Pennsylvania's Manufacturing Exemption

By Hopkins, Peter Desmond M. | The CPA Journal, June 2000 | Go to article overview

Pennsylvania's Manufacturing Exemption


Hopkins, Peter Desmond M., The CPA Journal


THE COMMERCE CLAUSE generally prohibits any tax that gives preference to one state over another.

Most corporations doing business or incorporated in Pennsylvania dare subject to an annual tax known as the capital stock franchise (CSF) tax. This tax is based on the average book net income over the most recent five years and the book value of the company. For corporations with multistate operations, an apportionment percentage is applied to the tax base to determine the amount taxable in Pennsylvania. The apportionment percentage is typically calculated using a standard three-factor formula: property, payroll, and sales. Since the early part of the 20th century, a manufacturing exemption has resulted in a significantly lower tax for Pennsylvania manufacturers.

For many years, the manufacturing exemption permitted corporations to exclude amounts related to manufacturing from the numerator of the apportionment percentage. Thus, a corporation could exclude property and payroll attributable to manufacturing as well as sales that resulted from manufacturing activities. Property and payroll that served both manufacturing and nonmanufacturing functions were split into that which was attributable to the manufacturing function and that which was not. The exemption produced numerators that represented nonmanufacturing property, payroll, and sales within Pennsylvania.

The exemption was intended to apply only to manufacturing activities within Pennsylvania. At first glance, this point would seem to be minor, because property, payroll, and sales outside the state are not included in the numerators. However, when applied to corporations operating in multiple states that had headquarters or administrative offices in Pennsylvania, the matter became significant. The property and payroll used in the management of the business had to be allocated between what was attributable to Pennsylvania manufacturing activities and what was not.

Thus, a Pennsylvania management office that directed the activities of two identical manufacturing plants, one outside Pennsylvania, could exclude only half of its property and payroll from the numerator. Closing an out-of state plant would allow such a company to exclude all of the managment office's property and payroll, while opening a third plant outside Pennsylvania would reduce the exemption.

Constitutional Challenge

The Commerce Clause of the U.S. Constitution generally prohibits any tax that gives preference to one state over another. Clearly, the manufacturing exemption gave preference to Pennsylvania manufacturers over those in other states in a discriminatory way, because the act of hiring a single employee in an out-of state manufacturing plant could result in an increase in the CSF tax. Yet the exemption survived until June 1999, when the Pennsylvania Supreme Court finally declared it unconstitutional in PPG Industries, Inc. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Pennsylvania's Manufacturing Exemption
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.