Pennsylvania Manufacturing Exemption Under
Constitutional Challenge

The manufacturing exemption allows a business to exclude property, payroll and sales from Pennsylvania based manufacturing when calculating its Pennsylvania capital stock or franchise tax. PPG Industries raised the constitutionality of the exemption when contesting its capital stock tax.

The basic facts of the case are that PPG's headquarters is located in Pittsburgh. PPG has manufacturing locations in both Pennsylvania and other states. PPG elected the three factor apportionment factor and the manufacturing exemption. PPG claimed a portion of its headquarters as manufacturing since it controlled the manufacturing from the Pittsburgh headquarters. The Department of Revenue agreed with this, however they claimed PPG could exclude from the payroll and property numerators only the portion of the Pittsburgh headquarters' property and payroll attributable to PA produced products. PPG argued that this violated the Commerce Clause of the U.S. constitution since it discriminated against interstate commerce.

The Pennsylvania Supreme Court agreed with PPG. The court remanded the case to the Commonwealth Court for several findings. The Commonwealth Court has until December 14, 1999 to make its decision.

The outcome of the case is unknown and it is anybody's guess as to what the final outcome will be. Until a final determination by the courts or a change by the legislature, the manufacturing exemption is still available.

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