           IN THE COMMONWEALTH COURT OF PENNSYLVANIA


RB Alden Corp.,                 :
                                :
                     Petitioner :
                                :
          v.                    : No. 73 F.R. 2011
                                : Argued: September 10, 2019
Commonwealth of Pennsylvania,   :
                                :
                     Respondent :

BEFORE:       HONORABLE P. KEVIN BROBSON, Judge
              HONORABLE MICHAEL H. WOJCIK, Judge
              HONORABLE BONNIE BRIGANCE LEADBETTER, Senior Judge

OPINION NOT REPORTED

MEMORANDUM OPINION
BY JUDGE WOJCIK                                                FILED: November 21, 2019

              This case returns to us following the Pennsylvania Supreme Court’s
remand in RB Alden Corp. v. Commonwealth, 194 A.3d 125 (Pa. 2018) (Alden III)
“for reconsideration in light of” Nextel Communications of the Mid-Atlantic, Inc. v.
Commonwealth, 171 A.3d 682 (Pa. 2017), cert. denied, 138 S. Ct. 2635 (2018).
This matter concerns the “net loss carryover” (NLC) provision contained in
Section 401(3)4.(c)(1)(A)(I) of the Tax Reform Code of 1971 (Tax Code),1 for the
       1
         Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §7401(3)4.(c)(1)(A)(I). This section
provides:

       (c)(1) The net loss deduction shall be the lesser of:

               (A)(I) For taxable years beginning before January 1, 2007, two
              million dollars ($2,000,000); . . . .

72 P.S. §7401(3)4.(c)(1)(A)(I) (emphasis added).
tax year ended December 31, 2006 (2006 Tax Year), which imposed a $2 million
dollar cap on the amount of loss a corporation could carry over from prior years as
a deduction against its taxable income. In Nextel, our Supreme Court determined
that a similar flat-dollar cap of the NLC provision for tax year ended December 31,
2007 (2007 Tax Year) violated the Uniformity Clause of Article 8, Section 1 of the
Pennsylvania Constitution by creating a non-uniform classification based solely on
the taxpayer’s income, and fashioned an appropriate remedy.
                Guided by Nextel, we are now tasked with determining the proper
remedy to cure the constitutional infirmity for the 2006 Tax Year: (1) severing the
$2 million flat-dollar deduction or (2) severing the entire NLC provision from the
Tax Code. Upon review, we conclude that only the flat-dollar deduction must be
severed from the Tax Code, and we reverse the Board of Finance and Revenue’s
(F&R) order and remand for the recalculation of RB Alden Corp.’s (Taxpayer)
taxes based on the reasons set forth in our decision in General Motors Corporation
v. Commonwealth, __ A.3d __ (Pa. Cmwlth., No. 869 F.R. 2012, filed November
21, 2019).2


                                 I. Procedural Background
                We briefly address the procedural posture of this case.3 Taxpayer, a
Delaware corporation domiciled in New York, filed a petition with the Board of
Appeals seeking reassessment of its taxes for the fiscal tax year beginning July 1,
2006, and ending June 30, 2007 (Fiscal Year 2006). Taxpayer challenged the


       2
           GM was argued seriately with this case on September 10, 2019.
       3
      A detailed recitation of the facts is set forth in this Court’s opinion in RB Alden Corp. v.
Commonwealth, 142 A.3d 169 (Pa. Cmwlth. 2016) (Alden I).

                                                2
Department of Revenue’s (Department) classification of additional corporate net
income tax (CNI Tax) liability of approximately $2.25 million, plus interest, based
on a $29.9 million capital gain profit resulting from Taxpayer’s sale of a
partnership interest in June 2007.
             Taxpayer challenged the Department’s classification of the gain as
business income, asserting that the sale of the partnership interest was nonbusiness
income and should not be sourced to Pennsylvania. After a hearing, the Board of
Appeals denied Taxpayer’s request for classifying the sale of the Partnership as
nonbusiness income, denied its request to source the sale outside of Pennsylvania,
and sustained the Department’s assessment in its entirety.
             Taxpayer appealed to F&R, requesting again nonbusiness income
treatment for the gain from the partnership interest sale and the ability to source the
sale outside of Pennsylvania. F&R denied Taxpayer’s request, finding that the
partnership sales gain constituted business income and Taxpayer’s interests in the
partnership subjected it to Pennsylvania CNI Tax because the partnership does
business in Pennsylvania.
             On further appeal to this Court, Taxpayer asserted that F&R erred in
concluding that it owed Pennsylvania CNI Tax on the $29.9 million capital gain
profit resulting from the sale of the partnership interest. In support of its position
that it did not owe Pennsylvania CNI Tax, Taxpayer contended: (1) the gain from
the sale of the partnership interest is “nonbusiness income” under Section
401(3)2.(a)(1)(D) of the Tax Code, 72 P.S. §7401(3)2.(a)(1)(D), not “business
income”      under     Section       401(3)2.(a)(1)(A)    of    the     Tax     Code,
72 P.S. §7401(3)2.(a)(1)(A); (2) if the gain is business income, the gain must be




                                           3
excluded from its apportionable4 tax base under the doctrines of multiformity or
unrelated assets; (3) if the gain is apportionable business income, the gross
proceeds from the sale of the partnership interest should be sourced to New York,
the state in which it is headquartered, for purposes of calculating the sales factor of
its CNI Tax apportionment fraction, rather than Pennsylvania, where the property
from which the sale is derived is located; (4) the tax benefit rule must be applied to
calculate any taxable gain realized by it on the sale of its partnership interest; and
(5) if the gain is apportionable business income, Taxpayer is entitled to claim an
NLC deduction in excess of the $2 million provided for in Section
401(3)4.(c)(1)(A)(I) of the Tax Code, because the $2 million cap violates the
Uniformity Clause.
              In Alden I, this Court addressed each of those issues. We concluded
that the gain from the sale of the partnership interest was “business income” for
purposes of the CNI Tax, which was constitutionally taxable and proportionable to
Pennsylvania. Alden I, 142 A.3d at 176. We rejected Taxpayer’s argument that
the gain, as business income, must be excluded from Taxpayer’s apportionable tax
base under the doctrines of multiformity or unrelated assets, and we further
concluded that all of the gain is apportionable to Pennsylvania. Id. at 177-79. We
also held that the tax benefit rule, if at all applicable in Pennsylvania, did not apply
in the context of the CNI Tax at issue in this matter. Id. at 180-83. Finally, and
relevant to the matter now before the Court, we held that Section
401(3)4.(c)(1)(A)(I)’s $2 million flat-dollar limitation on the NLC deduction
violated the Uniformity Clause. Id. at 184-86. Thus, we reversed the order of

       4
         “Apportionable” income is income that “is divided among states with some nexus to the
business based on a formula.” Glatfelter Pulpwood Co. v. Cmwlth., 19 A.3d 572, 576 n.3 (Pa.
Cmwlth. 2011) (en banc), aff’d, 61 A.3d 993 (Pa. 2013).

                                              4
F&R and directed the Department to calculate Taxpayer’s CNI Tax without
capping the amount that it can take on its net loss carryover. Id. at 186.
             Thereafter, the Commonwealth and Taxpayer both filed timely
exceptions. This Court overruled the Commonwealth’s exceptions and dismissed
Taxpayer’s exceptions as moot. See RB Alden v. Commonwealth, 169 A.3d 727
(Pa. Cmwlth. 2017) (en banc) (Alden II).
             Both parties appealed to the Supreme Court. By per curiam order, the
Supreme Court vacated this Court’s final order and remanded the matter “for
reconsideration in light of” Nextel, which was decided after this Court decided
Alden I and Alden II. Consequently, we did not have the benefit of the Supreme
Court’s analysis in Nextel when rendering our decisions.
             In Nextel, the Supreme Court examined whether the NLC provision
for the 2007 Tax Year, which restricted the amount of loss a corporation could
carry over from prior years as a deduction against its 2007 taxable income to
whichever is greater: 12.5% of the corporation’s 2007 taxable income or $3
million, violated the Uniformity Clause. See 72 P.S. §7401(3)4.(c)(1)(A)(II). The
Supreme Court held that the flat-dollar limitation violated the Uniformity Clause
because it created two classes of “taxpayers solely on the basis of their income.”
Nextel, 171 A.3d at 699-700.
             As for the appropriate remedy, the Supreme Court conducted an in
depth severability analysis, with special emphasis on legislative intent. Id. at 701.
“The ‘touchstone’ for determining legislative intent in this regard is to answer the
question of whether, after severing the unconstitutional provisions of a statute, ‘the
legislature [would] have preferred what is left of its statute to no statute at all.’”
Id. at 703 (quoting D.P. v. G.J.P., 146 A.3d 204, 216 (Pa. 2016)). The Supreme
Court found:
                                           5
              [T]he overall structure of the NLC reflects the
              legislature’s intent to balance the twin policy objectives
              of encouraging investment (by allowing corporations to
              deduct some of the losses they sustain when making such
              investments against their future revenues), and ensuring
              that the Commonwealth’s financial health is maintained
              (through the capping of the amount of this deduction).
Id. at 704.
              The Supreme Court then considered the following three severability
options to cure the constitutional infirmity:

              (1) sever the flat $3 million deduction from the remainder
              of the NLC; (2) sever both the $3 million and 12.5%
              deduction caps and allow corporations to claim an
              unlimited net loss—the remedy chosen by the
              Commonwealth Court majority; or (3) strike down the
              entire NLC and, thus, disallow any net loss carryover.
Id. at 703.
              The Supreme Court determined that the first option of severing the $3
million flat deduction from the remainder of the statute while preserving the
percentage cap5 was the most consistent with legislative intent because it furthered
the legislature’s twin policy objectives of encouraging business investment and
maintaining the Commonwealth’s financial health. Id. at 704.
              Turning to this remand, the parties agree that this Court in Alden I
properly held that Section 401(3)4.(c)(1)(A)(I)’s flat-dollar limitation violated the
Uniformity Clause. At issue, however, is whether, in light of Nextel, we correctly
held that the appropriate remedy to cure the constitutional infirmity was to sever


       5
         For tax years between 2007 and 2017, the NLC deduction included both a flat-dollar
cap and a percentage cap. See 72 P.S. §7401(3)4.(c)(1)(A)(II)-(VII). For the tax years between
1994 and 2006, the NLC deduction included only a flat-dollar cap.                          See
72 P.S. §7401(3)4.(c)(1)(A)(I).


                                              6
the flat-dollar limitation from the statute, and thus allow Taxpayer to claim an
unlimited NLC deduction against its Pennsylvania CNI Tax for the 2006 Tax Year.
Unlike the NLC provision involved in Nextel, Section 401(3)4.(c)(1)(A)(I) of the
Tax Code does not contain a percentage cap alternative.
              In GM, this Court addressed the same issue and similar arguments in
connection with the 2001 Tax Year. For the reasons set forth in GM, we reverse
F&R’s order, and we remand the matter to F&R to recalculate Taxpayer’s CNI Tax
for Fiscal Year 2006 in accordance with the foregoing opinion.6




                                            MICHAEL H. WOJCIK, Judge
Judge Fizzano Cannon did not participate in the decision of this case.


       6
          In the event this Court did not find in favor of Taxpayer on this issue, Taxpayer also
raised issues relating to the tax benefit rule. However, those issues were not affected by the
Nextel decision, and they exceed the specific and limited scope of the Supreme Court’s remand
order. See Alden III. As this Court has explained:

              “[I]t has long been the law in Pennsylvania that following remand,
              a lower court is permitted to proceed only in accordance with the
              remand order.” Commonwealth v. Sepulveda, [] 144 A.3d 1270,
              1280 n.19 ([Pa.] 2016). In Levy v. Senate of Pennsylvania, 94
              A.3d 436 (Pa. Cmwlth.), appeal denied, [] 106 A.3d 727 (Pa.
              2014), which the Supreme Court cited with approval in Sepulveda,
              this Court explained: “Where a case is remanded for a specific and
              limited purpose, ‘issues not encompassed within the remand order’
              may not be decided on remand. A remand does not permit a
              litigant a ‘proverbial second bite at the apple.’” Levy, 94 A.3d at
              442 (quoting In re Indep. Sch. Dist. Consisting of the Borough of
              Wheatland, 912 A.2d 903, 908 (Pa. Cmwlth. 2006)).

Marshall v. Commonwealth, 197 A.3d 294, 306 (Pa. Cmwlth. 2018). Consequently, we will not
address Taxpayer’s issues relating to the tax benefit rule.

                                               7
          IN THE COMMONWEALTH COURT OF PENNSYLVANIA


RB Alden Corp.,                 :
                                :
                     Petitioner :
                                :
          v.                    : No. 73 F.R. 2011
                                :
Commonwealth of Pennsylvania,   :
                                :
                     Respondent :



                                    ORDER


             AND NOW, this 21st day of November, 2019, the order of the Board
of Finance and Revenue (F&R) dated December 17, 2010, is REVERSED, and this
matter is REMANDED to F&R to recalculate RB Alden’s corporate net income
tax for the fiscal tax year beginning July 1, 2006, and ending June 30, 2007, in
accordance with the foregoing opinion. Unless exceptions are filed within thirty
(30) days pursuant to Pa. R.A.P. 1571(i), this Order shall become final.




                                       __________________________________
                                       MICHAEL H. WOJCIK, Judge
          IN THE COMMONWEALTH COURT OF PENNSYLVANIA


RB Alden Corp.,                              :
                                Petitioner   :
                                             :
                v.                           :   No. 73 F.R. 2011
                                             :   Argued: September 10, 2019
Commonwealth of Pennsylvania,                :
                     Respondent              :


BEFORE: HONORABLE P. KEVIN BROBSON, Judge
        HONORABLE MICHAEL H. WOJCIK, Judge
        HONORABLE BONNIE BRIGANCE LEADBETTER, Senior Judge


OPINION NOT REPORTED


CONCURRING AND DISSENTING
OPINION BY JUDGE BROBSON                         FILED: November 21, 2019


                I agree with the majority’s analysis and conclusion with respect to the
constitutionality of the net loss carryover (NLC) deduction provision for the fiscal
tax year ending December 31, 2006 (2006 Tax Year), which caps the deduction at
$2 million.1 The cap discriminates against taxpayers based solely on the amount of
income and, therefore, violates the Uniformity Clause of the Pennsylvania
Constitution.2 Nextel Commc’ns of the Mid-Atlantic, Inc. v. Dep’t of Revenue,
171 A.3d 682, 696 (Pa. 2017) (Nextel II), cert. denied, 138 S. Ct. 2635 (2018).
I, therefore, concur with this portion of the majority’s analysis and disposition.


      1
          Section 401(3)4.(c)(1)(A)(I) of the Act of March 4, 1971, P.L. 6, as amended,
72 P.S. § 7401(3)4.(c)(1)(A)(I).
      2
          Pa. Const. art. VIII, § 1.
            As much as I would like to agree with the majority’s severance analysis
and its decision to award RB Alden Corporation an unlimited NLC deduction for the
2006 Tax Year, I must respectfully dissent as to this portion of the majority’s
decision for the reasons set forth in my concurring and dissenting opinion in
General Motors Corporation v. Commonwealth, ___ A.3d ___ (Pa. Cmwlth.,
No. 869 F.R. 2012, filed November 21, 2019.




                                        P. KEVIN BROBSON, Judge




                                     PKB-2
