Decision Date26 July 2000
Citation758 A.2d 236
PartiesThe PHILADELPHIA EAGLES FOOTBALL CLUB, INC., Appellant, v. CITY OF PHILADELPHIA. City of Philadelphia, Appellant, v. The Philadelphia Eagles Football Club, Inc.
CourtPennsylvania Commonwealth Court

Alice W. Beck, Philadelphia, for appellant, the Phila. Eagles Football Club, Inc.

Frank Paiva, Jr., Philadelphia, for appellee, City of Phila.

BEFORE: DOYLE, President Judge, PELLEGRINI, Judge, FRIEDMAN, Judge, KELLEY, Judge, LEADBETTER, Judge. KELLEY, Judge.

The Philadelphia Eagles Football Club, Inc. (Eagles, Inc.) and the City of Philadelphia (Philadelphia) both appeal from a final order of the Court of Common Pleas of Philadelphia County (trial court) which reversed in part and affirmed in part a decision of the Philadelphia Tax Review Board (Tax Board). We affirm.

On June 3, 1994, Eagles, Inc. filed a petition for refund with the Tax Board. The petition sought relief for assessments of wage taxes for the years 1991 and 1994 totaling $63,932.19 and business privilege taxes of $730,705.39 for the years 1986 and 1992. On October 5, 1994, Eagles, Inc. filed another petition for refund with the Tax Board seeking a refund of $250,197.00 in business privilege taxes for the years 1986 through 1992 claiming an overpayment due to erroneous calculation of the percentage of media receipts which should have been included in Eagles, Inc.'s taxable gross receipts. The Tax Board held hearings from December 14, 1995 to September 24, 1996. Based upon the testimony and evidence presented, the Board made the following findings of fact.

Eagles, Inc. owned and operated the Philadelphia Eagles football team (Eagles Team) for all tax years in question. Norman Braman (Mr. Braman), a resident of Florida, owned and operated Eagles, Inc. during all the tax years in question. Eagles, Inc. was a member of the National Football League (NFL), a member association, for all the tax years in question. As a member of the NFL, Eagles, Inc. shared in a percentage of the revenues received by the NFL from its contract with a major television network for the right to televise all NFL football games (Network Contract). The NFL had twenty-eight football teams during this time period, and each team received one twenty-eighth of the Network Contract revenue for all tax years in question (referred to as "media receipts"). Eagles Team played one-half of its games in Philadelphia and the other half at the other teams' venues. Pursuant to the Network Contract negotiated by the NFL on behalf of its member teams, all games were televised.

With regard to deductions taken for airplane expenditures, the Tax Board found that Eagles, Inc. purchased an airplane in order to accommodate various activities of the Eagles Team and Mr. Braman. Mr. Braman used the airplane to travel to and from his home in Florida and the various sites where the Eagles Team played football. In addition, Mr. Braman used the airplane to attend meetings across the country for various NFL committees. Mr. Braman also used the airplane to attend other business interests unrelated to Eagles, Inc.'s business, such as vacation trips and other personal trips as well as charter trips for unrelated third parties. Eagles, Inc. was reimbursed certain monies for the various charter trips, but these reimbursements were below the actual cost to Eagles, Inc. to operate the airplane. As per the airplane use log for 1991, the airplane had a total of 135.95 hours of use. It was used for commuting 31.78% or 43.2 hours, vacation travel for 15.45% or 21 hours, charters for 21.27% or 28.91 hours, and Eagles business for 28.86% or 39.24 hours.

With regard to the percentage of Mr. Braman's salary subject to the Philadelphia Wage Tax (Wage Tax), the Tax Board found that in order to compute the number of working days which Mr. Braman spent in Philadelphia, Mr. Braman and his accountant reviewed Mr. Braman's diaries, airplane, hotel and other travel documents which he may have had available. From this information, Eagles, Inc. submitted four summarized time sheets covering Mr. Braman's whereabouts during 1991. These exhibits were prepared several years after the tax year in question in preparation for the proceedings. The exhibits were not made available at the time of the audit and therefore could not be reviewed by the auditor in making his initial assessment for 1991. Mr. Braman and his accountant used various diaries and travel documentation to piece them together. The summaries were, admittedly by Mr. Braman, estimations of his activities with some inaccuracies and conflicting information. Noting some inconsistencies among these four exhibits with respect to which days Mr. Braman was in Philadelphia, the Tax Board found that when taken as a whole picture, Mr. Braman was in Philadelphia for 61 days out of 200 working days, or 30.5%. This figure of 61 days is taken by adding up the total days from each of the four exhibits that Mr. Braman admitted to being in Philadelphia, during which time, Mr. Braman was receiving his annual salary of $5 million from Eagles, Inc.

By decision mailed December 3, 1997, the Tax Board held that one-half of the media receipts received by Eagles, Inc. should be included in the gross receipts for the Philadelphia Business Privilege Tax (BPT) assessment as a fee for services performed in Philadelphia. The Tax Board characterized the media receipts as fees for services rendered, i.e., the playing of the team's scheduled games. Since the Eagles Team played only one-half of its games in Philadelphia and the remaining one-half of its games in other team's venues, only one-half of the media receipts received for the rendering of these services are to be included in Eagles, Inc.'s gross receipts.

The Tax Board also held that 30.5% of Mr. Braman's salary is subject to the Wage Tax based upon a composite of the four exhibits pertaining to Mr. Braman's time allocation in Philadelphia. The Tax Board further held that additional compensation attributable to Mr. Braman, and subject to the 30.5% apportionment for the Wage Tax, included the difference between the standard value for charter flights and the amount of reimbursement to Eagles, Inc. by Mr. Braman, airplane costs for commuting to and from Florida, and cost to Eagles, Inc. for Mr. Braman's vacation, medical and other unreimbursed personal use of the airplane.

Additionally, the Tax Board held that only 28.86% of the total airplane expenses of $1,311,836.00 could be deducted by Eagles, Inc. The Tax Board held that Eagles, Inc. could deduct charter expenses up to the amount of charter income reported. The Board reasoned that while all of Eagles, Inc.'s deductions may have adhered to Generally Accepted Accounting Principles (GAAP) and all deductions were in accordance therewith, such deductions are not necessarily the equivalent of valid deductions for purposes of the BPT. Deductibility for standard accounting purposes as a legitimate expense does not necessarily equal deductibility for tax purposes. Only depreciation and expenses that are business related are deductible for purposes of determining net income for BPT. Vacation, medical and charter flights were not related to Eagles, Inc.'s business activities. Therefore, expenses and depreciation attributable to these flights are disallowed as deductions. To the extent that any airplane expenses are to be treated as non-cash compensation to Mr. Braman, these should be treated as deductible compensation expenses by Eagles, Inc.

Lastly, the Tax Board concluded that Eagles, Inc. is not entitled to any abatement or adjustment of interest or penalties. The Tax Board explained that Eagles, Inc.'s deduction with regard to the airplane and depreciation expenses clearly went beyond the scope of its activities when only 28.86% of the hours of airplane use were for its own business purposes. Eagles, Inc. knew or should have known that it was not reasonable to claim a 100% deduction for expenses associated with this plane when over 70% of its time was for other than its own business activities. The Tax Board further explained that the Wage Tax issue could very well have been resolved at the audit had Eagles, Inc. and Mr. Braman provided the time logs and calculations which were made available to the Tax Board.

From this decision, Eagles, Inc. filed an appeal with the trial court on December 15, 1997, under Docket No. 9712-2250. The following day, Philadelphia filed a cross appeal under Docket No. 9712-2353. Following oral argument on the cross appeals, the trial court, by order dated December 31, 1998, reversed in part and affirmed in part the Tax Board's decision. The trial court reversed the Tax Board's conclusion that Eagles, Inc.'s media receipts are fees for services and found as a matter of law that Eagles, Inc.'s media receipts are royalties, all of which are subject to taxation under the BPT. The trial court affirmed the Tax Board's decision in all other respects.

From this decision, Eagles, Inc. and Philadelphia both filed timely appeals with this Court. By order of this Court dated February 11, 1999, both appeals were consolidated. In this appeal, Eagles, Inc. has raised the following issues for our review:1

1. For purposes of calculating the BPT on gross receipts, should Eagles, Inc.'s share of revenues paid by television networks to the National Football League be apportioned to reflect the fact that the revenues arose in part as a result of activities that occurred outside of Philadelphia.

2. Should the network television revenues be apportioned at the rate of 50% to reflect that the Eagles Team played 50% of its games in Philadelphia.

3. Alternatively, should the network television revenues be apportioned 1/28th to Philadelphia to reflect the fact that the television revenues received by Eagles, Inc. are earned by all 28 teams in the NFL and thus only 1/28th of the revenues result from games played in...

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