. 1304; Galveston, H. & S. A. Ry. Co. v. Texas, 210 U.S. 217, 225, 28 S.Ct. 638, 52 L.Ed. 1031.
The Corporation Income Tax Law of 1951 is a 'catch-all' Act which seeks to impose a so-called property tax on the net income of a corporation based on a three-fold formula, viz., all tangible property in Pennsylvania; all wages which are 'assignable' to Pennsylvania; and all gross receipts from 'property and activities' 'assignable' to this Commonwealth excluding income for which the corporation is subject to taxation under the Corporate Net Income Tax Act of May 16, 1935, P.L. 208, as amended, 72 P.S. § 3420a et seq. The true nature of the tax is apparent from the following provisions of the Act: 'A rule shall not be deemed to be inapplicable merely because all the tangible property or the expenditures of a corporation for wages, salaries, commissions or other compensation, or the gross receipts of the corporation, are found to be situated, incurred or received without the Commonwealth.' 72 P.S. § 3420 n-2.
In Roy Stone Transfer Corp. v. Messner, 377 Pa. 234, 103 A.2d 700, we held the Corporation Income Tax Law of 1951 was unconstitutional as applied to the plaintiff in that case in that it violated Article I, § 8, Cl. 3 of the Constitution of the United States--the Interstate Commerce Clause. In that case plaintiff was a foreign corporation which was negaged in the transportation of property as a common carrier in interstate commerce; it had no tangible or intangible property in Pennsylvania; it paid no wages in Pennsylvania; it made no contracts in Pennsylvania; and it had no employes doing any kind of work in Pennsylvania except driving its trucks in interstate commerce. All of the factors present in the Roy Stone case are present here, except that Eastman owns 10 automobiles located in Pennsylvania and several of its representatives demonstrate to dealers and other users of photographic products in Pennsylvania the proper method of using defendant's products. We do not consider these additional factors sufficient to constitute local activities within the meaning of the decided cases. The distinction between the Act of 1935, which taxes the net income of corporations which have tangible property in Pennsylvania or are engaged in local activities in Pennsylvania, and the Act of 1951, was pointed out in the Roy Stone case on page 239 of 337 Pa., on page 703 of 103 A.2d: 'While each formula has the same three factors--tangible property in Pennsylvania, wages paid, and gross receipts--under the 1935 Act the wages paid are applicable to persons employed in Pennsylvania and the gross receipts are likewise restricted to receipts from business conducted in Pennsylvania; whereas the 1951 Act applies to and includes wages payable to employees employed outside of Pennsylvania which may be attributable to the work they perform in Pennsylvania, 3 and the gross receipts to business attributable to Pennsylvania, but negotiated or performed by persons employed outside of Pennsylvania.
The Corporation Income Tax Law of 1951 states that it imposes a property tax on net income of certain corporations. While this declaration is entitled to weight, the nature of a tax depends upon its incidence, not upon its label. If, therefore, in reality, i. e., in its practical operation and effect, the tax is not what it purports to be, the realities control. Railway Express Agency, Inc., v. Virginia, 347 U.S. 359, 74 S.Ct. 558, 98 L.Ed. 337; Spector Motor Service, Inc., v. O'Connor, 340 U.S. 602, 608, 71 S.Ct. 508, 95 L.Ed. 573; Dawson v. Kentucky Distilleries & Warehouse Co., 255 U.S. 288, 292, 41 S.Ct. 272, 65 L.Ed. 638; Interstate Transit, Inc., v. Lindsey, 283 U.S. 183, 190, 51 S.Ct. 380, 75 L.Ed. 953; Memphis Steam Laundry Cleaner v. Stone, 342 U.S. 389, 72 S.Ct. 424, 96 L.Ed. 436; Roy Stone Transfer Corp. v. Messner, 377 Pa. 234, 103 A.2d 700, supra; Murray v. City of Philadelphia, 364 Pa. 157, 71 A.2d 280; Armour & Co. v. City of Pittsburgh, 363 Pa. 109, 112, 69 A.2d 405; In re Arrott's Estate, 322 Pa. 367, 186 A. 697; National Biscuit Co. v. City of Philadelphia, 374 Pa. 604, 615, 98 A.2d 182.
The Roy Stone case analyzed and reviewed many decisions of the Supreme Court and several of this Court and then summarized the pertinent principles:
In Norton Company v. Department of Revenue of State of Illinois, 340 U.S. 534, 71 S.Ct. 377, 379, 95 L.Ed. 517, the constitutionality of an Illinois gross receipts business or occupation tax "upon persons engaged in the business of selling tangible personal property at retail in this State" was determined by the Supreme Court. Norton Company, a Massachusetts corporation, operated a branch office and a warehouse in Chicago, from which it made local sales at retail. The Chicago place of business carried a large inventory and consummated therefrom direct sales to people in Illinois. It also acted to reduce freight costs to local consumers and took orders for merchandise which it did not have in the local store. The local office likewise performed services helpful in Norton's competition for Illinois trade. ...
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