Commonwealth v. Eastern Motor Exp., Inc.

• Decision Date: 30 December 1959
• Parties: COMMONWEALTH of Pennsylvania, Appellant, v. EASTERN MOTOR EXPRESS, INC. COMMONWEALTH of Pennsylvania, Appellant, v. RISS & COMPANY, Inc.
• Court: Pennsylvania Supreme Court

157 A.2d 79

398 Pa. 279

COMMONWEALTH of Pennsylvania, Appellant, v. EASTERN MOTOR EXPRESS, INC.

COMMONWEALTH of Pennsylvania, Appellant, v. RISS & COMPANY, Inc.

Supreme Court of Pennsylvania.

December 30, 1959.

[Copyrighted Material Omitted]

Edward Friedman, Deputy Atty. Gen., and Anne X. Alpern Atty. Gen., for appellant.

Frank A. Sinon, Rhoads, Sinon & Reader, F. Eugene Reader, Harrisburg, for appellees.

Sanford D. Beecher, Duane, Morris & Heckscher, Philadelphia, Pa., for Eastman Kodak Co., amicus curiae.

James M. Marsh, J. Harry LaBrum, Philadelphia (LaBrum & Doak Philadelphia, Pa., of counsel), for amici curiae.

Before CHARLES ALVIN JONES, P. J., and BELL, MUSMANNO, BENJAMIN R. JONES, COHEN and BOK, JJ.

BELL, Justice.

These appeals were heard and will be considered together. The question involved may be thus stated: Is the tax imposed on each of these defendants by the Corporation Income Tax Law of 1951 ^[1] valid and Constitutional? The lower Court held the Act to be unconstitutional.

The facts must necessarily be stated at length. We quote with approval the following excerpts from the able comprehensive opinion of President Judge Neely:

1. Eastern Motor Express, Inc. is an Indiana corporation having its principal office at Terre Haute, Indiana.

'2. Defendant is engaged in transporting property by motor vehicle as a common carrier, and is so engaged exclusively in interstate commerce, ^[2] pursuant to Certificates of Public Convenience and Necessity issued by the Interstate Commerce Commission. * * *

'3. Said defendant does not hold a certificate of authority to do business in the Commonwealth of Pennsylvania, nor does it employ or use capital or property in Pennsylvania in connection with any intrastate business.

'4. The defendant is not engaged in any intrastate commerce in the Commonwealth and it has no authority whatsoever to operate as a common carrier in intrastate commerce from the Pennsylvania Public Utility Commission.

'5. In 1951, the defendant handled interstate freight from points outside of the Commonwealth of Pennsylvania to points within the Commonwealth of Pennsylvania, and interstate freight from points in Pennsylvania to points outside the Commonwealth of Pennsylvania, and interstate freight by hauling the same through Pennsylvania from points in other states to points in still other states. All of said operations were conducted under Certificate of Public Convenience and Necessity issued by the Interstate Commerce Commission, as aforesaid.

'7. Defendant owns no real property which is located in or has a situs in the Commonwealth of Pennsylvania. The only tangible personal property that is ever present in Pennsylvania is that which is there in connection with the conduct of defendant's interstate transportation business.

'8. In 1951, the defendant owned 13 tractors, 3 straight trucks, 2 trailers, and 5 service cars, all located regularly and continuously in Pennsylvania. All these vehicles were used in the solicitation of business, and the pick-up or delivery of interstate freight in Pennsylvania to or from the defendant's terminals in Pennsylvania. Said vehicles are operated only in Pennsylvania and registered in Pennsylvania.

'9. The defendant has four [substantial] terminals in Pennsylvania located in Allentown, Harrisburg, Philadelphia and Pittsburgh. All of said terminals were leased from others and used by the defendant.

'11. The following employees of defendant performed all their duties at defendant's terminals in Pennsylvania, except as noted:

Three Terminal Managers: * * *

'One Control Station Manager: * * *

'Two Office Managers: * * *

Four Salesmen: These employees solicit freight from customers in Pennsylvania for points outside Pennsylvania. They also solicit freight from shippers outside Pennsylvania to customers inside Pennsylvania.

'Forty-three Office Clerks: These employees prepare and keep the records necessary in the movement of freight in Interstate Commerce. * * *

'Fifty-seven Dockmen: * * *

'Seventy-six City Pick-up and Delivery Drivers: * * *

'Three Safety Control: * * *

'One Mechanic: * * *

'12. Defendant does not maintain any corporate meeting place within the Commonwealth of Pennsylvania, and its terminals in the Commonwealth of Pennsylvania are those inseparably related to its interstate transportation business, as aforesaid.

'13. Defendant has no employees in the Commonwealth of Pennsylvania other than those engaged in operations strictly connected with its interstate transportation business, as aforesaid.

'14. Defendant's gross receipts, in the sum of $2,348,430, in the Commonwealth of Pennsylvania are those from operations strictly connected with its interstate transportation business, as aforesaid.

'15. Defendant, being a foreign corporation engaged solely in interstate commerce in the Commonwealth of Pennsylvania does not pay the capital stock tax or franchise tax [or the Corporate Net Income tax].

* * *

* * *

'22. * * *

'The defendant's tax return, * * *, disclosed that the application of the formula provided in Section 2 of the Corporation Income Tax Law determined a tangible property allocating percentage of 2.3324 percent; determined a wages and salaries allocating percentage of 20.2107 percent; and a gross receipts allocating percentage of 16.4300 percent, all for the purpose of allocating an average of 12.9910 percent of defendant's net income to Pennsylvania for taxation. * * *'

The lower Court held that the Corporation Income Tax Law, as amended, in its application to each of these defendants was 'invalid as being imposed on the defendants' privilege of engaging in interstate commerce * * * [and] as in violation of the Commerce Clause, Article I, Section 8, of the Federal Constitution, and therefore unconstitutional.' Because of its aforesaid conclusion the lower Court did not consider or discuss several other important constitutional questions raised by the taxpayers.

The lower Court based its decision on Roy Stone Transfer Corporation v. Messner, 377 Pa. 234, 103 A.2d 700, and Commonwealth v. Eastman Kodak Co., 385 Pa. 607, 124 A.2d 100. In each of these cases this Court decided that the Corporation Income Tax Law of 1951 in its application to each of those cases was unconstitutional. In the Roy Stone case the taxpayer contended that the Corporation Income Tax Law imposed an excise tax, but that whether the tax was considered to be an excise tax or a property tax was immaterial since in either event it was unconstitutional. The Commonwealth, on the other hand, contended that the Act imposed a property tax, but admitted that if the tax imposed a tax on the privilege of engaging in interstate commerce it was unconstitutional under Article I, Section 8 of the Constitution of the United States.

The Corporation Income Tax Law of 1951 is a 'catch-all' Act which seeks to impose (what it calls) a 5% property tax upon the net income of all corporations, domestic and foreign, derived from sources within this Commonwealth arising from the ownership of property in this Commonwealth, or the carrying on the activities within the Commonwealth.

The Corporation Income Tax Law of 1951 as amended was denominated by the Legislature 'An Act to provide revenue for State purposes by imposing a property tax on the net incomes derived from sources within the Commonwealth of certain corporations * * *.' A 'Corporation' was defined in § 2 as follows: 'A corporation having capital stock * * * either organized under the laws of this Commonwealth, the United States, or any other state * * * and carrying on activities in this Commonwealth, or owning property in this Commonwealth * * *.'

Section 3 pertinently provides:

Imposition of Tax. Every corporation carrying on activities in this Commonwealth or owning property in this Commonwealth * * * shall pay a State property tax on net income derived from sources within this Commonwealth at the rate of five per centum per annum * * *: Provided, however, That such net income shall not include income for any period for which the corporation is subject to taxation under the Corporate Net Income Tax Act, approved the sixteenth day of May one thousand nine hundred thirty-five * * * as reenacted and amended.

'Except as otherwise provided in this section, the tax hereby imposed shall be in addition to all taxes now imposed on any corporation under the provisions of existing laws.'

The Corporate Net Income Tax Act of May 16, 1935, P.L. 208, was reenacted and further amended on December 27, 1951, P.L. 1746, 72 P.S. § 3420a et seq. It reads: 'An Act to provide revenue for State purposes by imposing an excise tax on the net incomes of certain corporations * * *.' The word 'Corporation' was thus defined in Section 2: 'A corporation having capital stock * * * either organized under the laws of this Commonwealth, the United States, or any other state * * * and doing business in this Commonwealth, or having capital or property employed or used in this Commonwealth * * *.' ^[3]

Section 3 provided:

Imposition of Tax. Every corporation * * * shall pay for the privilege of doing business in this Commonwealth * * * a State excise tax * * * at the rate of five per centum per annum [for the years 1951, 1952 and 1953]. * * * The tax hereby imposed shall be in addition to all taxes now imposed on any corporation under the provision of existing laws.'

Section 2 provided with respect to 'Net Income' that in case the entire business of the corporation is transacted within this Commonwealth the net income shall be the net income for the calendar or fiscal year as returned to and ascertained by the Fideral Government; and in case the entire business of any corporation is not...