Gilmour Manufacturing Co. v. Commonwealth

SMITH, Judge,

dissenting.

I dissent from the majority’s decision to grant the exceptions filed by Gilmour Manufacturing Company to this Court’s September 1, 1998 order affirming a decision of the Board of Finance and Revenue (Board). This Court denied Gilmour’s petition for a refund of $17,912, representing a portion of its 1991 corporate net income (CNI) tax. The sole inquiry in this matter is whether Gilmour’s 1991 CNI tax should be calculated by including sales made to purchasers who are not located in Pennsylvania but who take delivery of their purchased property at Gilmour’s loading dock in Pennsylvania and transport it outside of Pennsylvania. Because the majority has overlooked or ignored fundamental principles of statutory construction, I am compelled to dissent.

For purposes of calculating Pennsylvania CNI tax, any corporation that does not transact its entire business within Pennsylvania is entitled to apportionment, as Gilm-our was here, of its taxable income according to the applicable method set forth in Section 401(3)2(a)-(d) of the Tax Reform Code of 1971 (Tax Code), Act of March 4, 1971, P.L. 6, as amended, 72 P.S. § 7401(3)2(a)-(d). The method used by Gilmour required Gilmour to calculate its sales factor, which is a fraction. The numerator is the taxpayer’s total sales in Pennsylvania during the tax period, and the denominator is the taxpayer’s total sales everywhere during the same period. Section 401(3)2(a)(15) of the Tax Code, 72 P.S. § 7401(3)2(a)(15); Hellertown Mfg. Co. v. Commonwealth, 480 Pa. 358, 390 A.2d 732 (1978).

Gilmour’s challenge is to a regulation of the Department of Revenue which reasonably interpreted the relevant section of the Tax Code, 61 Pa.Code § 153.26(b)(2). The regulation provides: “Sales of tangible personal property are in the state in which delivery to the purchaser occurs.” The parties stipulated that Gilmour’s products constitute tangible personal property, but Gilmour argues that the regulation is inconsistent with Section 401(3)2(a)(16) of the Tax Code, 72 P.S. § 7401(3)2(a)(16). That section provides as follows: “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.” (Emphasis added.) I disagree with Gilmour’s assertion and the majority’s conclusion that the language “within this State” must be interpreted to modify the word “purchaser” rather than the words “delivered or shipped” as the Department correctly asserts. Gilmour maintains that any other interpretation would contravene the remainder of the statutory directive that attribution should be determined “regardless of the f.o.b. point or other conditions of sale” and thus render the regulation inconsistent with the statute.

This Court should bear in mind that the Department’s regulation represents an exercise of its' interpretive rule-making authority. Section 408(a) of the Tax Code, 72 P.S. § 7408(a); see also Philadelphia Suburban Corp. v. Board of Finance and Revenue, 535 Pa. 298, 635 A.2d 116 (1993). While courts traditionally accord some deference to the interpretation of a statute by an agency charged with administration of the statute, the meaning of a statute is *955essentially a question of law for the court to decide. Pennsylvania Human Relations Commission v. Uniontown Area School Dish, 455 Pa. 52, 313 A.2d 156 (1973). Courts are free to disregard an agency’s interpretative regulation only when convinced that it is unwise or viola-tive of legislative intent. Id.

Gilmour contends that the purpose of the sales factor in the calculation for Pennsylvania CNI tax is to reflect the purchaser’s location, and Gilmour and the majority rely on Olympia Brewing Co. v. Commissioner of Revenue, 326 N.W.2d 642 (Minn. 1982), to support this position. However, Olympia Brewing is neither controlling nor persuasive. In that case the Minnesota Supreme Court determined that the statutory language of a provision similar but not identical to the Tax Code provision at issue here was ambiguous. The court resolved the issue by considering practical concerns but did not, as Gilmour initially contended, adopt the “destination” test. It determined instead that the shipment and delivery terminates for Minnesota tax purposes once it is determined where the initial purchaser is located. Id.1

The majority also erred in accepting Gilmour’s argument that the statutory provision in question is derived from the Uniform Division of Income For Tax Purposes Act (UDITPA), 7A (Part I) U.L.A. 356 (1999), originally adopted in 1957, and that the provision implements the rule that sales of tangible personal property should be apportioned to the state or country of destination, as opposed to delivery, so long as the taxpayer is subject to tax in the state or country of destination. Gilmour asserts that to effectuate the purposes of the UDITPA of uniformity in state taxation laws, the challenged statutory provision should be interpreted consistently with those of other states. This argument lacks merit because other states have not interpreted similar tax provisions in a uniform way. Compare Department of Revenue of Florida v. Parker Banana Co., 391 So.2d 762 (Fla.Dist.Ct.App.1980); Olympia Brewing. An analysis of cases cited by Gilmour from other jurisdictions also demonstrates that the states involved in those cases have adopted the UDITPA or that the modifier “in this state” was explicitly attached to particular words.2

The most persuasive argument against the majority’s decision is that Pennsylvania has not adopted the UDITPA. Welded Tube Co. of America v. Commonwealth, 101 Pa.Cmwlth. 32, 515 A.2d 988 (1986). A current table of twenty-three jurisdictions which have adopted the UDITPA shows that Pennsylvania is not among them. Courts of this Commonwealth are instructed to narrowly construe tax statutes, Ross-Araco Corp. v. Board of Finance and Revenue, 544 Pa. 74, 674 A.2d 691 (1996), and we must presume that since *956the legislature has not adopted the UDIT-PA and its interpretation by other jurisdictions, the legislature does not intend to follow the destination rule in apportioning sales of tangible personal property for CNI tax purposes. Therefore, the requirement that statutes uniform with those of other states shall be interpreted and construed to effect uniformity among the states is not controlling in this case. See Section 1927 of the Statutory Construction Act of 1972,1 Pa.C.S. § 1927.

Finally, I note that the administrative ease of defining where delivery occurs as compared to the uncertainty inherent in determining the destination of property relinquished at the taxpayer’s loading dock is a factor favoring the Department’s interpretation as codified in its existing regulation. This factor alone, however, is not determinative, nor can I conclude that another interpretation necessarily would conflict with the Tax Code or otherwise be erroneous. Nonetheless, because the Department’s interpretation is not inconsistent with the Tax Code and does not violate legislative intent, the majority has committed a fundamental error in disregarding the Department’s regulation in favor of another regulation not adopted by the Department. In essence, the majority injects its own interpretation of Section 401(3)2(a)(16). I would deny Gilmour’s exceptions and reaffirm the Board’s order.

Judge FLAHERTY joins in this dissent.

. In my view the majority’s analysis gives controlling weight to the f.o.b. ("free on board”) point, while claiming that it does the opposite. If tangible personal property is to be delivered f.o.b. to the seller’s plant in Pennsylvania, in general possession passes at that point and the purchaser assumes all risk of loss. In the absence of some contractual restriction, the purchaser may dispose of the goods in any manner after that point. If goods are to be delivered f.o.b. at the purchaser’s place of business out of state, the seller has assumed responsibility for and risk of shipping the goods, and title in them does not pass until they are received. They are not delivered to the purchaser in the state. See Section 2319 of the Uniform Commercial Code, 13 Pa.C.S. § 2319; Swift Canadian Co. v. Banet, 224 F.2d 36 (3d Cir.1955). Section 401(3)2(a)(16) provides that a sale is in this state if it is delivered to a purchaser in this state, regardless of the f.o.b. point. Thus, if a purchaser picks up goods, even though the f.o.b. point might be at its location, the statute defines that event to be a sale in the state, and the Department’s regulation reasonably gives effect to the statute.

. Gilmour’s citations include among others: Texaco, Inc. v. Groppo, 215 Conn. 134, 574 A.2d 1293 (1990); Revenue Cabinet v. Rohm and Haas Kentucky, Inc., 929 S.W.2d 741 (Ky.Ct.App.1996); Olympia Brewing; McDonnell Douglas Corp. v. Franchise Tax Board, 26 Cal.App.4th 1789, 33 Cal.Rptr.2d 129 (2d Dist.1994); Parker Banana; and Lone Star Steel Co. v. Dolan, 668 P.2d 916 (Colo.1983).