ENGLES FOOTBALL CLUB, INC. v. City of Philadelphia

• Decision Date: 25 April 2003
• Parties: The PHILADELPHIA EAGLES FOOTBALL CLUB, INC., Appellant, v. CITY OF PHILADELPHIA, Appellee.
• Court: Pennsylvania Supreme Court

823 A.2d 108

573 Pa. 189

The PHILADELPHIA EAGLES FOOTBALL CLUB, INC., Appellant, v. CITY OF PHILADELPHIA, Appellee.

Supreme Court of Pennsylvania.

Resubmitted March 7, 2003.

Decided April 25, 2003.

Reargument Denied June 9, 2003.

Dan Aaron Schulder, Joseph C. Bright, Philadelphia, Kevin Jon Moody, Harrisburg, for The Philadelphia Eagles Football Club, Inc.

Joseph Anthony Sullivan, Jonathan Steven Liss, Stewart M. Weintraub, for Pennsylvania Chamber of Business and Industry Amicus Curiae.

Lee Allen Zoeller, Philadelphia, for Committee on State Taxation.

Frank Paiva, for City of Philadelphia.

Before CAPPY, C.J., and CASTILLE, NIGRO, NEWMAN, SAYLOR, EAKIN and LAMB, JJ.

OPINION ANNOUNCING THE JUDGMENT OF THE COURT

Justice NIGRO.

Appellant, the Philadelphia Eagles Football Club, Inc. ("Football Club"), seeks relief from assessment of the Business Privilege Tax ("BPT") imposed by Appellee, the City of Philadelphia ("City"). We agree with the Commonwealth Court below that the Football Club's media receipts arising from the television broadcast of football games were subject to the BPT as copyright royalties for the licensing of a property right. We disagree, however, with the Commonwealth Court that the City's failure to apportion the Football Club's media receipts did not violate the Commerce Clause of the United States Constitution and therefore, disagree with the court's conclusion that the City could properly tax 100% of the Football Club's media receipts when calculating the Football Club's BPT liability. Accordingly, we reverse.

I. FACTS AND PROCEDURAL HISTORY

The First Class City Business Tax Reform Act¹ grants the City authority to levy and collect an annual tax on the taxable receipts of businesses operating within its city limits. See 53 P.S. §§ 16183, 16184. Pursuant to that authority, the City enacted Chapter 19-2600 of the Philadelphia Code ("Code") to implement a BPT beginning in 1985.² The BPT is imposed upon the gross receipts and net income of "every person engaging in any business in the City of Philadelphia." Philadelphia Code § 19-2603(1). For purposes of determining whether one is liable for paying the BPT, a "person" is "[a]ny individual, partnership, limited partnership, association, corporation, estate or trust." "Business" means carrying on or exercising for gain or profit within Philadelphia any trade, business, financial business, profession, vocation, or commercial activity, or making sales within the city. Id. § 19-2601.³

The BPT is composed of two separate components, gross receipts and net income, which are calculated independently. Only the gross receipts component of the BPT is involved in the instant appeal. In relevant part, the Code defines "receipts" as:

Cash, credits, property of any kind or nature, received from conducting any business or by reason of any sale made, including resales of goods, wares or merchandise taken by a dealer as a trade-in or as part payment for other goods, wares or merchandise or services rendered or commercial or business transactions, without deduction therefrom on account of the cost of property sold, materials used, labor, service or other cost, interest or discount paid or any other expense. [Specific provisions for taxpayers involved in the business of insurance.] Receipts of any business shall exclude: [listing eleven separate exclusions, which are not relevant here].

Id. § 19-2601.⁴ In addition, the City's Department of Revenue has promulgated extensive regulations regarding all aspects of the BPT, including the following provision governing taxation of copyright royalties:

where a taxpayer, whether a domestic or foreign corporation or any other type of business entity, maintains its commercial domicile in Philadelphia, all patent, copyright and trademark royalties received are to be included in the measure of tax unless attributable to business conducted at a place of business regularly maintained by the taxpayer outside of Philadelphia.

City of Philadelphia Business Privilege Tax Regulations § 322.

During all the tax years relevant to the instant appeal, the Football Club, a Delaware corporation with its principal place of business located in Philadelphia, owned and operated the Philadelphia Eagles football team ("Eagles Team"). The Football Club was a member of the National Football League ("NFL"), an unincorporated, non-profit association of member clubs that own and operate professional football teams. As a member of the NFL, the Football Club shared in a percentage of the revenues received by the NFL from its contracts with major television networks ("Network Contracts") for the right to televise NFL football games.⁵ Under the Network Contracts, the networks had the exclusive right to broadcast the live telecasts of NFL football games, and the NFL received payments from the networks, referred to as media receipts, which were divided evenly among the NFL teams.⁶ During the tax years in question, the NFL had twenty-eight teams, so each team received one twenty-eighth of the media receipts. The Eagles Team played one-half of its games in Philadelphia and the other half at other teams' venues around the country. Pursuant to the Network Contracts, all of the Eagles Team's games were televised.

The Football Club filed timely BPT tax returns for the tax years 1986 through 1994 and paid the BPT in accordance with those filings. The City audited the Football Club for tax years 1986 through 1992, and issued a notice of assessment on April 22, 1994. In response to the City's audit assessment of the BPT, on June 3, 1994, the Football Club filed a Review Petition with the Philadelphia Tax Review Board ("Board"), seeking relief from the City's assessments of the BPT, which totaled $730,705.39 for the years 1986 through 1992.⁷ The Football Club subsequently filed a Refund Petition with the Board on October 5, 1994, seeking a refund of $250,197.00 in BPT taxes that it had paid for the years 1986 through 1992. The Football Club claimed an overpayment of BPT taxes due to the erroneous calculation of the percentage of the media receipts that should have been included in its gross receipts for purposes of calculating its BPT liability. Specifically, the Football Club argued that only 50% of the media receipts, rather than 100% of the media receipts, should have been subject to the BPT calculations because only half of the Eagles Team's football games were played in and broadcast from Philadelphia. The Board held hearings on the Football Club's petitions from December 14, 1995 to September 24, 1996.⁸

In a decision dated December 3, 1997, the Board denied the Football Club's Refund Petition and granted in part and denied in part the Football Club's Review Petition. The Board agreed with the Football Club that only one-half of the Football Club's media receipts should be included in gross receipts for purposes of assessing the BPT. The Board determined that the media receipts constituted fees for services rendered, i.e., fees for the playing of football games by the Eagles Team. Because the Eagles Team played one-half of its football games in Philadelphia and one-half of its games in other cities, the Board concluded that one-half of the Football Club's media receipts were subject to the BPT as fees for services rendered in Philadelphia.⁹

The Football Club filed an appeal with the Court of Common Pleas of Philadelphia County on December 15, 1997. The next day, the City filed a cross appeal.¹⁰ Following oral argument on the appeals, on December 31, 1998, the Court of Common Pleas reversed in part and affirmed in part the decision of the Board. Specifically, the Court of Common Pleas reversed the Board's conclusion that the Football Club's media receipts were fees for services rendered, and instead, found as a matter of law that those receipts were copyright royalties resulting from the licensing of a property right. The court further concluded that 100% of those copyright royalties were subject to the BPT under Section 322 of the BPT Regulations, which, as indicated above, allocates all copyright royalties to the City if the taxpayer's commercial domicile is in Philadelphia. The Court of Common Pleas affirmed the Board's decision in all other respects.

Both the Football Club and the City appealed from the decision of the common pleas court, and the Commonwealth Court subsequently consolidated the appeals. On July 26, 2000, a five-member panel of the Commonwealth Court unanimously affirmed the order of the Court of Common Pleas. See Philadelphia Eagles Football Club, Inc. v. City of Philadelphia, 758 A.2d 236 (Pa.Commw.2000)

. In doing so, the Commonwealth Court held that the Football Club's gross media receipts from the television broadcast of the Eagles Team's football games were copyright royalties subject to the BPT. The Commonwealth Court further concluded that the City did not violate the Commerce Clause of the U.S. Constitution by failing to apportion the media receipts to account for football games played outside of Philadelphia. According to the Commonwealth Court, because income from copyright royalties is properly allocated to the domiciliary situs of the taxpayer, and because the Football Club was commercially domiciled in Philadelphia, 100% of the media receipts were subject to taxation by the City under the gross receipts portion of the BPT. The Football Club subsequently filed a Petition for Allowance of Appeal to this Court raising a total of four issues.

We granted allocatur to consider two issues: 1) whether the Commonwealth Court erred in concluding that the Football Club's media receipts arising from the television broadcast of footballs games pursuant to the Network Contracts were copyright royalties subject to the BPT; and 2) whether the Commonwealth Court erred in holding that the City was not required to apportion the Football Club's media receipts in assessing the BPT in order to comply with the Commerce Clause...