Commonwealth v. Universal Trades, Inc.

• Decision Date: 17 March 1958
• Citation: 392 Pa. 323,141 A.2d 204
• Parties: COMMONWEALTH of Pennsylvania v. UNIVERSAL TRADES, Inc., Appellant.
• Court: Pennsylvania Supreme Court

141 A.2d 204

392 Pa. 323

COMMONWEALTH of Pennsylvania v. UNIVERSAL TRADES, Inc., Appellant.

Supreme Court of Pennsylvania.

March 17, 1958.

Petition for Reargument Dismissed May 23, 1958.

Manuel Kraus, Roy J. Keefer, Gerald Krekstein Harrisburg, Hull, Leiby & Metzger, Harrisburg, for appellant.

Edward Friedman, Deputy Atty. Gen., and Thomas D. McBride, Atty Gen., for appellee.

Before CHARLES ALVIN JONES, C. J., and BELL, CHIDSEY, MUSMANNO, and BENJAMIN R. JONES, JJ.

BELL Justice.

The question involved, although differently phrased by appellant and appellee, may be thus stated: May Pennsylvania impose a capital stock tax on a domestic corporation based in part upon intangible assets which are located outside of Pennsylvania and have acquired a commercial or business situs in Florida, without violating the Due Process Clause of the Constitution?

This is a test case. Judge Richards, President Judge of the Orphans'Court of Dauphin County, sitting in the Court of Common Pleas of Dauphin County, 68 Dauph. 139, in a very able opinion said, inter alia:

'The facts are not in dispute. Most of them are contained in a stipulation filed. They may be summarized as follows:

'The defendant is a Pennsylvania corporation with a registered office in Ambridge, Penna., and a principal office in Florida. Within its charter purposes, it has been engaged exclusively in construction work in the British West Indies and Puerto Rico for the United States Navy and United States Department of Engineers. All of its contracts have been negotiated and effected by its officers working out of the Florida office. The defendant exercises complete jurisdiction, control, supervision and management of its assets and business at its Florida office. All stockholders' and directors' meetings are held there. All books of account and records are maintained there. All investments are made, controlled and supervised there. All invoices for work done or services rendered are sent out from, and all receipts therefrom, are collected by the Florida office and deposited in Florida. All disbursements are made either by the Florida office or at the situs of the construction work outside the continental limits of the United States. All executive and administrative functions are performed by its officers at and from its Florida office. The defendant has never negotiated a contract in Pennsylvania; has never negotiated a contract with a resident of Pennsylvania; has never received funds for construction work from a resident of Pennsylvania; nor has the company ever performed a construction contract in Pennsylvania or in the United States. All tangible assets of the company, exclusive of office furniture, are located outside the continental limits of the United States. The office furniture is located at its office in Florida. The tangible assets outside the continental limits of the United States consist of heavy machinery and equipment. The company keeps no inventory in Pennsylvania and employs no salesmen here or elsewhere. The defendant conducts it executive and administrative offices in Florida and performs all other necessary functions to carry on its business there, with the exception of the actual construction work which is done outside the continental limits of the United States. This work consists of painting, repairing and making various installations on ships belonging to the Government of the United States.

'During the year in question the company owned tangible property consisting of machinery, equipment, fixtures and work in progress having a net book value of $266,614.26. The company owned intangible assets having a net book value of $271,052.92 consisting of cash in bank of $98,527.36, accounts receivable of $156,054.17, advances to individuals of $11,238.39, and special deposits of $5,233.00.

'During the year here involved the defendant filed with the State of Florida a Corporation Intangible Tax Report upon which it paid said tax on cash on hand and in banks, and on accounts receivable.

'The Pennsylvania capital stock tax here involved was determined by applying a property allocation fraction of $271,052.92/$537,667.18 X $266,000.00=$134,090.00, taxable at five mills, or a tax of $670.45. The numerator is the value of the intangible assets heretofore mentioned, while the denominator is the value of the total assets. The $266,000 is the value of the capital stock.'

The case of Commonwealth v. Semet-Solvay Co., 262 Pa. 234, 105 A. 92, is on its facts analogous to and in principle rules the instant case. In that case, Pennsylvania imposed a capital stock tax upon a domestic corporation which was engaged in business in Pennsylvania and in other states. The Court held that deposits in other states in connection with business done therein and accounts and bills receivable from the operations in other states were taxable in Pennsylvania. Judge Kunkel, whose opinion was affirmed Per Curiam by this Court said, inter alia (262 Pa. at pages 235-236, 105 A. at page 93):

'Capital stock, represented by tangible personal property located permanently outside of the state, is not taxable here; but this is not so, touching intangible personal property. Whatever may be the law of the other states it is the law of this state that the situs of such property for taxation is the domicile of the owner. The fact that the bank deposits in the present instance were in the banks of the other states and were there used in connection with the defendant's business and operations, or that the accounts receivable were derived from services performed and goods sold and payable outside of this state, did not change their situs for taxation. Whether taxable directly or through the capital stock, their taxable situs was the domicile of the defendant regardless of their source or place of use. Commonwealth v. Standard Oil Co., 101 Pa. 119; Commonwealth v. Buffalo & Lake Erie Traction Co., 233 Pa. 79, 81 A. 932; Commonwealth v. Curtis Pub. Co., 237 Pa. 333, 85 A. 360, and cases there cited. And this doctrine violates no provision of the federal Constitution. Kirtland v. Hotchkiss, 100 U.S. 491, 25 L.Ed. 558; Fidelity & Columbia Trust Company v. City of Louisville, 245 U.S. 54, 38 S.Ct. 40, 62 L.Ed. 145.'

This has always been the settled law of Pennsylvania. In Commonwealth v. Pennsylvania Coal Co., 197 Pa. 551, 47 A. 740, the Court held that intangibles--in that case a mortgage held by a Pennsylvania corporation secured on foreign real estate--have as their situs the domicile of the owner, and are properly taxable in Pennsylvania.

In Commonwealth v. Stewart, 338 Pa. 9, 12 A.2d 444, affirmed in Stewart v. Commonwealth of Pennsylvania, 312 U.S. 649, 61 S.Ct. 445, 85 L.Ed. 1101, the Court sustained the taxation (under the Pennsylvania Personal Property Tax Act, 72 P.S. § 3244) of the equitable interest of a cestuique trust who resided in Pennsylvania in the out of state intangibles located in New York under a New York trust. This Court said (338 Pa. at page 17, 12 A.2d at page 448):

'It is urged by appellee that the trust funds have their situs in New York, are taxable there in the possession of the trustee, and are beyond the jurisdictional taxing power of the State of Pennsylvania. This argument loses sight of principles of constitutional law which in our opinion are firmly established, namely, that the existence of different forms of ownership interests in intangible personal property may make such intangibles amenable to taxation by more than one sovereignty, and that 'double taxation,' that is, taxation of such different ownerships in the same property, even though in part overlapping, is not in itself a violation of the due process clause of the Fourteenth Amendment. In the present instance the State of Pennsylvania is not levying a tax upon the same subject of taxation as the State of New York might do, but only upon the equitable interest of appellee in the intangibles of which the legal ownership is in the trustees. While the doctrine of mobilia sequuntur personam no longer applies to tangibles, these, like land, having their tax situs in the jurisdiction in which they are physically located (Union Refrigerator Transit Co. v. Commonwealth of Kentucky, 199 U.S. 194, 26 S.Ct. 36, 50 L.Ed. 150; Frick v. Commonwealth of Pennsylvania, 268 U.S. 473, 45 S.Ct. 603, 69 L.Ed. 1058; Curry v. McCanless, 307 U.S. 357, 363, 364, 365, 59 S.Ct. 900, 83 L.Ed. 1339), in the case of intangibles the ancient doctrine still remains, because of obvious differences, theoretical and practical, between them and tangible chattels. Union Refrigerator Transit Co. v. Commonwealth of Kentucky, supra, 205; Fidelity & Columbia Trust Co. v. City of Louisville, 245 U.S. 54, 58, 59, 38 S.Ct. 40, 62 L.Ed. 145; Frick v. Commonwealth of Pennsylvania, supra, 268 U.S. 494, 45 S.Ct. 603; Blodgett v. Silberman, 277 U.S. 1, 9, 10, 17, 48 S.Ct. 410, 72 L.Ed. 749; Farmers Loan & Trust Co. v. State of Minnesota, 280 U.S. 204, 50 S.Ct. 98, 74 L.Ed. 371; Curry v. McCanless, supra, 307 U.S. 365, 366, 367, 59 S.Ct. 900. By virtue of that doctrine the situs of the equitable interest of appellee in the trust intangibles is that of her domicile; her estate therein is property in Pennsylvania and therefore subject to the taxing jurisdiction of this state. The right of Pennsylvania to tax property which, in the view of the law, is within its jurisdiction, cannot be denied or impaired because another state also may have the right to tax one of its own residents who enjoys another kind of ownership in the funds constituting the trust res.'

In Commonwealth v. Mundy Corporation, 346 Pa. 482, at page 484, 30 A.2d 878, at page 879, the Court said:

'The Act of 1935, P.L. 184, amending the Act of 1889 P.L. 420, 72 P.S. § 1901,...