Philadelphia Eagles Football Club, Inc. v. City of Philadelphia

CONCURRING AND DISSENTING OPINION

Justice CASTILLE.

I agree with the lead opinion that the Commonwealth Court correctly found that the Philadelphia Eagles Football Club’s media receipts resulting from the television broadcast of football games were subject to the City of Philadelphia’s Business Privilege Tax (BPT) because the media receipts constitute copyright royalties for the licensing of a property right. I respectfully disagree, however, with the lead opinion’s conclusion that the City’s failure to apportion those media receipts based upon the percentage of games the Football Club plays in Philadelphia violates the Commerce Clause. Because I would affirm the Commonwealth Court’s holding that the City’s taxation of the entirety of the media receipts did not violate the Commerce Clause, I respectfully dissent.

As the plurality opinion notes, in the years relevant to this appeal, the Football Club was one of twenty-eight member *236teams in the National Football League (NFL). As such, the Football Club received a l/28th share of the media receipts that were paid to the NFL by various major television networks in exchange for the right to broadcast live NFL football games. The Football Club’s principal place of business is in Philadelphia. The City of Philadelphia sought to tax the Football Club’s l/28th share of the media receipts. This Court granted review to consider the Commonwealth Court’s holdings that: (1) the media receipts may be taxed only where the taxpayer maintains its commercial domicile; and (2) the receipts need not be apportioned premised upon the percentage of games the Football Club actually plays in Philadelphia.

The first part of the lower court’s holding that the media receipts are properly taxed where the taxpayer maintains its commercial domicile is amply supported by the tax regulations themselves and long-standing precedent of this Court. The pertinent regulation specifically provides that royalties are included in the net income of a business domiciled in Philadelphia:

(a) “Net income” shall, at the option of the taxpayer, which option shall not be revocable [sic] by the taxpayer after it has been exercised as provided by the collector, be either:

(1) The net gain from the operation of a business, after provision for all allowable costs and expenses actually incurred in the conduct thereof, where a taxpayer, whether a domestic or foreign corporation or any other type of business entity, maintains its commercial domicile in Philadelphia, all patent, copyright and trademark royalties received are to be included in the measure of tax unless attributable to business conducted at a place of business regularly maintained by the taxpayer outside of Philadelphia.

City of Philadelphia Business Privilege Tax Regulations § 322 (emphasis added). More than a century ago, this Court held that the situs of intangible personal property is the domicile of the owner or taxpayer. Commonwealth v. Pennsylvania Coal Co., 197 Pa. 551, 47 A. 740, 741 (1901). See also Commonwealth v. Universal Trades, Inc., 392 Pa. 323, 141 A.2d 204, *237206 (1958); Commonwealth v. Semet-Solvay Co., 262 Pa. 234, 105 A. 92, 93 (1918); In re Lewis’ Estate, 203 Pa. 211, 52 A. 205 (1902). Analyzing Pennsylvania and Wisconsin law, the Third Circuit has determined that copyrights are intangible property. Lucker Manufacturing Inc. v. Home Insurance Co., 23 F.3d 808, 819 (3d Cir.1994) (citing In re Estate of MacFarlane, 313 Pa.Super. 397, 459 A.2d 1289, 1292 (1983); United States Fidelity & Guar. Co. v. Barron Indus., Inc., 809 F.Supp. 355, 360 (M.D.Pa.1992); Columbia Gas Transmission Corp. v. Commonwealth, 19 Pa.Cmwlth. 523, 339 A.2d 912, 918 (1975)). I agree with the Third Circuit that copyrights are intangible property. Therefore, they are properly taxable under a fair reading of the statute in the owner’s domicile which, in this case, is the City of Philadelphia.

Turning to the Commerce Clause question, I agree with the Commonwealth Court’s holding that the media receipts paid to the Philadelphia Eagles organization need not be subdivided and apportioned, for purposes of the Philadelphia BPT, based upon where the Football Club’s games are played. As the lead opinion notes, the Commerce Clause issue is governed by the United States Supreme Court’s four-prong test set forth in Complete Auto Transit v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). At issue here is the second prong of that test, which requires that the local tax be fairly apportioned. Id. at 279, 97 S.Ct. 1076. To be deemed fairly apportioned, a tax must be both internally and externally consistent. Oklahoma Tax Commission v. Jefferson Lines, Inc., 514 U.S. 175, 185, 115 S.Ct. 1331, 131 L.Ed.2d 261 (1995). A tax is internally consistent where the imposition of an identical tax by every other state would impose no additional burden to interstate commerce that intrastate commerce would not also bear. Id. I agree with the plurality that the Philadelphia BPT unquestionably is internally consistent.

The question of external consistency is resolved by determining whether a state taxes only that portion of the revenues fairly attributable to economic activity within the taxing state. Id. As the Commonwealth Court concluded, the taxing regulation at issue here, as well as established case law, provide that *238copyright royalties are taxable by the domicile of the taxpayer. Because the royalties are taxable only by the domicile, it follows that the BPT taxes only revenues attributable to economic activity within Philadelphia. The copyright royalties are the intangible property of the Eagles Football Club, and, as such, they follow the Club. Those royalties are distributed among the member teams of the NFL upon an equal basis— l/28th to each of the 28 teams operating in different cities— and not premised upon which games are played where. In short, in my view, the deciding factor for copyright royalty purposes is not the underlying activity of playing football, the gate receipts or the location of the game, because those factors are not relevant to team ownership and thus the situs of the copyrights. The situs of the copyrights in this case clearly is Philadelphia. Philadelphia has not sought to reach any of the other 27/28ths of the media receipts paid to the NFL, but only that portion which has been paid to the single Philadelphia corporation.

The plurality’s focus upon game-day to further subdivide the one twenty-eighth share of the media receipts each NFL club receives not only ignores the deemed situs of the copyrights but is also, in my view, both artificial and impractical. Even if game-day is deemed the proper focus, it is indisputable that l/28th of the NFL activity generating the media royalties occurs in Philadelphia since other cities’ NFL teams play in Philadelphia at the Eagles’ home games. Thus, Philadelphia properly may tax up to l/28th of the media royalties paid to the NFL—not coincidentally, the very amount paid to the Eagles Football Club, which hosted l/28th of NFL regular season games. The plurality’s approach would require the City of Philadelphia to tax that portion of media receipts of other NFL teams attributable to games they played in Philadelphia (one-sixteenth of their media receipts for each game they played here), while assuming that other NFL cities would be permitted to tax visiting NFL teams’ royalties in the same fashion. Calculation and collection of those taxes would require considerable effort on the part of the cities in which NFL games are played, inevitably would result in disputes *239and litigation over the imposition of taxes by cities in which the NFL teams are not commercially domiciled, and would lead to unevenness in application.

Because I believe the BPT was properly assessed against the Eagles Football Club by the City of Philadelphia based upon the media royalties actually paid to it in its domicile, I would affirm the Commonwealth Court’s decision.

Justice NEWMAN joins this concurring and dissenting opinion.