1 July 1999: A dispute over US-based paint and glassmaker PPG Industries Inc.“s 1983 tax bill may now threaten an estimated US$ 600 million in special tax exemptions granted annually to Pennsylvania …
1 July 1999: A dispute over US-based paint and glassmaker PPG Industries Inc.“s 1983 tax bill may now threaten an estimated US$ 600 million in special tax exemptions granted annually to Pennsylvania manufacturers. According to a recent press report, the state Supreme Court recently handed down an opinion that questioned the constitutionality of Pennsylvania“s capital stock tax manufacturing exemption, a regulation that favours in-state operations over those set up elsewhere. The court sent the case back to the lower courts to determine whether Pennsylvania“s rules discriminate against interstate commerce. “It“s quite a shock,” said Deb Snyder, press secretary for the state Department of Revenue. “I don“t think anyone anticipated that the court would go so far as to consider the whole exemption unconstitutional.” If the ruling holds up, Snyder said, state officials may have to decide whether to abandon the exemption or figure out a way to rewrite the law in a way that would be acceptable. Favorable tax treatments are commonly used by states as economic development tools to lure businesses. Snyder said this particular incentive was probably created around the turn of the century, although one governor recently signed off on changes to the law that were designed to further boost the state“s image as business friendly. Even if the exemption stands, PPG appears to have lost its battle over the way it does its taxes, the report said. That could mean recalculating capital stock tax returns for the past fifteen years. The dispute began years ago when auditors from the state“s Board of Finance and Revenue challenged the Pittsburgh-based paint and glass maker“s tax returns. “This case involves differences in interpretation between the Pennsylvania Revenue Department and PPG with regard to the classification of our headquarters staff and our headquarters properties,” said company spokesman John Ruch. In particular, the two sides read the capital stock tax regulations differently. The capital stock tax is a business privilege tax based on the company“s value and the proportion of its business done in Pennsylvania. The exemption that PPG used gives companies a break for keeping manufacturing operations in the state. When filling out its 1983 tax forms, the company exempted the value of its headquarters property and payroll as they related to all of its manufacturing operations, according to court documents. PPG, which employs 32,000 people, has operations worldwide. Essentially, the company argued, all of its manufacturing is developed and managed out of the headquarters in Pittsburgh, so the exemption should apply to the whole operation. However, state auditors decided only the portion of corporate staff and office space directly involved with plants in places like Creighton, Tipton, Meadville and Springdale – in other words, those inside state lines – should qualify. According to the report, PPG estimated it owed US$ 362,765 in capital stock tax that year. The state demanded US$ 716,250. The Supreme Court ruling, written by Justice Stephen A. Zappala, sided with the state on that issue. “The manufacturing exemption is a locational incentive that “was created in order to establish a favourable climate in Pennsylvania for manufacturers and thus encourage the development of industry,“” according to the opinion. But, the court went on to say, PPG had a point when it argued applying the exemption that way would unconstitutionally give preferential treatment to corporations that manufacture in Pennsylvania. It also said the lower courts could let the exemption stand if the state can prove the regulation meets a strict set of standards governing interstate and intrastate commerce. Snyder said it“s likely to take several months before the case is heard. “We are in the process of filing additional information with the Commonwealth Court,” she said. PPG“s Ruch said the company“s attorneys are also working on a response, but he couldn“t elaborate. “Our policy is not to comment on matters in litigation, as this case remains.”