Synthes USA HQ v. Commonwealth, Aplt.

[J-16-2022]
IN THE SUPREME COURT OF PENNSYLVANIA
MIDDLE DISTRICT

BAER, C.J., TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, BROBSON, JJ.

SYNTHES USA HQ, INC., : No. 11 MAP 2021
:
Appellee : Appeal from the Order of
: Commonwealth Court at No. 108 FR
: 2016 dated July 24, 2020, Judgment
v. : Entered January 21, 2021,
: Reversing the decision of the PA
: Board of Finance and Revenue at
COMMONWEALTH OF PENNSYLVANIA, : No. 1409195 dated January 13,
: 2016 and Remanding.
Appellant :
: ARGUED: March 10, 2022

OPINION

JUSTICE DONOHUE DECIDED: February 22, 2023
In this corporate income tax case, we are presented with two discrete questions of

law. First, we consider a threshold issue questioning the authority of the Pennsylvania

Office of the Attorney General (“OAG”) to represent the Commonwealth in this litigation,

where it asserts an interpretation of the relevant tax provision contrary to the reading

forwarded by the Pennsylvania Department of Revenue (“Department”). The second

question requires our interpretation of a provision of the Tax Reform Code of 1971 (“Tax

Reform Code”) allocating a corporation’s sales of services between Pennsylvania and

other states for purposes of calculating the corporation’s income that is taxable in

Pennsylvania. After review, we conclude that the Commonwealth Attorneys Act permits

the OAG to take a position on behalf of the Commonwealth that is inconsistent with the

position adopted by the Department, but we ultimately reject the OAG’s reading of the
relevant tax provision in favor of the interpretation presented by the Department.

Accordingly, we affirm the order of the Commonwealth Court remanding this case to the

Board of Finance and Revenue for calculation and issuance of a tax refund by the

Department to the corporate taxpayer, Appellee Synthes USA HQ (“Synthes”), for the

2011 tax year.

As explained in detail below, this case centers upon how Synthes should apportion

its income between Pennsylvania and other states in order to calculate its Pennsylvania

corporate net income tax. To determine the Pennsylvania income tax for a corporation

doing business in multiple states, the Tax Reform Code for the 2011 tax year employed

an “apportionment factor,” which in turn derives from three other factors: sales, property,

and payroll. 72 P.S. § 7401(3)2.(a)(9)(A). As is relevant to the case at bar, the “sales

factor” is the ratio of “total sales of the taxpayer in this State” compared to the “total sales

of the taxpayer everywhere.” 72 P.S. § 7401(3)2.(a)(15). 1 Accordingly, the Tax Reform

Code necessitates categorization of which sales are “in this State,” or in the parlance of

the parties, which sales should be “sourced” to Pennsylvania.

The Tax Reform Code provides separate instructions for different types of sales.

The dispute before this Court relates to the allocation of Synthes’ sales of services. As

applicable to sales of services for the 2011 tax year, the Tax Reform Code instructed,

(17) Sales, other than sales of tangible personal property, are
in this State if:

(A) The income-producing activity is performed in this
State; or

(B) The income-producing activity is performed both in
and outside this State and a greater proportion of the
income-producing activity is performed in this State
than in any other state, based on costs of performance.

1 The parties do not dispute the calculation of Synthes’ property and payroll factors.

[J-16-2022] - 2
72 P.S. § 7401(3)2.(a)(17) (amended 2013) (hereinafter “Subparagraph 17”).

Neither the Tax Reform Code nor the Department’s regulations define “income-

producing activity” or “costs of performance.” To fill this void, the parties offer

interpretations of these terms in support of categorizing sales based either upon the

location where the taxpayer produces the service, as advocated by the OAG, or

conversely the location where the customer receives the benefit of the service, as

proffered by the Department. The parties refer to the OAG as employing a “Cost of

Performance Method” and the Department as utilizing a “Benefit-Received Method.” 2

While the parties contest the interpretation of the Tax Reform Code, they stipulated

to the relevant facts set forth herein. For purposes of the 2011 tax year, the parties agreed

that, while Synthes had business activity and paid taxes in multiple states, it was

headquartered and maintained its principal place of business in Pennsylvania. Synthes

sold research and development services (“R&D services”) and management services to

its affiliates. The management services included “(1) information technology support

service; (2) accounting service; (3) human resource service; (4) legal support service; and

(5) purchasing service.” Stipulation of Facts at 5-6, ¶ 21.

In 2011, Synthes sold its R&D services to only one customer, Synthes USA LLC,

which is a medical device manufacturer. The parties stipulated that “Synthes USA LLC

received the benefit of R&D Services at locations in Pennsylvania, Colorado, New York,

and in foreign countries where third-party contract manufacturers are located.” Id. at 4,

2 We observe at the outset that these sourcing methods have also been disputed in other
states given that Pennsylvania’s statute derives from a uniform act adopted in numerous
states. Courts and parties have utilized different terminology to describe these sourcing
methods. Broadly speaking, the methods either source the sales of services to the
origination point of the services, which is often the taxpayer’s place of business, which
we generically term “origin” sourcing, in line with the OAG’s view, or to the location where
the customer receives the service, which has been termed “market” or “destination”
sourcing, as advocated by the Department. In this opinion, we utilize both the parties’
specific terminology as well as the more generic terminology.

[J-16-2022] - 3
¶ 15. To produce its R&D Services, Synthes incurred costs in the form of “wages paid to

employees and other employee-related costs; costs to purchase and maintain equipment

and supplies; costs to operate and maintain research labs; and overhead costs

(administrative costs, lighting, building systems, etc.).” Id. at 4, ¶ 13. While these costs

were incurred in multiple states, “the greater proportion of [Synthes’] costs for providing

R&D Services to Synthes USA LLC was incurred in Pennsylvania ... .” Id. at 4, ¶ 14.

For its management services, Synthes had three customers in 2011: Synthes USA

LLC; Synthes USA Sales LLC; and Synthes Canada, LTD. The parties agree that these

customers received the benefit of Synthes’ management services in every state, including

Pennsylvania, and in Canada. Synthes incurred the same categories of costs in

producing its management services as listed for its R&D services (other than research

lab costs), the greater portion of which were incurred in Pennsylvania.

In its initial 2011 tax return, Synthes calculated its sales factor by applying the

Costs of Performance Method, sourcing all of its sales of services to Pennsylvania. In

April 2014, Synthes timely filed a petition to the Board of Appeals for refund of a portion

of its 2011 corporate income tax. 3 Synthes sought to recalculate the sales factor by

employing the Benefit-Received Method. Specifically, Synthes sought to exclude from

the sales factor numerator the sales of services where the benefit was received by its

customers outside of Pennsylvania. Synthes petitioned for a refund of approximately $2

million plus interest. Stipulation of Documents at 23 (Exhibit G: Board of Appeals Petition,

unnumbered).

3 Synthes filed petitions for refund in relation to its 2010, 2011, and 2012 tax returns,
seeking a total refund of approximately $10.7 million. Pursuant to the parties’ joint
application, the Commonwealth Court stayed the proceedings related to 2010 and 2012,
pending disposition of the refund petition for the 2011 tax year, which is currently on
appeal to this Court.

[J-16-2022] - 4
 The Board of Appeals sought additional documentation to support Synthes’

petition. In April 2015, after reviewing the documents submitted by Synthes, the Board

of Appeals denied the refund. While the Board of Appeals agreed with Synthes’ use of

the Benefit-Received Method, it nevertheless denied the petition concluding that Synthes

failed to provide the necessary evidentiary support for its asserted allocation of its sales

of services.

In May 2015, Synthes appealed the Board of Appeals’ decision to the Board of

Finance and Revenue, reasserting its claim to a refund based upon use of the Benefit-

Received Method. Synthes argued, inter alia, that the Uniformity Clause of the

Pennsylvania Constitution required application of the Benefit-Received Method, given the

Department’s long-standing practice of applying that sourcing method to other corporate

taxpayers. 4

The Board of Finance and Revenue denied Synthes’ petition for refund in January

2016. 5 Without speaking to the proper sourcing method or the merits of Synthes’

Uniformity Clause claim, the Board of Finance and Revenue concluded that Synthes

failed to meet its evidentiary burden to demonstrate that its receipts derived from income-

producing activities in states outside Pennsylvania, as was required to trigger application

of Subparagraph 17(B).

In February 2016, Synthes filed a petition for review of the Board of Finance and

Revenue’s order in the Commonwealth Court, naming the Commonwealth of

4 The Uniformity Clause of the Pennsylvania Constitution instructs that “[a]ll taxes shall
be uniform, upon the same class of subjects, within the territorial limits of the authority
levying the tax, and shall be levied and collected under general laws.” PA. CONST. art.
VIII, § 1.
5 The Board of Finance and Revenue addressed Synthes’ 2010 and 2011 refund petitions
in companion decisions. The 2011 decision at issue in this case incorporates the
reasoning set forth in the 2010 decision, which we set forth herein.

[J-16-2022] - 5
Pennsylvania as respondent as required by Pa.R.A.P. 1571(c). 6 As before the other

tribunals, Synthes sought to exclude from the sales factor numerator all receipts from

sales of services “where the benefit was received outside Pennsylvania.” Petition for

Review ¶ 10(c)(ii). It reiterated that failure to grant recalculation would violate the

Uniformity Clause as its income would be “apportioned to Pennsylvania in a greater

concentration than other similarly situated taxpayers.” 7 Id. at 10(d)(iv)(B).

Following various proceedings and Synthes’ submission of additional information,

Synthes and the Commonwealth, as represented by the OAG, filed a joint stipulation of

facts and stipulation of documents in November 2019. 8 The parties stipulated that, if the

Benefit-Received Method applied, then Synthes would be entitled to a refund of

$2,138,271.00 for the 2011 tax year but that no refund would be issued if the Costs of

Performance Method applied. Stipulation of Facts at 18 ¶ 70-71.

The parties agreed that the Department has utilized the Benefit-Received Method

as a “consistent and deliberate policy and practice,” explaining that the Department

interpreted the term “‘income-producing activity’ in Subparagraph 17 as the receipt of the

benefit of the taxpayer’s service,” which it deemed to occur “at the customer’s location.”

Id. at 9, ¶ 37. While recognizing the practice, the parties stipulated that the Department

6 Rule 1571(c)(4) instructs that “[a] petition for review of a taxpayer or similar party shall
name the ‘Commonwealth of Pennsylvania’ as respondent ... .” Pa.R.A.P. 1571. Rule
1571(d) further requires the petitioner to “serve a copy of the petition on the Board of
Finance and Revenue and on the Attorney General.” Id.
7 Synthes raised additional constitutional challenges under the federal constitution which
are not before this Court. As we ultimately agree with Synthes that the Benefit-Received
Method should be applied to its 2011 tax return, we do not delve into the details of its
Uniformity Clause or other constitutional claims.
8 The parties stipulated to the facts in conformance with Pa.R.A.P. 1571(f) which dictates
that, in appeals from the Board of Finance and Revenue, “the parties shall take
appropriate steps to prepare and file a stipulation of such facts as may be agreed to and
to identify the issues of fact, if any, which remain to be tried.”

[J-16-2022] - 6
did not publish formal guidance on the use of the method until 2014. Id. at 10, ¶ 40; 14,

¶ 54; see Pa. Dep’t of Revenue, Information Notice – Corporation Taxes 2014-01.

Moreover, the parties detailed that the Department did not promulgate any regulations

regarding use of the Benefit-Received Method. Stipulation of Facts at 15, ¶ 56.

The parties further stipulated that the Benefit-Received Method has been

consistently approved by the Auditor General and applied in the Board of Appeals’

decisions, which in turn have been “consistently affirm[ed]” by the Board of Finance and

Revenue. Id. at 10-11, ¶ 43-48. However, the parties agreed that taxpayers appealing

from the Board of Finance and Revenue to the Commonwealth Court “typically settled

their matter on a compromise basis with the Office of Attorney General,” ultimately

agreeing to a tax between the amounts calculated under the Benefit-Received Method

and the Costs of Performance Method. Id. at 12, ¶ 50(D); 13, ¶ 51(D); 14, ¶ 53(C).

Indeed, the Commonwealth Court subsequently observed that the current appeal is the

first Pennsylvania appellate case to address the issue presented as all prior cases have

resulted in settlements. Synthes USA HQ, Inc. v. Commonwealth, 236 A.3d 1190, 1196

(Pa. Commw. 2020).

After Synthes filed its initial brief as appellant seeking application of the Benefit-

Received Method and reasserting its Uniformity Clause claim, the OAG, representing the

Commonwealth, filed a brief arguing for utilization of the Costs of Performance Method

and the denial of a refund to Synthes. Thus, the OAG’s argument conflicted directly with

the Department’s long-standing use of the Benefit-Received Method, which the OAG

asserted was unsupported by the plain language of Subparagraph 17. In so doing, the

OAG emphasized that the Attorney General was an independent, elected entity, separate

from the Department, with statutory authority under the Commonwealth Attorneys Act to

“represent the Commonwealth” “in any action brought by or against the Commonwealth,”

[J-16-2022] - 7
71 P.S. § 732-204(c), and to “defend the constitutionality of all statutes[,]” 71 P.S. § 732-

204(a)(3).

In response, the Department filed an application to intervene pursuant to Pa.R.A.P.

1531. The Department acknowledged that it had not filed within 30 days of Synthes’

petition for review as required for intervention as of right under Pa.R.A.P. 1531(a). 9 It

contended, however, that intervention by permission was proper given that it had been a

party before the lower tribunals and had sought intervention within two weeks of becoming

“fully aware” that the OAG was advocating an interpretation contrary to the Department’s

long-standing interpretation of Subparagraph 17. 10 Dep’t Brief in Support of Intervention

at 7. Moreover, it contended that no prejudice would result from its intervention as it had

sought intervention prior to the Commonwealth Court listing the matter for oral argument.

In seeking intervention, the Department asserted that it had a substantial, direct,

and immediate interest in the proceedings and that its interests were not represented by

the parties. It emphasized that it is the agency with authority to administer the Tax Reform

Code and that it had been a party to this litigation before the Board of Finance and

Revenue. It further observed that the OAG was contesting the validity of the Department’s

application of Subparagraph 17 for the first time in the case and that the OAG stated that

it did not represent the Department. The Department highlighted that Synthes was

advocating only for its refund and not for the Department’s statutory interpretation. As

9 Pa.R.A.P. 1531(a) provides that “[a] party to a proceeding before a government unit
that resulted in a quasijudicial order may intervene as of right in a proceeding under this
chapter ... by filing a notice of intervention ... within 30 days after notice of the filing of the
petition.” Alternatively, “permission to intervene may be sought by application” after the
thirty-day period. Id.
10 The parties dispute when the Department was aware of the OAG’s intent to present
the Commonwealth Court with a divergent interpretation of Subparagraph 17. The
Department contends that they were fully aware only when it received the OAG’s brief in
January 2020, while the OAG avers that it alerted the Department to its intent to present
its contrary interpretation as early as May 2017. See OAG Exceptions at 2, ¶ 3.

[J-16-2022] - 8
developed below, the Department additionally set forth its argument on the merits of

Synthes’ refund claim, defending its use of the Benefit-Received Method.

Synthes initially objected to the Department’s intervention, asserting prejudice due

to expected delay, but did not object to the court’s accepting the Department’s brief on

the merits as an amicus curiae brief. At oral argument, it withdrew its objection to the

Department’s intervention.

In June 2020, the Commonwealth Court heard argument en banc on the

Department’s application to intervene on the same day it heard the merits of Synthes’

appeal. In its opinion, it granted the Department’s application to intervene, concluding

that the Department had a clear interest in the litigation and that the other parties did not

assert that prejudice would result from the grant of intervention.

In so doing, the Commonwealth Court included a footnote addressing the OAG’s

representation of the Commonwealth in which it noted “with dismay the Attorney

General’s assertion in this case of a legal position directly adverse to that of its client, the

Department.” Synthes USA HQ, Inc., 236 A.3d at 1195 n.12. The court recognized that

the OAG was tasked with representing Commonwealth agencies, such as the

Department, under the Commonwealth Attorneys Act (herein after “CAA” or “the Act”), 71

P.S. §§ 732-101–732-506. 11 It questioned, however, whether “any constitutional or

statutory authorization or mandate” existed for the OAG to present an argument contrary

to the Department, where the agency had not sought the OAG’s legal advice as

11 For ease of discussion and in conformity with the parties, we will reference the sections
of the Commonwealth Attorneys Act by the sections of that act. In critical part, Section
204(c) provides that “[t]he Attorney General shall represent the Commonwealth and all
Commonwealth agencies.” 71 P.S. § 732-204(c).

[J-16-2022] - 9
contemplated under Section 204(a) of the Act. 12 Synthes, 236 A.3d at 1195 n.12. The

court, instead, reasoned that, “to the extent the Attorney General believed itself entitled

to control the position to be advocated in [Commonwealth] Court, and upon reaching a

legal interpretation contrary to that of the Department, the Attorney General should have

so advised the Department[,]” which would have allowed the Department to seek

declaratory relief under Section 204(a) of the Act. Id. Alternatively, the court opined that

the OAG “could have authorized counsel for the Department or the Board to litigate this

matter” pursuant to Section 204(c), to avoid “this unseemly conflict between the

Commonwealth and its own agency concerning a statutory construction issue within the

agency’s expertise.” 13 Id.

Turning to the merits of the tax question, the Commonwealth Court first deemed

the language of Subparagraph 17 ambiguous, given that the critical terms of “income-

producing activity” and “costs of performance” are undefined and the OAG and the

Department presented reasonable but contrary interpretations. Id. at 1201. In addressing

this ambiguity, the court cited its caselaw providing for deference “to the expertise of the

agency charged with interpretation and enforcement responsibilities” of the relevant

statute unless the agency’s interpretation “is erroneous or frustrates the legislature’s

intent.” Id. at 1201. The Commonwealth Court concluded that the Department’s use of

12 Section 204(a), is entitled “Legal advice,” and provides a process for the Governor or
the head of any Commonwealth agency to seek legal advice from the Attorney General,
which is then binding in most circumstances absent declaratory judgment from the
Commonwealth Court. 71 P.S. § 732-204(a)(1)-(2). The parties stipulated that the
Department had not sought the OAG’s legal advice regarding the use of the Benefit-
Received Method. Stipulation of Facts at 15, ¶ 58.
13Then-Judge, now Justice, Brobson joined the Commonwealth Court majority but wrote
separately to highlight his view that the OAG “overstepped its authority under the [Act] by
assuming the mantels of both counsel and client.” Id. at 1202-03 (Brobson, J.,
concurring). He would have reversed and remanded for issuance of a refund, without
addressing the OAG’s challenge to the interpretation of Subparagraph 17.

[J-16-2022] - 10
a Benefit-Received Method was neither erroneous nor contrary to legislative intent. Id.

at 1202.

In so doing, the court rejected the OAG’s interpretation of a 2013 amendment to

the Tax Reform Code, which added Subparagraph 16.1 for tax years beginning in 2014.

As discussed in detail below, Subparagraph 16.1 explicitly applies destination sourcing

to sales of services by allocating such sales to Pennsylvania “if the service is delivered to

a location in this State.” 72 P.S. § 7401(3)2.(a)(16.1)(C). While the OAG viewed the

amendment as changing the treatment of sales of services from that previously provided

in Subparagraph 17, the Commonwealth Court instead interpreted the addition as

legislative acquiescence to the Department’s longstanding interpretation. Synthes USA

HQ, Inc., 236 A.3d at 1202. It, therefore, deemed the Legislature to have “clarified, rather

than altered” the statute. Id. The court, thus, reversed the Board of Finance and

Revenue’s denial of a refund and remanded to the Board “for issuance of a tax refund to

Synthes USA HQ, Inc. for tax year 2011, in an amount to be determined by the

Department consistent with the foregoing opinion.”14 Id.

Judge Wojcik authored a concurring and dissenting opinion, joined by Judge Cohn

Jubelirer. These jurists concurred with the majority’s grant of intervention to the

Department but diverged from the majority as they read the Commonwealth Attorneys

Act to provide authority for the Attorney General’s actions in this case. They stated that

the Act “clearly and explicitly confers upon the Attorney General the primary authority” to

determine the interests of the Commonwealth and “specifically contemplates dual

representation of the agencies where those perceived interests are conflicting.” Id. at

1205 (Wojcik, J., concurring and dissenting). The jurists cited Fidelity Bank v.

14 As the Commonwealth Court granted the relief sought by Synthes, the court did not
address Synthes’ alternative claim under the Uniformity Clause.

[J-16-2022] - 11
Pennsylvania Turnpike Commission, 444 A.2d 1154 (Pa. 1982), as supporting their

interpretation of the Act.

Turning to the merits of the tax question posed, the jurists dissented from the

majority’s approval of the Department’s use of the Benefit-Received Method, instead

finding that method inconsistent with the language of Subparagraph 17. The responsive

opinion viewed the 2013 amendments as demonstrating legislative intent to alter the

sourcing method by adding Subparagraph 16.1, which unambiguously applied destination

sourcing for sales of services, while retaining the distinct language of Subparagraph 17

for all other sales not addressed in Subparagraphs 16 or 16.1. The responsive opinion

favored affirmance of the Board of Finance and Revenue’s denial of Synthes’ refund

petition.

The OAG and Synthes timely filed exceptions to the Commonwealth Court’s

decision pursuant to Pa.R.A.P. 1571(i), to which the Department responded. The OAG

filed an application to waive briefing and argument on the exceptions, which the

Commonwealth Court granted on January 21, 2021. In the same order, the court directed

the prothonotary to enter its July 2020 order as a final order and to enter judgment.

The OAG filed a notice of appeal challenging the Commonwealth Court’s order

entered January 21, 2021, and the final order entered July 24, 2020. It additionally filed

a statement with this Court, asserting that jurisdiction was proper based upon 42 Pa.C.S.

§ 723(b) and Pa.R.A.P. 1101(a)(2). 15 While Synthes filed a no answer letter in response

to the OAG’s jurisdictional statement, the Department contested jurisdiction, seemingly

raising a challenge to the OAG’s standing.

15 Section 723(b) addresses “Board of Finance and Revenue matters” and provides that
“[a]ny final order of the Commonwealth Court entered in any appeal from a decision of
the Board of Finance and Revenue shall be appealable to the Supreme Court, as of right,
under this section.” 42 Pa.C.S. § 723; see also Pa.R.A.P. 1101(a)(2) (addressing appeals
to the Supreme Court from Board of Finance and Revenue decisions).

[J-16-2022] - 12
 In support of this position, the Department contended that the OAG was neither a

party in the proceeding below nor was it aggrieved by the Commonwealth Court’s

decision. The Department explained that the OAG was not involved in the case before

the Board of Appeals or the Board of Finance and Revenue. Moreover, the Department

dismissed the OAG’s attempt to establish the “Commonwealth” as a stand-alone party

separate from the Department, which it viewed as the OAG’s “cut[ting] out of whole cloth

this new client as a vehicle for OAG’s arguments.” Dep’t Answer to Jurisdictional

Statement at 3. According to the Department, the OAG also was not aggrieved by the

Commonwealth Court’s order, which instructed the Board of Finance and Revenue to

direct the Department to issue a refund to Synthes and did not order the OAG or the

Commonwealth to do anything. For these reasons, the Department asks this Court to

dismiss or quash the appeal.

Following review, this Court noted probable jurisdiction and subsequently granted

limited oral argument to address, firstly, the authority of the OAG to represent the

“Commonwealth” and present a statutory interpretation contrary to the long-standing

interpretation of the Department and, secondly, to address the merits of the statutory

interpretation of Subparagraph 17. 16 We address these distinct issues separately, turning

first to the OAG’s representation of the “Commonwealth” contrary to the Department.

16 Specifically, we granted oral argument limited to the following questions:

Did the Commonwealth Court err in holding that the Office of
Attorney General was bound by the Department of Revenue’s
interpretation of 72 P.S. § 7401(3)2.(a)(17) (Subparagraph
17) and prohibited from presenting any independent legal
argument contrary to the Department’s position, even where,
as here, the Attorney General determined that the
Department’s position conflicted with the express language of
the statute and the intent of the General Assembly?

(continued…)

[J-16-2022] - 13
 At the outset, however, we reiterate that the parties stipulated to the relevant facts,

and we recognize that both issues are pure questions of law requiring this Court’s

interpretation of statutory provisions. Our standard of review, therefore, is de novo and

our scope of review is plenary. Greenwood Gaming & Entertainment, Inc. v.

Commonwealth, 263 A.3d 611, 620 (Pa. 2021).

Pennsylvania’s rules of statutory construction provide that “[t]he object of all

interpretation and construction of statutes is to ascertain and effectuate the intention of

the General Assembly.” 1 Pa.C.S. § 1921(a). If the language of a statute is “clear and

free from all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing

its spirit.” Id. However, if the language is not plain, courts attempt to glean legislative

intent from consideration of, inter alia, “the occasion and necessity for the statute,” “the

circumstances under which it was enacted,” and “the object to be obtained.” Id.

§ 1921(c)(1),(2).

“Another bedrock principle of statutory construction requires that a statute ‘be

construed, if possible, to give effect to all its provisions,’ so that no provision is mere

surplusage.” Commonwealth v. Gilmour Mfg. Co., 822 A.2d 676, 679 (Pa. 2003) (quoting

1 Pa.C.S. § 1921(a)). Additionally, we attempt to read statutes and parts of statutes in

pari materia when they relate to the same persons or things. 1 Pa.C.S. § 1932.

Did the Commonwealth Court err in upholding the
Department’s interpretation of Subparagraph 17 over the
express language of the statute and the intent of the General
Assembly?

Order, 11/17/2021. Our grant of limited oral argument did not extend to the OAG’s issue
questioning whether the Uniformity Clause required the continued application of the
Benefit-Received Method. Our ultimate resolution of these issues in favor of application
of the Benefit-Received Method obviates the need to address the Uniformity Clause
issue.

[J-16-2022] - 14
 As is relevant to the tax question before this Court involving a statute derived from

a uniform act, the General Assembly has indicated that “[s]tatutes uniform with those of

other states shall be interpreted and construed to effect their general purpose to make

uniform the laws of those states which enact them.” Id. § 1927. We additionally construe

statutes imposing taxes strictly in favor of the taxpayer. Id. § 1928(b)(3). With these rules

of statutory construction in mind, we turn to the issues presented.

I. OAG’s representation of the Commonwealth

The first issue before this Court questions whether the Office of the Attorney

General can represent the “Commonwealth,” separately from the Department, and

forward a statutory interpretation that conflicts with the Department’s long-standing

interpretation. 17 A brief review of the history of the Office of Attorney General is relevant

to our consideration of this issue.

A. Constitutional and Statutory Provisions Related to Attorney General

The Attorney General became an independent, elected constitutional officer in May

1978 through the adoption of Section 4.1 to Article IV of the Pennsylvania Constitution,

governing the Executive Branch. 18 The amendment designated the Attorney General as

17 This issue presented by the OAG arguably arises from dicta in footnote 12 of the
Commonwealth Court’s opinion. Synthes USA HQ, Inc., 236 A.3d at 1195 n.12. While
the Commonwealth Court questioned the “constitutional or statutory authorization” for the
OAG to forward a statutory interpretation inconsistent with that presented by the
Department, the court, nevertheless, allowed the OAG to present its argument contrary
to the Department. Despite the OAG seemingly not being aggrieved as the
Commonwealth Court considered the OAG’s argument, we nevertheless address the
issue as it is central to the Department’s asserted jurisdictional challenge to the OAG’s
authority to appeal the Commonwealth Court’s decision to this Court.
18 Section 4.1 of Article IV of the Pennsylvania Constitution, as adopted in 1978, provides
that an “Attorney General shall be chosen by the qualified electors of the
Commonwealth ...; he shall be the chief law officer of the Commonwealth and shall
exercise such powers and perform such duties as may be imposed by law.” PA. CONST.
art. IV, § 4.1.
(continued…)

[J-16-2022] - 15
the “the chief law officer of the Commonwealth” and instructed that the Attorney General

“shall exercise such powers and perform such duties as may be imposed by law.” PA.

CONST. art. IV, § 4.1. Soon after the voters’ adoption of Section 4.1, a task force began

drafting legislation to impose the requisite powers and duties referenced by the

constitutional provision. This document led to the adoption of the Commonwealth

Attorneys Act, which instructs that “[t]he Office of Attorney General shall be an

independent department[,]” and that “[t]he Attorney General shall exercise such powers

and perform such duties as are hereinafter set forth.” 71 P.S. § 732-201. Those powers

and duties are the subject of the parties’ arguments before this Court.

B. Parties’ Arguments

As noted above, the Department claims to challenge this Court’s “jurisdiction” over

this case. Specifically, it seeks quashal or dismissal asserting that the “OAG lacks

standing to bring this ‘appeal’” because it is not a “party who is aggrieved by an

appealable order.” Dep’t Brief at 4 (quoting Pa.R.A.P. 501, providing that “any party who

is aggrieved by an appealable order ... may appeal therefrom”). It contends that the OAG

was neither a party to, nor aggrieved by, the order in this case, which mandated that the

Department, rather that the OAG or the “Commonwealth,” issue a refund to Synthes upon

remand. Indeed, the Department contends that no party was aggrieved by the

Commonwealth Court’s order given that the Department and Synthes both agreed with

the Commonwealth Court’s application of Subparagraph 17 and the resulting refund.

The Department additionally asserts that the CAA “does not vest within the

Attorney General any power to become the agency itself, only to serve as the agency’s

Previously, the Attorney General served at the pleasure of the Governor under Sections
1 and 8 of Article IV of the Constitution. PA. CONST. art. IV, § 1 (amended 1967) (including
Attorney General as within the Executive Department of the Commonwealth), § 8
(amended 1909) (providing for the nomination of the Attorney General by the Governor
and confirmation by the Senate).

[J-16-2022] - 16
lawyer in actions at law or in equity.” Dep’t Brief at 3 (quoting Trotmetter v. Pa. Labor

Relations Bd., 147 A.3d 601, 608 (Pa. Commw. 2016)). Moreover, it contends that the

law does not support the OAG’s creation of a “standalone and autonomous

‘Commonwealth’ client” to advocate the OAG’s independent statutory interpretations

contrary to the Department’s prior interpretation. Dep’t Brief at 6. Instead, it asserts that

the OAG’s powers and duties are statutorily dictated by the CAA, such that it is not a

“fourth branch” of government, serving as a “check and balance” against the Executive

Branch. Id. at 12, 19-20 (citing Commonwealth v. Carsia, 517 A.2d 956 (Pa. 1986)

(limiting the prosecutorial authority of the OAG to those criminal cases identified in

Section 205 of the CAA, 71 P.S. § 732-205)).

The Department emphasizes that the Pennsylvania Constitution “vests the

Governor with the ‘supreme executive power,’ and commands the Governor to ‘take care

that the laws be faithfully executed.’” Dep’t Brief at 1 (quoting PA. CONST. art. IV, § 2). It

further explains that the Governor exercises those duties through executive branch

agencies, such as the Department, which is entrusted by the Legislature with powers and

duties relating to the settlement and collection of taxes and, specifically, to determine

corporate tax liability, and to issue assessments and refunds. Dep’t Brief at 1. Indeed, it

sets forth the various provisions of the Tax Reform Code designating the Department,

rather than the OAG, as a party or an adjudicator of corporate tax disputes. Dep’t Brief

at 14 (citing 72 P.S. §§ 9701, 9702(a), 9703, 9703(c), 9704(a),(d.1)(2),(e)).

Turning to the specific provisions of the CAA, the Department reads the OAG’s

role as limited to representing the Commonwealth in “actions,” which it views as not

encompassing “appeals,” such as the case at bar. Dep’t Brief at 22 (citing 71 P.S. § 732-

204(c) (“The Attorney General shall represent the Commonwealth and all Commonwealth

agencies ... in any action brought by or against the Commonwealth or its agencies[.]”),

[J-16-2022] - 17
23-24). To support this theory, it contrasts the CAA’s definition of “action” as “[a]ny action

at law or in equity” with its definition of “matter,” which is defined to include “[a]ction,

proceeding or appeal.” Id. (quoting 71 P.S. § 732-102). It argues that to read the term

“action” to include appeals renders the definition of “matter” superfluous and would

require this Court to rewrite the definition of “action” to add the word “appeal.” 19

The Department further rejects the Commonwealth Court dissent’s conclusion that

the CAA contemplates dual representation based on Section 303’s provision for

supersession and intervention. As set forth below, Subsection 303(a) permits the

Governor to request in writing that the Attorney General “authorize the General Counsel

to supersede the Attorney General and represent the agency” “[w]henever any action is

brought by or against any executive branch agency.” 71 P.S. § 732-303. If the Attorney

General does not grant the Governor’s request, Subsection 303(b) empowers the

Governor to “authorize the General Counsel to intervene” in the litigation. Id. Moreover,

“[s]uch intervention shall be a matter of right and when exercised, confer upon the General

Counsel the obligation to represent the Governor and his interests as Chief Executive

Officer of the Commonwealth and its Executive Department.” Id. The subsection further

explains that in these cases “[t]he Attorney General shall at all times continue to represent

the Commonwealth.” Id. The Department, however, asserts that this provision does not

apply both because it applies only to “actions” rather than appeals and because the

Governor did not seek supersession in this case.

Arguing for dismissal of this appeal, the Department contends that allowing the

OAG to litigate its argument in this case would “allow any Attorney General, at any time,

in any case, involving any issue, between any litigants to intervene and use the

19 In contrast, the Department observes that Section 204(a) of the CAA authorizes the
Attorney General to provide legal advice to the Governor or agency head “concerning any
matter or issue” arising from the Governor or agency’s official duties. Dep’t Brief at 25
n.13 (quoting 71 P.S. § 732-204(a)).

[J-16-2022] - 18
‘Commonwealth’ to advocate OAG’s legal views as the true party to the action.” Dep’t

Brief at 2.

The OAG responds to the Department’s jurisdictional challenge, asserting that this

case presents questions regarding “the fundamental natural and role of the Office of

Attorney General.” OAG Brief at 6. It emphasizes that the Attorney General is a

constitutionally created independent entity, elected by the people. It views its role as

“wholly unlike that of private counsel and their clients” due to its constitutional and

statutory duties as “chief law officer.” Id. at 27-28 (citing PA. CONST. art. IV, § 4.1). The

OAG argues that the grant of authority to the Attorney General was intended to “assure

independent legal review of the implementation of the statutory policies of the

Commonwealth” and to provide “a necessary check and balance to the Executive

Branch.” OAG Brief at 22-23 (quoting the September 1978 final report of the Joint State

Government Commission drafting the CAA, entitled “Office of Elected Attorney General:

Final Report” at 5).

The OAG explains that, in contrast to the General Counsel, which is tasked with

providing legal advice and representation to the Governor, the Attorney General

represents the Commonwealth under the CAA. OAG Reply Brief at 4 (comparing 71 P.S.

§ 732-201(a) (providing powers and duties of Attorney General) with 71 P.S. § 732-

301(setting forth powers and duties of General Counsel)). Given these constitutional and

statutory roles, the OAG argues that it is not merely a “mouthpiece” for the Governor and

the agencies, but rather provides independent legal service to the Commonwealth as a

whole. Id. at 4, 6.

The OAG highlights Section 303 of the CAA, providing the supersession and

intervention procedures, which the OAG views as anticipating and addressing conflicts

arising between an independent OAG and the Executive Branch regarding the

[J-16-2022] - 19
representation of agencies. Rather than binding the Attorney General to the agency’s

interpretation in the event of a conflict, the OAG asserts that Section 303 provides for

“dual representation” as it allows for the Governor to authorize the General Counsel to

intervene “to represent the Governor and his interests as Chief Executive Officer of the

Commonwealth and its Executive Department,” while “the Attorney General shall at all

times continue to represent the Commonwealth.” 71 P.S. § 732-303(b). Like the

Commonwealth Court dissent, the OAG emphasizes that this Court approved of such

dual representation in Fidelity Bank, 444 A.2d at 1161. OAG Brief at 25.

The OAG also discredits the Department’s attempt to limit the OAG’s authority “to

represent the Commonwealth and all Commonwealth agencies ... in any action brought

by or against the Commonwealth or its agencies” under Section 204(c) and the

application of Section 303 of the CAA based upon the use of the term “action,” which the

Department views as not extending to appeals. The OAG responds that the term “action”

is defined broadly as “any action in law or equity.” OAG Reply Brief at 12 (quoting 71

P.S. § 732-102). The OAG also asserts that it would be absurd for the statute to authorize

the OAG to represent an agency at trial but not on appeal, leaving the agency potentially

without representation on appeal given that the General Counsel has limited authority to

act. Id. at 15.

The OAG further highlights the longstanding practice of the OAG representing

agencies through the appellate process, including representing the Department on tax

appeals for forty years. In further justification of its position that it is authorized to

represent the Commonwealth, the OAG points to Pennsylvania Rule of Appellate

Procedure 1571(c)(4), which requires that appeals from the Board of Finance and

Revenue “shall name the ‘Commonwealth of Pennsylvania’ as respondent. Pa.R.A.P.

1571(c)(4).” OAG Brief at 26. Indeed, the Rules of Appellate Procedure also require the

[J-16-2022] - 20
taxpayer to serve process on the OAG of any petition for review of a Board of Finance

and Revenue order pursuant to Pa.R.A.P. 1514(c). 20 It emphasizes that the Legislature

has not acted to correct this common representation by the OAG, including following this

Court’s decision in Fidelity Bank.

The OAG asserts that the Commonwealth’s involvement in tax appeals is proper,

as tax revenues are not assets of the Department but of the Commonwealth. OAG Brief

at 26. Indeed, it contends that the “Commonwealth” was clearly aggrieved by the remand

order in this case as it had a “substantial, direct, and immediate interest” in the potential

refund of $2 million of taxes to Synthes. OAG Reply Brief at 9-10. 21

C. Analysis

We acknowledge the Commonwealth Court’s discomfort with what appears, at first

glance, to be attorneys advocating arguments that directly conflict with their client’s stated

position; indeed, such a dynamic is the opposite of the zealous advocacy due clients and

calls for consideration of the Pennsylvania Rules of Professional Conduct. Nevertheless,

upon closer review, we observe that the Attorney General is in fact representing the

Commonwealth while the agency retains its own counsel. This arrangement is

permissible in the case at bar because it conforms to the CAA. While the Attorney

General regularly represents the Department, it is not merely the Department’s law firm.

Instead, the Pennsylvania Constitution designates the Attorney General as the “chief law

20 The Fiscal Code, 72 P.S. §§ 1-1805, in addressing the powers and duties of the Board
of Finance and Revenue, identifies who may appeal from a decision of the Board of
Finance and Revenue on a petition for refund. Section 503, as with Rule 1571(c)(4),
names the Commonwealth as a (potential) party in appeals of petitions for refund. 72 P.S.
§ 503(e). In Section 503(i), a provision whose substantive content is otherwise irrelevant
to the present dispute, the General Assembly addressed the Department’s management
of refunds, thus supporting the reality that the Commonwealth (addressed in Section
503(e)) is a party separate and apart from the Department. 72 P.S. § 503(i).
21 Synthes confines its appellee brief to the tax issue set forth below.

[J-16-2022] - 21
officer” for the Commonwealth as a whole, accountable directly to the Pennsylvania

voters, and independent of the Governor and the Commonwealth agencies. PA. CONST.

art. IV, § 4.1.

The CAA provides both for the Attorney General’s representation of the Executive

Branch and also for the Attorney General’s independence from the Executive Branch.

Multiple sections of the CAA contemplate divergences in the legal determinations of the

Attorney General and the Governor or the Commonwealth agencies. For example,

Section 204(a) allows the Governor or the agencies to seek the legal advice of the

Attorney General. If the Governor or agency disagree with the Attorney General’s legal

conclusion, they are bound by that conclusion until they seek and receive a declaratory

judgment to the contrary. 22 71 P.S. § 732-204(a). Subsequently, in Section 204(c), the

CAA provides for the Attorney General’s representation of the Executive Branch. Section

204(c) provides that “the Attorney General shall represent the Commonwealth and all

Commonwealth agencies ... in any action brought by or against the Commonwealth or its

22 In relevant part, Subsection 204(a), entitled “Legal advice” provides as follows:

(1) Upon the request of the Governor or the head of any
Commonwealth agency, the Attorney General shall furnish
legal advice concerning any matter or issue arising in
connection with the exercise of the official powers or the
performance of the official duties of the Governor or
agency... . [T]he advice when received shall be followed... .

(2) If the Governor or the head of any Commonwealth agency
disagrees with the legal advice rendered by the Attorney
General, the Governor or the head of the Commonwealth
agency may seek a declaratory judgment in the
Commonwealth Court ... . The legal advice of the Attorney
General shall be binding until the Commonwealth Court
issues a final order on the petition requesting the declaratory
judgment.

71 P.S. § 732-204(a)(1)-(2).

[J-16-2022] - 22
agencies, and may intervene in any other action… .” 71 P.S. § 732-204(c). 23 This section

unambiguously gives the OAG the authority to represent both the Commonwealth and its

agencies.

As applicable to the case at bar, Section 303 provides for the Attorney General’s

representation of the Commonwealth separate from the agency. This section allows the

Governor or another executive branch official to request that the Attorney General step

aside and allow the Office of General Counsel to represent the agency. 71 P.S. § 732-

303(a). 24 In the event that the Attorney General does not grant the request, the Governor

may authorize the General Counsel to intervene in the litigation which intervention shall

be a matter of right. Id. § 303(b). Upon intervention, the General Counsel has the

obligation to represent the Governor and the Executive Department, i.e., the agency, and

the Attorney General shall at all times continue to represent the Commonwealth. Id. 25

23 Section 204(c) provides in relevant part,

The Attorney General shall represent the Commonwealth and
all Commonwealth agencies …. in any action brought by or
against the Commonwealth or its agencies, and may
intervene in any other action …. [.] The Attorney General
may, upon determining that it is more efficient or otherwise is
in the best interest of the Commonwealth, authorize the
General Counsel or the counsel for an independent agency to
initiate, conduct or defend any particular litigation or category
of litigation in his stead … .

71 P.S. § 732-204(c).
24 Section 403 of the CAA provides for the same process with regard to independent
agencies. 71 P.S. § 732-403.
25 § 723-303. Supersession and intervention

(a) Representation of agency by General Counsel. --
Whenever any action is brought by or against any executive
branch agency, the Governor or other executive branch
official, the Governor may request in writing, setting forth his
(continued…)

[J-16-2022] - 23
This statutory authorization is consistent with the constitutional empowerment of the

Attorney General as the independently elected “chief law officer.” PA. CONST. art. IV,

§ 4.1.

Section 303 addresses, inter alia, what happens when there is a conflict between

the interests of the Commonwealth as declared by the Attorney General and the interests

of the agency as determined by the Executive Branch. Once the agency intervenes as

of right, the agency is represented by the General Counsel’s Office and the

Commonwealth continues to be represented by the OAG. The OAG’s articulation of the

status of its representation conforms to Section 303(b): “General Counsel represents the

agency while ‘[t]he Attorney General … at all times continue[s] to represent the

Commonwealth.’” OAG Brief at 24 (citing 71 P.S. § 732-303(b)). The OAG elaborates:

The Attorney General works closely with the Office of General
Counsel and agency official when defending lawsuits. But
sometimes reasonable minds can disagree. When that
occurs, the Attorney General – as chief law officer of the
Commonwealth – prevails on what legal strategies are in the
best interest of the Commonwealth. Even when an agency

reasons, the Attorney General to authorize the General
Counsel to supersede the Attorney General and represent the
agency, the Governor or other executive branch official.

(b) Intervention by General Counsel. -- If the Attorney General
does not grant the request, the Governor may authorize the
General Counsel to intervene in the litigation. Such
intervention shall be a matter of right and when exercised,
confer upon the General Counsel the obligation to represent
the Governor and his interests as Chief Executive Officer of
the Commonwealth and its Executive Department. The
Attorney General shall at all times continue to represent the
Commonwealth.

71 P.S. § 732-303(a). Section 403 provides functionally identical language for
independent agencies, empowering the head of an independent agency to request
supersession and intervention by the agency’s counsel in “action[s] brought by or against
any independent agency or independent agency official.” 71 P.S. § 732-403.

[J-16-2022] - 24
 intervenes under Section 303 of the [CAA], the Attorney
General always “continues” to represent the Commonwealth.

OAG Brief at 29. Likewise, the Department recognizes that the OAG claims to represent

the Commonwealth, not the agency. See, e.g., Dep’t Brief at 12 (disputing the OAG’s

authority to “create” a client; it “cannot create a ‘Commonwealth’ client to express its views

of the law”).

The OAG also points to Fidelity Bank, a case involving the Turnpike Commission

and the Attorney General, as supporting its position. The language of Section 403 at

issue in Fidelity Bank is almost identical to that of Section 303. It provides the mechanism

for the head of an independent agency to request supersession in the representation of

the agency or its official. 71 P.S. § 732-403(a). Like in Section 303(b), if the Attorney

General does not grant the supersession request, the independent agency head may

authorize agency counsel to intervene in the litigation. Intervention is a matter of right

and it confers “upon the agency counsel the obligation to represent the agency[,]” while

the Attorney General at all times continues to represent “the Commonwealth.” Id. §

403(b).

However, contrary to the OAG’s argument, Fidelity Bank does not support the

position it takes in this case. The circumstances of the representation in Fidelity Bank

raised a unique question not presented here. Namely, the Court considered the propriety

of dual representation, that is, one client (the Turnpike Commission) represented by two

attorneys (agency counsel and the Attorney General). The Fidelity Bank Court first

rejected the Turnpike Commission’s position that upon its intervention, the Attorney

General was to be ousted from the litigation. Fidelity Bank, 444 A.2d at 1160-61. We

reaffirm the Fidelity Bank Court’s core point that, when an independent agency exercises

its right to intervene under Section 403(b), the operation of that mechanism does not oust

[J-16-2022] - 25
the Attorney General from the litigation because the Attorney General “shall ‘continue to

represent the Commonwealth[.]’” Id.

However, the Fidelity Bank Court further concluded that after supersession, the

OAG continued to represent the Turnpike Commission. The Court stated:

Section 403 of the [CAA], while permitting the Attorney
General to delegate the duty to agency counsel [to represent
the Turnpike Commission] upon request, in no way affects the
continued right of the Attorney General to represent the
agency if he so chooses. The concluding language of
[Section] 403(b) makes this clear by providing that the
Attorney General shall “continue to represent the
Commonwealth” when agency counsel intervenes. The
proceeding sentence, which states that the agency counsel
shall be obligated to represent the agency when the right of
intervention is exercised, speaks only to the duty of agency
counsel as intervenor, not the position of the Attorney General
in the litigation. Thus it is apparent that Section 403(b) does
not compel the ouster of the Attorney General when agency
counsel intervenes. Rather, the [CAA] contemplates the
possibility of dual representation where the Attorney General
and the members of an agency disagree as to an agency’s
interests or where, as here, the members of an agency are
themselves unable to agree upon the agency’s interests and
the Attorney General disagrees with the agency’s chairman.
Accordingly, we reject the claim of Commission counsel that
his intervention bars the Attorney General from representing
the Commission in this litigation.

Fidelity Bank, 444 A.2d at 1161 (internal footnote omitted). The Fidelity Bank Court treats

the language providing that the Attorney General shall continue to represent the

Commonwealth as if it states that the Attorney General continues to represent the agency.

Given the clear language of Section 403(b), this is a questionable universal proposition, 26

26 Fidelity Bank presents a unique set of facts. The question of the appropriate legal
representative of the Turnpike Commission arose because the Turnpike Commission did
not have a sufficient number of commissioners to constitute a quorum and was thus
(continued…)

[J-16-2022] - 26
and one with which we disagree. Moreover, what the Attorney General seeks in this case

– representation of the Commonwealth – is inapposite to the holding of Fidelity Bank but

consistent with Section 303(b).

We additionally reject the Department’s attempt to read the Attorney General’s

representation of agencies in Section 204(c) and the reach of Sections 303 and 403 as

applying only to “actions” and not encompassing the Attorney General’s representation

of agencies on “appeal.” The Department observes that Section 204(c) requires that the

“Attorney General shall represent [agencies] in any action brought by or against the

Commonwealth or its agencies” and does not use the broader term “matter” or the more

explicit term “appeal.” 71 P.S. § 732-204(c). 27 If the General Assembly had intended the

use of the term “action” to limit the Attorney General’s representation to the pre-appeal

stage, we would expect the Legislature to provide expressly for a transition of

representation, rather than leaving agencies unrepresented at the critical appellate stage.

Instead, Section 204(c) appears to create a duty for the Attorney General to begin its

unable to transact any business. Under such circumstances, it is doubtful that the
Commission has the power to formulate a decision as to whether the OAG or General
Counsel should represent it. Under these circumstances, it is conceivable that the OAG
and General Counsel could represent the Commission because of the lack of a foundation
for the Commission to opt for representation by General Counsel.
27 The CAA defines “action” somewhat circularly as “[a]ny action at law or in equity,” while
“matter” applies more expansively to include “[a]ction, proceeding or appeal,” and appeal
and proceedings are undefined. 71 P.S. § 732-102. Despite the circularity of the CAA’s
definition of “action,” the rules of statutory construction assist our interpretation by defining
“action” as “[a]ny suit or proceeding in any court of this Commonwealth.” 1 Pa.C.S.
§ 1991 (providing definitions applicable to “any statute finally enacted on or after
September 1, 1937”). Thus, when these definitions are incorporated, an “action” under
the CAA is “[any suit or proceeding in any court of this Commonwealth] at law or equity.”
Id.; 71 P.S. § 732-102. While “proceeding” is defined in the Judicial Code to exclude
actions and appeals, that definition is not included in the CAA or the rules of statutory
construction. 42 Pa.C.S. § 102 (defining “Proceeding” as including “every declaration,
petition or other application which may be made to a court under law or usage or under
special statutory authority, but the term does not include an action or an appeal”).

[J-16-2022] - 27
representation of agencies when an “action” is brought, without suggestion of an end point

of that representation.

This reading is further supported by Sections 303 and 403, which also apply

“[w]henever any action is brought by or against” the relevant Commonwealth entity. 71

P.S. §§ 732-303(a); 732-403(a). Thus, the “action” triggers the Governor or agency

head’s ability to ask the Attorney General to step aside in representing the agency. The

filing of the action, however, is merely the starting point as subsection (b) contemplates

the intervention of the General Counsel or agency counsel in the “litigation” 28 and

providing that the “Attorney General shall at all times continue to represent the

Commonwealth.” Id. §§ 732-303(b); 732-403(b). The General Assembly’s use of the

phrase “at all times” in the absence of an express exclusion of the appellate stage

undermines the Department’s attempt to limit the reach of these provisions.

Moreover, the Department’s attempt to limit the Attorney General’s representation

and the supersession and intervention procedures to “actions” rather than “appeals”

conflicts with the last four decades of practice of the OAG representing agencies,

including the Department on appeal. Indeed, it conflicts with other statutory provisions

addressing tax appeals and the appellate rule requiring that the OAG be served and

named when an appeal is taken from a decision of the Board of Finance and Revenue. 29

Pa.R.A.P. 1514(c) (“A copy of the petition for review shall be served by the petitioner …

on both the government unit that made the determination … and the Attorney General of

28 The term “litigation” is not defined in the CAA or the rules of statutory construction.
29 For example, the Taxpayer Bill of Rights contemplates the “Commonwealth” being the
party capable of appealing a decision of the Board of Finance and Revenue, to which the
Department would be bound: “Where the Board of Finance and Revenue has issued a
decision or an order in favor of a taxpayer and the Commonwealth has not appealed the
decision or order, the department may not make an assessment against the taxpayer that
raises an identical or substantially identical issue.” 72 P.S. § 3310-210(a).

[J-16-2022] - 28
Pennsylvania.”). These provisions are consistent with the OAG’s representation

continuing into the appeal stage.

We therefore preliminarily conclude that the Attorney General, as an independently

elected, constitutional officer, is authorized by the CAA to represent the Commonwealth

separately from the Department on appeals from the Commonwealth Court generally.

We have little hesitation in concluding that the Attorney General can do so in this case.

This Court’s jurisdiction in the case at bar is clear as the appeal arises from a “final order

of the Commonwealth Court entered in [an] appeal from a decision of the Board of

Finance and Revenue.” 42 Pa.C.S. § 723(b). Moreover, we reject the Department’s

contention that the Commonwealth, as represented by the Attorney General, does not

have standing, as the Commonwealth is indisputably aggrieved by an order remanding

the case for the Board of Finance and Revenue to issue a tax refund.

However, as to the operation of Section 303, we cannot overlook that the Attorney

General and the attorneys in the OAG are attorneys who are bound by the Pennsylvania

Rules of Professional Conduct promulgated by this Court. 30 Section 204(c)

unambiguously gives the OAG the authority to represent both the Commonwealth and its

agencies thus establishing a concurrent representation as contemplated by the Rules of

Professional Conduct. Critically and fundamentally, pursuant to Rule 1.7 (Conflict of

Interest: Current Clients), 31 the Attorney General and the attorneys employed by the OAG

30 It is pertinent to note that pursuant to Article IV, Section 5 of our Constitution, one of
the qualifications for the Office of the Attorney General is membership of the bar of the
Supreme Court of Pennsylvania. PA. CONST. art. IV, § 5.
31 Rule 1.7. Conflict of Interest: Current Clients

(a) Except as provided in paragraph (b), a lawyer shall not
represent a client if the representation involves a concurrent
conflict of interest. A concurrent conflict of interest exists if:
(continued…)

[J-16-2022] - 29
shall not represent a client (the Department) if the representation involves a conflict of

interest with a concurrent client (the Commonwealth). Such conflicts arise when the

OAG, on behalf of the Commonwealth, declares interests at odds with those of the

Department. Rule 1.11 (Special Conflicts of Interest for Former and Current Government

Officers and Employees) makes clear that the OAG attorneys and the Attorney General

are subject to Rule 1.7 “[e]xcept as law may otherwise expressly permit.” Pa.R.P.C.

1.11(d). 32 Section 303 makes clear that the CAA does not “otherwise permit” the OAG to

(1) the representation of one client will be
directly adverse to another client; or
(2) there is a significant risk that the
representation of one or more clients will be
materially limited by the lawyer’s responsibilities
to another client, a former client or a third person
or by a personal interest of the lawyer.
(b) Notwithstanding the existence of a concurrent conflict of
interest under paragraph (a), a lawyer may represent a client
if:
(1) the lawyer reasonably believes that the
lawyer will be able to provide competent and
diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the
assertion of a claim by one client against
another client represented by the lawyer in the
same litigation or other proceeding before a
tribunal; and
(4) each affected client gives informed consent.
Pa.R.P.C. 1.7.
32 Rule 1.11 Special Conflicts of Interest for Former and Current Government Officers
and Employees:

* * *
(continued…)

[J-16-2022] - 30
engage in conflicted concurrent representation of the agency on the one hand and the

Commonwealth on the other. Instead, 303(b) clearly and unambiguously provides for the

separate representation of the agency by the Office of the General Counsel in such

circumstances while the OAG’s other client, the Commonwealth, continues to be

represented by the OAG.

Having established that the circumstances here, consistent with Section 303(b),

involve two attorneys representing two clients, we are still left with questions about the

OAG’s involvement in representation advancing a position directly contrary to that of its

former client. While Section 303 places the initiation of the formal supersession process

in the hands of the Executive Branch, the Rules of Professional Conduct place the

responsibility on the attorney to inform the client of any circumstance to which the client’s

informed consent is required. 33 Consequently, the OAG was ethically bound to advise

the Department of its conflicting interpretation of the tax provision at issue in this case.

Under Rule of Professional Conduct 1.2, 34 a lawyer shall abide by a client’s decision

(d) Except as law may otherwise expressly permit, a lawyer currently serving as a public
officer or employee:

(1) is subject to Rules 1.7 and 1.9; …

Pa.R.P.C. 1.11(d)(1).
33 Rule 1.4. Communication

(a) A lawyer shall:

(1) promptly inform the client of any decision or circumstance with respect to which the
client’s informed consent, as defined in Rule 1.0(e), is required by these Rules[… .]

Pa.R.P.C. 1.4(a)(1).
34 Rule 1.2. Scope of Representation and Allocation of Authority Between Client and
Lawyer

(continued…)

[J-16-2022] - 31
concerning the objectives of representation and consult with the client about how the

objectives will be pursued. Here, when the Attorney General made the decision on behalf

of his current client, the Commonwealth, to pursue an objective antithetical to the position

of the Department, the Attorney General was required to advise the Department. So

advised, the Department, through the Governor, would then request the Attorney General

to allow supersession and absent consent, proceed to intervention as of right through the

General Counsel. 35

The OAG cites the Preamble and Scope [17] of the Rules of Professional

Conduct, 36 asserting that it establishes that attorneys for the OAG are “not akin to private

(a) Subject to paragraphs (c) and (d), a lawyer shall abide by a client’s decisions
concerning the objectives of representation and, as required by Rule 1.4, shall consult
with the client as to the means by which they are to be pursued. A lawyer may take such
action on behalf of the client as is impliedly authorized to carry out the representation. A
lawyer shall abide by a client’s decision whether to settle a matter. In a criminal case, the
lawyer shall abide by the client’s decision, after consultation with the lawyer, as to a plea
to be entered, whether to waive jury trial and whether the client will testify.

Pa.R.P.C. 1.2(a).
35 Under these circumstances, we question why the Attorney General would force
compliance with Section 303 since the Attorney General clearly cannot advocate for both
the position of the Commonwealth and the contrary position of the Department. Likewise,
it is hard to fathom how the Attorney General could refuse a request for supersession
under these circumstances. Section 303(a) permits the Attorney General to refuse a
request by the Governor to authorize the General Counsel to supersede the Attorney
General and represent the agency, the Governor or other Executive Branch official.
There are undoubtedly many strategic or political reasons why the Governor may prefer
representation by the General Counsel that do not rise to the level of a conflict of interest.
However, where the request for representation by the General Counsel is based on a
conflict between the interest of the Commonwealth, as declared by the Attorney General,
and the interest of the Executive Branch entity, Rule 1.7 prohibits the Attorney General
from continuing to represent the agency.
36 According to the Preamble and Scope of the Rules of Professional Conduct,

[17] Under various legal provisions, including constitutional,
statutory and common law, the responsibilities of government
(continued…)

[J-16-2022] - 32
counsel.” OAG Brief at 27. Indeed, the Rules address their own scope in relation to

government attorneys. Where the law so provides, attorneys of the OAG may be

authorized to represent different agencies, and attorneys of the OAG may enjoy special

authority to decide upon settlements and appeals. Moreover, the Rules do not purport to

supersede any such legal authority. Pa.R.P.C. Preamble & Scope [17].

However, this section of the Rules of Professional Conduct does not itself define

the professional responsibilities of the attorneys for the OAG. It merely recognizes that

other sources of law may do so. Significantly, the OAG does not cite to any legal authority

permitting it to operate under a concurrent conflict of interest in violation of the applicable

rules. OAG Brief at 27. Nor does it recognize the applicability of Rule 1.7 to it pursuant

to Rule 1.11(d). The Scope [17] of the Rules of Professional Conduct does not alter the

duty of the attorneys for the OAG who must adhere to Rule 1.7. Critically, Section 303

provides the mechanism for resolving the conflict in a manner that is more lenient than

the resolution process applicable to private attorneys. For example, a private attorney

would have to consider whether she could continue to represent either client when a

conflict arises because of the possibility that client confidences would be breached by

lawyers may include authority concerning legal matters that
ordinarily reposes in the client in private client-lawyer
relationships. For example, a lawyer for a government agency
may have authority on behalf of the government to decide
upon settlement or whether to appeal from an adverse
judgment. Such authority in various respects is generally
vested in the attorney general and the state’s attorney in state
government, and their federal counterparts, and the same
may be true of other government law officers. Also, lawyers
under the supervision of these officers may be authorized to
represent several government agencies in intragovernmental
legal controversies in circumstances where a private lawyer
could not represent multiple private clients. These Rules do
not abrogate any such authority.

Pa.R.P.C. Preamble & Scope [17].

[J-16-2022] - 33
continued representation. See Pa.R.P.C. 1.7 cmt. 4. Section 303(b), however, removes

this consideration as an impediment because it provides that the Attorney General shall

continue to represent the Commonwealth.

The concurring opinion chastises us for using the Rules of Professional Conduct

“to fill in purported statutory gaps in the CAA.” Concurring Op. at 2. That is not our focus

or intent. We note again that when the citizens of Pennsylvania amended our charter to

create the Office of Attorney General, they mandated that the holder of that office must

be a member of the bar of the Supreme Court of Pennsylvania. See n.30 citing PA.

CONST. art. IV, § 5. Membership in the bar of this Court inherently carries with it the

obligation of admitted attorneys to consult our promulgated Rules of Professional Conduct

to guide their practice. The Rules provide a framework for the ethical practice of law.

Pa.R.P.C. Preamble & Scope [15] (… “The Rules do not, however, exhaust the moral and

ethical considerations that should inform a lawyer, for no worthwhile human activity can

be completely defined by legal rules. The Rules simply provide a framework for the ethical

practice of law.”). To suggest that the citizens of our Commonwealth did not intend for

our Attorney General to be guided by this ethical framework when requiring membership

in the bar of this Court guts the meaning of being a member of our bar.

The parties to this appeal recognize the centrality of the Rules of Professional

Conduct to this dispute. Both the OAG and the agency sought support for their respective

arguments in our Rules of Professional Conduct. See, OAG’s Brief at 27-28 (arguing that

the Rules of Professional Conduct make the AG and his relationship to agencies “wholly

unlike that of private counsel and their clients[]”); Department’s Brief at 30 n.18 (disputing

the OAG’s interpretation of the Rules of Professional Conduct and citing to various rules

in the Rules of Professional Conduct as supporting its view). Moreover, as discussed,

the structure of the CAA reflects situations addressed in the Rules of Professional

[J-16-2022] - 34
Conduct including concurrent representation by the Attorney General in Section 204(c)

and the resolution of conflicts of interest that arise in the representation of concurrent

clients in Section 303.

We granted oral argument in this direct appeal by the OAG to address, inter alia,

the OAG’s authority to take a legal position which conflicts with the legal position of the

Department. Order, 11/17/2021. 37 While we have concluded that the CAA provides the

mechanism for the OAG to take a position on behalf of the Commonwealth contrary to

that of an executive branch agency, it is important to frame the conclusion with an eye to

the interplay with the Rules of Professional Conduct. 38

We take no position on whether the OAG gave notice or adequate notice to the

agency about its divergent view of the tax question involved in this appeal. See n.10

supra. However, the Commonwealth Court’s reaction to the uncomfortable confrontation

between the OAG and the agency (noting “with dismay the Attorney General’s assertion

in this case of a legal position directly adverse to that of its client, the Department[,]”

Synthes USA HQ, Inc., 236 A.3d at 1195 n. 12) stems from its understanding of the

37 Our order stated in pertinent part:
a. Did the Commonwealth Court err in holding that the Office
of Attorney General was bound by the Department of
Revenue’s interpretation of 72 P.S. § 7401(3)2.(a)(17)
(Subparagraph 17) and prohibited from presenting any
independent legal argument contrary to the Department’s
position, even where, as here, the Attorney General
determined that the Department’s position conflicted with the
express language of the statute and the intent of the General
Assembly?
38 We agree with the Concurrence that the Rules of Professional Conduct do not create
substantive legal rights in any party. Concurring Op. at 2-3. Thus, for example, the
agency could not, and did not, attempt to prevail on its claim that the OAG could not assert
a legal position contrary to its view of the resolution of the tax question because the OAG
had a conflict of interest under Rule 1.7. The Rules are not designed to provide relief to
a party based on the purported breach of a Rule of Professional Conduct by his or an
opposing party’s attorney.

[J-16-2022] - 35
organic role that the Rules play in all of an attorney’s professional undertakings. It

reasoned that the OAG should have advised the Department that it would be taking a

position contrary to its own so that the Department could otherwise protect its interest.

Id. Of course, this is the ethical guidance provided in Rule 1.2. The Concurrence’s view

that the application of the Rules of Professional Conduct is outside the scope of the issues

presented in this direct appeal ignores the intermediate appellate court’s recognition of

the necessity for lawyers to protect their client’s interests and to conduct themselves free

of conflicts of interest and this Court’s constitutional authority to oversee the conduct of

members of our bar.

Within the context of the CAA, the Rules of Professional Conduct provide clear

ethical guidance to the OAG, as counsel with two clients with conflicting interests. It is

the duty of the OAG to advise the agency of the conflict — only then does the agency

have the statutory obligation to trigger supersession under Section 303 by requesting,

through the Governor, for the OAG to allow General Counsel to take over the case on its

behalf and then, if not granted, to exercise its right of automatic intervention. By virtue of

Section 303(b), the OAG at all times, continues to represent the Commonwealth. While

the ethical obligation to a concurrent client gives rise to the OAG’s notice of the conflict

to the agency, independent of this ethical obligation, it is hard to imagine how Section 303

can otherwise operate when there is a conflict of interest. Automatic intervention cannot

occur unless the Executive Branch department can first make a request for supersession

which requires advanced knowledge of the conflict which requires notice by the OAG of

the conflict. 39 Although the statutory process was not followed in this case, a result that

conformed to the statute was achieved as the Commonwealth Court allowed the agency’s

intervention, and the OAG continued to represent the Commonwealth.

39Notice of a conflict by the Attorney General also avoids delays in the judicial process
and reduces confusion for opposing, non-Commonwealth parties.

[J-16-2022] - 36
 II. Sourcing Sales of Services under Subparagraph 17

A. Historical Context and Statutory Language

The parties next dispute the method for sourcing sales of services between

Pennsylvania and other states in order to calculate Synthes’ 2011 income taxable in

Pennsylvania. The relevant provisions of Pennsylvania’s Tax Reform Code derive from

the Uniform Division of Income for Tax Purposes Act (“UDITPA”) which was drafted in

1957 by the National Conference of Commissioners on Uniform State Laws. As the name

suggests, the UDITPA was created to provide a uniform system of dividing a corporation’s

net income amongst the states in which it conducts business. 40 The goal of the UDITPA

was to “simplify the task of tax collection and reporting and to ensure that 100 percent of

a multistate firm’s income - neither more nor less - is taxable by the states.” Walter

Hellerstein, Construing the Uniform Division of Income for Tax Purposes Act: Reflections

on the Illinois Supreme Court's Reading of the “Throwback” Rule, 45 U. Chi. L. Rev. 768,

775 (1978). 41

40 The text of the UDITPA as approved by the American Bar Association in July 1957,
with amended comments dated 1966, is available at Nat’l Conference of Comm’rs of
Uniform State Laws, Division of Income for Tax Purposes
https://www.uniformlaws.org/viewdocument/final-act-54?CommunityKey=f2ef73d2-
2e5b-488e-a525-51be29fbee47&tab=librarydocuments (last accessed Nov. 23, 2022)
(“UDITPA with 1966 Comments”).
41 Apportionment of income is necessary as the United States Supreme Court has held
“[u]nder both the Due Process and the Commerce Clauses” that a state’s corporate
income tax cannot “tax value earned outside its borders.” Container Corp. of America v.
Franchise Tax Bd., 463 U.S. 159, 164 (1983). The Court, however, has observed that
“[a]llocating income among various taxing jurisdictions bears some resemblance ... to
slicing a shadow.” Id. at 192. Thus, the High Court has granted states “wide latitude in
the selection of apportionment formulas,” Moorman Mfg. Co. v. Bair, 437 U.S. 267, 274
(1978), while setting forth requirements that are not at issue in the current appeal. See,
e.g., Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977) (setting forth factors
necessary to satisfy the federal Commerce Clauses).

[J-16-2022] - 37
 The UDITPA was later incorporated as Article IV of the Multistate Tax Compact,

(“MTC”) as drafted by the Multistate Tax Commission (“the Commission”) in 1966,

apparently as an attempt by states to prevent federally mandated uniform apportionment

to address the myriad apportionment systems then in place across the country. 42 John

A. Swain, Reforming the State Corporate Income Tax: A Market State Approach to the

Sourcing of Service Receipts, 83 Tul. L. Rev. 285, 295 (2008). As of 2015, two-thirds of

the states with a corporate net income tax “adhere closely to” the UDITPA and the

remaining states “generally take it into account in their income attribution determinations.”

See About the Multistate Tax Compact. While Pennsylvania adopted neither the MTC

nor the UDITPA in full, the General Assembly has incorporated verbatim much of the

language and structure of the UDITPA into the Tax Reform Code. 43

At base, rather than attempting the near-impossible task of determining the actual

income earned by a multistate corporation in each state, the UDITPA attempts to

approximate the income attributable to an individual state through the application of a

three-factor formula which considers the location of the corporation’s property, payroll,

and sales. See Swain, 83 Tul. L. Rev. at 288. As they have been described, “[t]he

property and payroll factors are intended to give weight to the states in which production

occurs (‘origin’ states), while the sales factor is intended to give weight to the states that

42 Information concerning the MTC and the incorporation of the UDITPA can be found at
MTC, About the Multistate Tax Compact and Suggested Enabling Act,
https://www.mtc.gov/getattachment/The-Commission/Multistate-Tax-Compact/About-
the-Compact-and-Suggested-Enabling-Act.pdf.aspx (last accessed Nov. 23, 2022)
(hereinafter “About the Multistate Tax Compact”).
43 For purposes of this opinion, the numerations of the relevant provisions in the UDITPA
and the Tax Reform Code are effectively the same, but for the Pennsylvania provision’s
location in the larger Section 7401. Thus, we refer to the UDITPA’s provisions as
“Sections” and Pennsylvania provisions as “Subparagraphs.”

[J-16-2022] - 38
provide the market for the taxpayer’s products (‘market’ states or ‘destination’ states).”

Id.

Each factor (property, payroll, and sales) is a ratio of the corporation’s quantity of

that factor in the taxing state as compared to that factor in all states. For example, as

relevant to the case at bar, Pennsylvania’s Subparagraph 15 provides that “[t]he sales

factor is a fraction, the numerator of which is the total sales of the taxpayer in this State

during the tax period, and the denominator of which is the total sales of the taxpayer

everywhere during the tax period.” 72 P.S. § 7401(3)2.(a)(15).

As set forth in the UDITPA and as originally adopted in Pennsylvania, the property,

payroll, and sales factors were evenly weighted. Many states, however, have amended

their statutes in the intervening years to increase the weight of the sales factor. Swain,

83 Tul. L. Rev. at 289 n.17. This movement has been explained as an attempt to increase

the tax competitiveness of the jurisdiction by reducing the tax cost of investing in local

property and employees “while increasing the tax cost of exploiting the state’s

marketplace” through sales. Id. at 289-90, 356. Pennsylvania has repeatedly increased

the relative weight of the sales factor and, ultimately, eliminated the property and payroll

factors for all tax years beginning in 2013. As relevant to Synthes’ 2011 taxes,

Pennsylvania’s Tax Reform Code provided as follows:

For taxable years beginning after December 31, 2009, all
business income shall be apportioned to this State by
multiplying the income by a fraction, the numerator of which is
the sum of five times the property factor, five times the payroll
factor and ninety times the sales factor and the denominator
of which is one hundred.
72 P.S. § 7401(3)2.(a)(9)(A)(iv).

As noted, the sales factor requires calculation of the “total sales of the taxpayer in

this State[.]” 72 P.S. § 7401(3)2.(a)(15). As originally drafted, total sales is comprised of

[J-16-2022] - 39
the UDITPA’s Section 16’s “sales of tangible personal property” and Section 17’s sales

“other than sales of tangible personal property.” As adopted in Pennsylvania,

Subparagraph 16 provides, “Sales of tangible personal property are in this State if the

property is delivered or shipped to a purchaser, within this State regardless of the f. o. b.

point or other conditions of the sale.” 44 72 P.S. § 7401(3)2.(a)(16).

As originally set forth in the UDITPA and as incorporated in Pennsylvania,

Subparagraph 17 provided as follows:

(17) Sales, other than sales of tangible personal property, are
in this State if:

(A) The income-producing activity is performed in this
State; or

(B) The income-producing activity is performed both in
and outside this State and a greater proportion of the
income-producing activity is performed in this State
than in any other state, based on costs of performance.

72 P.S. § 7401(3)2.(a)(17). As noted, Subparagraph 17 is at the heart of the statutory

challenge in the case at bar, as we are asked to determine how to allocate Synthes’ sales

of services, which are sales “other than sales of tangible personal property.” Id.

Commentators and courts have “routinely criticized UDITPA section 17 for its

ambiguity,” observing that it has created “confusion for taxpayers and taxing authorities

alike.” AT & T Corp. v. Department of Revenue, 358 P.3d 973, 982 (Or. 2015) (quoting

Swain, 83 Tul. L. Rev. at 306). Many have read Section 17, as does the OAG, as

allocating sales “other than sales of tangible personal property,” such as services, to the

44 This Court previously applied Subparagraph 16 and explained that “F.O.B. is an
abbreviation for ‘free on board.’ The significance of the designation is that it sets the point
at which title for goods passes to the purchaser.” Gilmour, 822 A.2d at 678 n.2. While
Pennsylvania did not adopt the UDITPA’s Section 16 in full, the omissions are not relevant
to the issues in the case at bar.

[J-16-2022] - 40
origin state (often the taxpayer’s location). In turn, however, many have criticized this

reading as placing Section 17 at odds with Section 16’s allocation of sales of tangible

personal property to where the property is delivered, or its destination (often the

customer’s location).

Moreover, some have argued that allocation of Section 17’s sales of services to

the taxpayer rather than the customer’s location seems “contrary to the very purpose of

the sales factor, which is to reflect the contribution of the market state.” Swain, 83 Tul. L.

Rev. at 288. Similarly, addressing the sales factor generally rather than Section 17

specifically, this Court has opined that “the numerator of the sales factor represents the

contribution of Pennsylvania consumers and purchasers to the entity’s sales, while the

denominator represents the contribution of all consumers and purchasers.” Gilmour, 822

A.2d at 683 (quoting Gilmour Mfg. Co. v. Commonwealth, 750 A.2d 948, 953 (Pa.

Commw. 2000)).

In that case, this Court explained that use of the “destination” sourcing furthered

the purpose of the corporate net income tax generally, which it viewed as being “designed

to measure the amount of commercial activity that an entity engages in during a given

year and tax it accordingly.” 45 Id. Moreover, allocating sales of services based upon

where the employee is located arguably “double counts” the taxpayer’s physical location

in apportioning income between states, as the physical location is accounted for through

45 In Gilmour, this Court analyzed the sales factor of Subparagraph 15 as it applied to
tangible personal property, pursuant to Subparagraph 16, specifically, the allocation of
sales of lawn and garden products manufactured by Gilmour in Pennsylvania. The parties
questioned whether the allocation of these sales differed based upon whether Gilmour
shipped the products to a customer out of state or whether that out-of-state customer
picked up the products at Gilmour’s dock, as so-called “dock sales.” The Court, relying
upon rules of grammar as well as the interpretation of sister courts, deemed sales made
to non-Pennsylvania purchasers to be out-of-state regardless of whether they were
shipped or picked up as dock sales.

[J-16-2022] - 41
the property and payroll factors, which many states, like Pennsylvania, have moved to

eliminate. See Swain, 83 Tul. L. Rev. at 289-90.

Some of the issues related to Section 17 have been addressed through the

UDITPA’s special apportionment provision, Section 18, which provided a remedy in

circumstances where application of the standard apportionment did not “fairly represent

the extent of the taxpayer’s business activity in the state.” UDITPA Section 18; 72 P.S.

§ 7401(3)2.(a)(18). 46 Additionally, many states, including Pennsylvania, have addressed

some apportionment issues by adding provisions relating to specific industries such as

railroads. 72 P.S. § 7401(3)2.(b)-(e).

46 Pennsylvania’s Subparagraph 18 provides:

If the allocation and apportionment provisions of this definition
do not fairly represent the extent of the taxpayer’s business
activity in this State, the taxpayer may petition the Secretary
of Revenue or the Secretary of Revenue may require, in
respect to all or any part of the taxpayer’s business activity:

(A) Separate accounting;

(B) The exclusion of any one or more of the factors;

(C) The inclusion of one or more additional factors which will
fairly represent the taxpayer’s business activity in this
State; or

(D) The employment of any other method to effectuate an
equitable allocation and apportionment of the taxpayer’s
income. In determining the fairness of any allocation or
apportionment, the Secretary of Revenue may give
consideration to the taxpayer’s previous reporting and its
consistency with the requested relief.

72 P.S. § 7401(3)2.(a)(18).

[J-16-2022] - 42
 However, scholars have observed that the dramatic change in the role of services

in the United States economy has rendered the UDITPA’s sales of services provision

substantially outdated, requiring revision of Section 17. “Production has shifted steadily

from goods to services and intangibles, and the forces of globalization, spurred by the

revolution in communications technology, now allow many more goods and services to

be supplied remotely.” Swain, 83 Tul. L. Rev. at 287.

In response to the criticism of Section 17, states have enacted various revisions to

address sales of services, including adopting language that more overtly allocates sales

of services to the market where the service is received by the customer. For example,

some states allocate sales of services based upon where the “benefit is received,” “ where

“the receipt is derived,” or, as in the 2013 revisions to the Pennsylvania Tax Reform Code,

where “the service is delivered.” 47 See Corporate Executive Board Company v. Virginia

47As revised for tax years after 2013, Subparagraphs 16.1 and 17 of the Pennsylvania
Tax Reform Code provide in relevant part as follows:

(16.1)

(A) [Addressing sales from the sale, lease, rental or
other use of real property]

(B) [Addressing sales from the rental, lease or licensing
of tangible personal property]

(C)

(I) Sales from the sale of service, if the service
is delivered to a location in this State. If the
service is delivered both to a location in and
outside this State, the sale is in this State based
upon the percentage of total value of the service
delivered to a location in this State.

(continued…)

[J-16-2022] - 43
Department of Taxation, 822 S.E.2d 918, 928-29 (Va. 2019) (surveying various states’

amended provisions). Indeed, in July 2014 and 2015, the Commission adopted

recommended amendments to the UDITPA in Article IV of the MTC which allocated

services based upon whether “the service is delivered to a location in this state.”48

(II) If the state or states of assignment under unit
(I) cannot be determined for a customer who is
an individual that is not a sole proprietor, a
service is deemed to be delivered at the
customer's billing address.

(III) If the state or states of assignment under
unit (I) cannot be determined for a customer,
except for a customer under unit (II), a service
is deemed to be delivered at the location from
which the services were ordered in the
customer's regular course of operations. If the
location from which the services were ordered
in the customer's regular course of operations
cannot be determined, a service is deemed to
be delivered at the customer's billing address.

(17) Sales, other than sales under paragraphs (16) and (16.1),
are in this State if:

(A) The income-producing activity is performed in this
State; or

(B) The income-producing activity is performed both in
and outside this State and a greater proportion of the
income-producing activity is performed in this State
than in any other state, based on costs of performance.

72 P.S. § 7401(3)2.(a)(16.1)-(17) (as amended).
48 Information regarding the adoption of recommended amendments to the UDITPA,
Article IV of the MTC, is available at https://www.mtc.gov/getattachment/The-
Commission/Multistate-Tax-Compact/Model-Multistate-Tax-Compact-with-
Recommended-Amendments-to-Art-IV.PDF.aspx (last accessed Nov. 23, 2022). While
aspects of the Commission’s recommended amendments overlap with Pennsylvania’s
addition of Subparagraph 16.1, there are substantial differences in structure and wording.

[J-16-2022] - 44
 In light of this history of the UDITPA and its enactment in Pennsylvania, we

consider the parties’ arguments addressing Subparagraph 17’s sourcing of services as

applicable to Synthes’ 2011 taxes, prior to Pennsylvania’s 2013 revision of the Tax

Reform Code.

B. Parties’ Arguments

The OAG appeals from the Commonwealth Court’s decision interpreting

Subparagraph 17 as sourcing Synthes’ services to the state where the customers

received the benefit of the services and thus directing a remand for issuance of a refund

based upon application of the Benefit-Received Method. The OAG disputes this holding,

arguing that the plain language of Subparagraph 17 dictates the use of the Cost of

Performance Method, which Synthes employed in its original tax filing.

According to the OAG, the Commonwealth Court erred in deeming Subparagraph

17 ambiguous, based upon the lack of statutory definitions for the terms “income-

producing activity” and “costs of performance.” While these terms are undefined, the

OAG views them as plainly referencing the service provider rather than the customer. It

explains that “[t]he service provider conducts activities that produce income and the

service provider incurs costs for those activities.” OAG Brief at 33. In contrast, it argues

that the language does not support application of the Benefit-Received Method because

“[n]othing in the terms ‘income-producing activity’ or ‘costs of performance’ pertain to the

‘customer’” or refer to “where the customer ‘receives the benefit of the service.’” Id. at 34.

The OAG also contrasts the language of Subparagraph 17, applicable to sales of

services, with the distinct language of Subparagraph 16, applicable to sales of tangible

personal property, which expressly dictates sourcing to where the “property is delivered

or shipped to a purchaser.” 72 P.S. § 7401(3)2.(a)(16). It contends that the

subparagraphs’ “remarkably different language undercuts” the Commonwealth Court’s

[J-16-2022] - 45
use of the same sourcing methodology for both provisions. OAG Brief at 17. It argues

that “[t]he General Assembly knew how to indicate that a sale be sourced to the

customer’s location, because it did so in Subparagraph 16” and also in the recently

enacted Subparagraph 16.1, applicable to tax years beginning in 2014. Id. at 35. The

OAG rejects the Commonwealth Court’s interpretation of the amendment as a

“clarification” and, instead, cites this Court’s observation that “[a] change in the language

of a statute ordinarily indicate[s] a change in legislative intent.” Id. at 37 (quoting Masland

v. Bachman, 374 A.2d 517, 521 (Pa. 1977)).

The OAG draws support from the work of the Multistate Tax Commission and the

various states that have revised their versions of Section 17 to adopt language that

expressly sources sales of service to the customer. OAG contends that the Department

acted ultra vires by imposing the Benefit-Received Method, which the OAG views as in

conflict with the plain language of Subparagraph 17, rather than waiting for the Legislature

to address the sourcing of services through the addition of Subparagraph 16.1.

Given that Subparagraph 17 derives from the UDITPA, a uniform statute, the OAG

looks to its application by our sister courts, as well as by the Commonwealth Court. OAG

Brief at 44 (citing 1 Pa.C.S. § 1927). It cites to courts in Indiana, Oregon, and Tennessee

interpreting language similar to Subparagraph 17 as employing seller-based sourcing

methodology and rejecting the consumer-based approach which the Department seeks

to utilize in this case. 49

The OAG deems improper the Commonwealth Court’s deference to the

Department’s interpretation of Subparagraph 17. In addition to viewing the language as

plain, the OAG rejects the reliance on deference where the Department neither

promulgated its interpretation of Subparagraph 17 as a regulation nor even published it

49 We address the cases cited infra at 49 n.52.

[J-16-2022] - 46
as official guidance prior to 2014, but instead was merely a practice utilized by the

Department, a practice the OAG views as contrary to the plain language. OAG Brief at

46-47 (relying upon Harmon v. Unemployment Comp. Bd. of Review, 207 A.3d 292 (Pa.

2019) (plurality)). The OAG, therefore, urges this Court to reverse the Commonwealth

Court and deny a refund to Synthes based upon its proper use of the Costs of

Performance method of sourcing sales of services in its original 2011 tax filing. 50

The Department responds in support of the Commonwealth Court’s approval of its

long-standing interpretation of Subparagraph 17 requiring the sourcing of a corporation’s

sales of services to the location where the customer receives the benefit of the

transaction. In explanation, the Department turns to the disputed terms of Subparagraph

17, which source sales of services to the location where a corporation’s “income-

producing activity is performed,” “based upon costs of performance.” Dep’t Brief at 34

(quoting 72 P.S. § 7401(3)2.(a)(17)).

The Department emphasizes the terms “perform” and “performance” and looks to

their customary meaning as neither term is defined by the statute. Id. at 35 (citing 1

Pa.C.S. § 1903(a)(providing that words other than technical words should be construed

“according to their common and approved usage”)). The Department synthesizes various

dictionary definitions of “perform” and “performance” as utilizing concepts of fulfilment,

accomplishment, or completion. Id. As applied to Subparagraph 17, the Department

reasons that “income-producing activity” is fulfilled, accomplished, or completed when

and where the customer receives the benefit of the service. Id.

50 The OAG is supported by amici curiae Allianz of America and Mastercard International
Incorporated, both of which had appeals pending in Commonwealth Court at the time the
briefs were filed seeking application of the Costs of Performance Method to their sales of
services, as out-of-state corporations with Pennsylvania customers. Allianz provides
statutory analysis, including comparing Pennsylvania’s statute to those of our sister
states, and Mastercard advocates against deference to the Department in the case at
bar.

[J-16-2022] - 47
 The Department contends that its interpretation is consistent with this Court’s

decision in Gilmour which viewed the sales factor as focused upon “the contribution of

Pennsylvania consumers and purchasers to the entity’s sales.” Dep’t Brief at 37 (quoting

Gilmour, 822 A.2d at 683). While recognizing that this Court was not speaking to sales

of services as controlled by Subparagraph 17, the Department argues that this logic

applies to sales generally under the Tax Reform Code.

The Department additionally rejects the OAG’s argument that the distinct language

of Subparagraph 16 and Subparagraph 17 should be viewed as indicative of the intent to

employ contrary sourcing methods. It contends that different language for sales and

services resulted not from an intent to employ opposite sourcing methods but from a

recognition of the distinct nature of tangible property and services. Specifically, it

maintains that “tangible property could only ever be received by a customer in one state

per sale, but since services can be received in multiple states there needs to be a way of

locating the sale of those services for apportionment purposes.” Dep’t Brief at 48.

The Department next addresses the General Assembly’s addition of

Subparagraph 16.1 for tax years beginning in 2014. It observes that this Court opined

that “[w]e cannot discern the legislative intent of the General Assembly that passed the

relevant, prior version of the [statute] by examining the intent of the General Assembly

that amended that statute.”51 Id. at 43 (quoting Commonwealth v. Lynn, 114 A.3d 796,

827 (Pa. 2015)).

51 The Department also contends that the addition of Subparagraph 16.1 was not to
change the location of the sourcing but rather to incorporate proportional allocation of
sales of services through the phrase “based upon the percentage of total value of the
service delivered to a location in this State,” in place of Subparagraph 17’s “all or nothing”
allocation to the state with the “a greater proportion of the income-producing activity.” 72
P.S. § 7401(3)2.(a)(16.1), (17). This language in the UDITPA’s Section 17 has been
criticized as it permits all sales of services “to be assigned to a state in which only ten
percent of the income-producing activity occurs [even] if the remaining ninety percent of
(continued…)

[J-16-2022] - 48
 The Department refutes the OAG’s statutory analysis of Subparagraph 17. It first

emphasizes that the OAG is not entitled to deference in its interpretation of the Tax

Reform Code as it, in contrast to the Department, is not the agency tasked with

implementing the Code. It further asserts that by equating “income-producing activity” to

the seller’s location, the OAG’s analysis improperly double counts the seller’s location,

which is already incorporated into the Pennsylvania portion of the property factor and the

payroll factor, the weight of which factors the General Assembly has repeatedly reduced.

The Department also avers that the OAG’s interpretation would “penaliz[e] Pennsylvania-

based businesses” while benefiting out-of-state service providers who do not have

property and employees in Pennsylvania. Dep’t Brief at 42.

Turning to our sister states’ interpretations of their versions of the UDITPA, the

Department rejects the OAG’s reliance on the decisions from Indiana, Oregon, and

Tennessee. It contends that the relevant regulations promulgated in these states overtly

define or link “income-producing activity” to the seller or the taxpayer, regulations which

are not present in Pennsylvania. Instead, it cites to several other states which utilize the

customer’s location to source sales of services. 52

Before this Court, Synthes seeks our affirmance of the Commonwealth Court’s

decision remanding for issuance of a refund. It does not present its own statutory

interpretation but rather argues that the Uniformity Clause requires that Synthes receive

the same treatment, pursuant to the Benefit-Received Method, as did similarly situated

taxpayers. It contends that the sourcing method applicable under Subparagraph 17

should not differ based on whether a corporation’s refund petition is decided by the Board

the activity is divided evenly among the remaining ten states in which the taxpayer has
operations.” Swain, 83 Tul. L. Rev. at 304.
52 We address the cases cited infra at 49 n.52.

[J-16-2022] - 49
of Finance and Revenue applying the Benefit-Received Method or in settlement

negotiations with the OAG following an appeal to the Commonwealth Court.

C. Analysis

As set forth above, Subparagraph 17 directs that sales of services are in

Pennsylvania if “[t]he income-producing activity is performed in this State,” or if the

“income-producing activity is performed both in and outside this State and a greater

proportion of the income-producing activity is performed in this State than in any other

state, based on costs of performance.” 72 P.S. § 7401(3)2.(a)(17). Unfortunately, the

critical terms of this provision are undefined by the General Assembly. As advocated by

the parties and as evidenced by the divergent interpretations of the Commonwealth

Court’s judges in this case, colorable arguments can be made that the “income-producing

activity” occurs either where the taxpayer produces the service or where the customer

receives the service.

To address this ambiguity, we attempt to determine the legislative intent through

application of the rules of statutory construction. In so doing, we consider “the occasion

and necessity for the statute” as well as the “object to be obtained.” 1 Pa.C.S. § 1921(c).

Moreover, because Subparagraph 17 derives from the UDITPA, which was intended to

provide a uniform division of corporate net income between states, we attempt to construe

the provision in conformity with other states which have enacted the uniform law. 1

Pa.C.S. § 1927.

This goal, however, is complicated in this case by developments since the initial

drafting of the UDITPA that have reduced uniformity. Significantly, some states have

adopted the MTC’s Allocation and Apportionment Regulations related to Section 17,

which define the relevant terms “income-producing activity” and “costs of performance”

with definitions phrased in terms of the taxpayer’s production activity rather than the

[J-16-2022] - 50
consumer’s market-based activity. 53 Pennsylvania, in contrast, has not adopted these

regulations. Moreover, many states, like Pennsylvania, have diverged from the UDITPA,

by altering the weighting of the property, payroll, and sales factors and by incorporating

provisions addressing specific service industries, such as financial services or

telecommunications. See Swain, 83 Tul. L. Rev. at 319.

States additionally have enacted alternative language to source sales of services,

with many adopting an overtly market-based approach, but not with uniform terminology.

Instead, some states source sales based on “where the benefit is received, others where

the service is delivered, and still others where the receipts are derived.” See Corporate

Executive Board Company, 822 S.E.2d at 922. These amendments are not surprising as

the UDITPA was drafted to address a very different economy, with seemingly minimal

focus on services as evidenced by the absence of commentary for Section 17, in contrast

to other provisions of the UDITPA. See UDITPA with 1966 Comments, Section 17, supra

35 n.38.

Accordingly, we find that the relevance of other states’ interpretation of their sales

of services provisions somewhat diminished given the variations in the regulations

adopted and the amendments enacted, which all result in reduced uniformity. As stated

by the Virginia Supreme Court, “[i]n a union comprised of 50 sovereign States, it is nearly

inevitable that States will devise differing taxation schemes and, indeed, that is the case.”

Corporate Executive Board Company, 822 S.E.2d at 925. 54

53 MTC, Allocation and Apportionment Regulation IV. 17 (adopted 1973, revised 2007),
https://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Uniformity/Uniformity_
Projects/A_-_Z/AllocaitonandApportionmentReg.pdf (last accessed Nov. 23, 2022).
54 While we fail to find a uniform application for the reasons set forth above, we
nevertheless recognize the thoughtful analysis of many of our sister states that have
struggled with issues relating to sourcing sales of services.
(continued…)

[J-16-2022] - 51
 We observe that the following states have deemed their statutes and/or regulations
to provide for origin sourcing to the taxpayer’s location: University of Phoenix, Inc. v.
Indiana Department of State Revenue, 88 N.E.3d 805 (Ind. T. C. 2017) (determining that
online-college revenue should not be sourced to the student’s billing address based upon
statutory language nearly identical to Subparagraph 17, as informed by regulations
defining “income-producing activity” as “act or acts directly engaged in by the taxpayer
for the ultimate purpose of obtaining gains or profit,” as well as other regulations which
the court viewed as focused upon the seller rather than the consumer’s activities);
Honigman Miller Schwartz & Cohn LLP v. City of Detroit, 952 N.W.2d. 358 (Mich. 2020)
(applying Michigan’s Uniform City Income Tax Ordinance employing the term “services
rendered in the city,” in light of Michigan’s prior version of the UDITPA, which, like
Subparagraph 17, utilized the concept of “income-producing activity performed in this
state,” and concluding that the city tax provision “encompasses all legal services
performed, i.e., done or carried out, within the city without regard to where those services
are delivered” but recognizing the national trend toward statutory revisions adopting
market-based sourcing); AT & T Corp. v. Department of Revenue, 358 P.3d 973 (Or.
2015) (acknowledging the ambiguity inherent in Section 17 of the UDITPA but applying a
production rather than market-based interpretation to statutory language identical to
Subparagraph 17 due in part to Oregon’s adoption of MTC model regulations defining
“income producing activity” with reference to “activity directly engaged in by the taxpayer”
and “costs of performance” also with reference to the “accepted conditions and practices
in the trade or business of the taxpayer.”); Vodafone Arms. Holdings. Inc. v. Roberts, 486
S.W.3d 496, 513 (Tenn. 2016) (approving of Department of Revenue’s authority to use a
variance statute (similar to Pennsylvania’s Subparagraph 18) to impose a market based
taxation on a specific company, despite recognizing that “[f]or purposes of this appeal” it
was undisputed that the Cost of Performance Method of sourcing applied to Tennessee’s
statute with language nearly identical to Subparagraph 17 (but phrased as “earnings-
producing activity”)); Sirius XM Radio, Inc. v. Hegar, 643 S.W.3d 402 (Tex.
2022)(interpreting statutory language as imposing origin-sourcing based upon the
location of the taxpayer’s employees and equipment, where the statute apportioned to
Texas the “receipts from ... each service performed in this state;” and rejecting allocation
based upon the “receipt-producing, end-product act” of the customers receiving the
satellite radio service in Texas); Corporate Executive Board Company v. Virginia
Department of Taxation, 822 S.E.2d 918 (Va. 2019) (applying statutory provision with
language nearly identical to Subparagraph 17 as utilizing Costs of Performance Method
of sourcing).
Conversely, the following courts have found their statutes and/or regulations to
provide for market or destination sourcing, generally to the customer’s location: Walter E.
Heller Western, Inc. v. Arizona Dep't of Revenue, 775 P.2d 1113, 1116 (Ariz. 1989)
(applying language identical to Subparagraph 17 (without the MTC’s model regulations)
and concluding that ”income-producing activity” entails only “direct sales payment activity
by the consumer” when read in conformity with Arizona’s other regulations sourcing sales
for specific industries to the situs of the consumer); Lutheran Brotherhood Research Corp.
v. Commissioner of Revenue, 656 N.W.2d 375 (Minn. 2003) (attributing fees related to
(continued…)

[J-16-2022] - 52
 Instead, we find it more relevant to read Subparagraph 17 in the context of the Tax

Reform Code’s other provisions addressing the apportionment of income, and especially

its allocation of sales, as interpreted by this Court. 1 Pa.C.S. § 1932 (instructing that

statutes relating to the same subjects should be read in pari materia). As discussed

above, this Court in Gilmour adjudicated an issue related to sales of tangible personal

property controlled by Subparagraph 16. In so doing, we observed that the corporate net

income apportionment provisions generally aimed to “measure the amount of commercial

activity that an entity engages in during a given year and tax it accordingly.” Gilmour, 822

A.2d at 683.

As has been noted, the proportion of a corporation’s commercial activity in

Pennsylvania is measured, as least initially and in 2011, by looking to the corporation’s

property, payroll, and sales in Pennsylvania as compared to its property, payroll, and

sales as a whole. 72 P.S. § 7401(3)2.(a)(15). The activity relevant to the property and

mutual fund management services to the location of the trustee of the funds (which was
deemed the consumer of the services) rather than to the ultimate investors of the funds
based upon statutory language sourcing receipts from services to “the state in which the
benefits of the services are consumed”); Bank of America Consumer Card Holdings v.
State of New Jersey Division of Taxation, 29 N.J.Tax 427 (N.J.Tax, 2016) (deeming the
phrases “services performed within the State” and “all other business receipts ... earned
within the State” to direct the sourcing of interest income and credit card fees to the New
Jersey domicile of the credit card holders based in part on regulations addressing the
relevant transactions); DIRECTV, Inc. v. South Carolina Dep’t of Revenue, 804 S.E.2d
633, 640 (S.C. App. 2017) (interpreting statutory language instructing that receipts from
services are “attributable to this [s]tate to the extent the income-producing activity is
performed within this [s]tate” and concluding that the “income-producing activity” was the
“delivery of the signal to the customer as it actually generate[d] income” rather than the
location of the service’s employees as the fees paid by the subscribers reasonably
represented DIRECTV’s business activity in South Carolina”); Ameritech Publishing, Inc.
v. Wisconsin Dep’t of Revenue, 788 N.W.2d 383 (Table), 2010 WL 2519583, at *1 (Wis.
Ct. App. 2010) (interpreting the allocation of services to the state in which the “income-
producing activity is performed” and applying a market-based analysis to conclude that
the relevant income producing activity for a telephone directory was “the furnishing of
access to a Wisconsin audience via advertisements,” regardless of where the taxpayer’s
employees created the directory).

[J-16-2022] - 53
payroll factors is the production process to the extent it is occurring within the state

borders, whereas the activity relevant to the sales factor is that of the state’s consumers

buying the good, service, or other product. See Swain, 83 Tul. L. Rev. at 288 (“The

property and payroll factors are intended to give weight to the states in which production

occurs (‘origin’ states), while the sales factor is intended to give weight to the states that

provide the market for the taxpayer’s products (‘market’ states or ‘destination’ states).”);

see also AT & T Corp., 358 P.3d at 980 (distinguishing property and payroll factors’,

which “estimate the state’s share of responsibility for the income stream by focusing on

production” from the sales factor, which “generally tracks the extent to which the taxpayer

takes advantage of the taxing state's market”).

Addressing the sales factor specifically, we opined in Gilmour that “the numerator

of the sales factor represents the contribution of Pennsylvania consumers and purchasers

to the entity’s sales, while the denominator represents the contribution of all consumers

and purchasers.” Gilmour, 822 A.2d at 683. Notably, Subparagraph 15’s sales factor

encompasses both Subparagraph 16’s sales of tangible personal property and

Subparagraph 17’s sales other than tangible personal property, such as sales of services.

It would be incongruous to apply diametrically opposed sourcing methods to

Subparagraph 15’s component parts by applying destination sourcing to Subparagraph

16 but origin sourcing to Subparagraph 17.

While the Legislature’s use of different language in provisions is often an indication

that it intended different results, see Commonwealth v. Elliot, 50 A.3d 1284, 1290 (Pa.

2012), it can also be a product of the inapplicability of the same terminology to the

subjects addressed in those provisions. In this case, the simple directive of Section 16

to source a sale to “where the property is delivered or shipped” applies coherently to a

concrete good that is either in one place or another. The same cannot be said for most

[J-16-2022] - 54
services. While a physical location can be assigned for some services, such as a haircut,

many services in today’s economy do not exist in a physical location, as one would have

difficulty locating the physical presence of the legal services provided to Synthes’

customers.

The drafters of the UDITPA, as adopted by the General Assembly, addressed this

conundrum of the sales of services through the term “income-producing activity” in

Subparagraph 17. Unfortunately, the meaning of this term is far from clear, as evidenced

by the strong arguments of both parties before this Court. By reading Subparagraph 17

in conjunction with Subparagraphs 15 and 16, however, we find the Department’s

interpretation most compelling as it locates the sale of services to where the service is

fulfilled and the income finally produced, which is at the customer’s location, in conformity

with Section 16’s treatment of sales of tangible personal property. Moreover,

commentators have observed that not all products can be easily categorized as a tangible

product or a service. Swain, 83 Tul. L. Rev. at 306 (observing the existence of “mixed

(services/goods) transactions”). The difficulty in classifying these mixed transaction

further counsels in favor of interpreting Section 16 and 17 as using the same sourcing

method. As noted, this destination sourcing conforms to the guiding principle for sourcing

sales identified in Gilmour, which is to determine “the contribution of Pennsylvania

consumers” to the net income of the corporation, which requires a focus upon the

consumers’ location.

We additionally do not view the 2013 amendments as an attempt to alter the

general framework for sourcing sales, but rather as an attempt to clarify the sourcing of

sales of services to the point of delivery to the consumer, and to explain the application

in specific situations where the point of delivery may be unclear, as well as to address a

multitude of specific scenarios, including sales of real property and sales from licensing

[J-16-2022] - 55
of tangible personal property. Given our conclusion that the language of Subparagraph

17 supports the Department’s application of the Benefit-Received Method, we observe

that application of this method has the added benefit of providing continuity for taxpayers

as the Department’s consistent application of destination sourcing for similarly situated

taxpayers prior to 2014 will continue for taxpayers in 2014 and after.

For all the reasons set forth above, we affirm the order of the Commonwealth Court

remanding for issuance of a refund to Synthes in regard to its 2011 corporate net income

tax.

Justices Wecht and Mundy join the opinion.

Chief Justice Todd files a concurring opinion.

Justice Dougherty files a concurring and dissenting opinion.

The Late Chief Justice Baer did not participate in the decision of this matter.

Justice Brobson did not participate in the consideration or decision of this matter.

[J-16-2022] - 56