Freedman v. Tax Review Bd. of City of Philadelphia
| Decision Date | 23 April 1969 |
| Citation | 258 A.2d 323,434 Pa. 282 |
| Parties | Herman M. FREEDMAN and Abraham E. Freedman, Executors of the Estate of Harry J. Freedman, Deceased v. TAX REVIEW BOARD OF the CITY OF PHILADELPHIA, Appellant. |
| Court | Pennsylvania Supreme Court |
Edward G. Bauer, Jr., City Solicitor, Levy Anderson, First Deputy City Solicitor, Matthew W. Bullock, Jr., Second Deputy City Solicitor, Frank J. Pfizenmayer, Asst. City Solicitor, Philadelphia, for appellant.
Marvin J. Levin, Freedman, Borowsky & Lorry, Philadelphia, for appellee.
Before BELL, C.J., and JONES, COHEN, EAGEN, O'BRIEN and ROBERTS, JJ.
Order affirmed by an evenly divided Court.
ROBERTS, J., would affirm on the unanimous opinion of the Superior Court.
The sole issue involved in this matter is whether a limited partner's share of income earned by a partnership is subject to Philadelphia Net Profits Tax. The Tax Review Board and the trial court held this to be earned income and therefore taxable under the Philadelphia Code, § 19501 et seq. The Superior Court reversed.
Our Court now adopts the Superior Court's determination and analogizes the income of a limited partnership allocated to a partner to dividends of a corporation. I think our Court is in error in so doing. A corporation pays a tax on its earnings before it declares dividends. A partnership pays no tax--the tax on its earnings is paid through the partners; for taxing purposes the partnership is but a pass through device. Thus the majority permits the partnership business activity to escape taxation at both the partnership and individual partner levels.
Now a business entity operating as a limited partnership with all of its business conducted in Philadelphia and all of its limited partners residing in Philadelphia does not pay any city tax on the earnings generated by the partnership in Philadelphia and allocated to the limited partners who are residents of Philadelphia.
The federal government makes no distinction in taxing the income of a partnership whether reported by a general partner or a limited partner. Nor does it permit a limited partner to exclude $100 from his partnership income as he would be entitled to do if the income were a dividend. We stated in Tax Review Board of City of Philadelphia v. Brine Corporation, 414 Pa. 488, 200 A.2d 883 (1964), that it is the nature of the activity producing the receipt which determines taxability. In Bankers Securities Corporation v. Philadelphia School District, 397 Pa. 413, 155 A.2d 835 (1959), we held that even dividends were taxable where those dividends were derived from a business activity, thus emphasizing that the nature of the activity producing the receipt is the determinative factor.
I join in the dissenting opinion of Mr. Justice Cohen but offer these additional observations.
In Tax Review Board of City of Philadelphia v. D. H. Shapiro Co., 409 Pa. 253, 185 A.2d 529 (1962), we ruled that income earned by nonresident partners for services performed outside the City of Philadelphia is not taxable under the City of Philadelphia's Net Profits Tax Ordinance even though the office of the partnership itself is located within the city limits. This is necessarily so because the Sterling Act, Act of ...
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Com., Dept. of Revenue For Bureau of Accounts Settlement v. McKelvey
...general liability for debts of partnership and places only his or her capital contribution at the peril of the business), aff'd, 434 Pa. 282, 258 A.2d 323 (1969). Thus, assuming proper notice to appellant, his liability would be Accordingly, we reverse the decision of the Commonwealth Court......