             IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Synthes USA HQ, Inc.,                           :
                Petitioner                      :
                                                :
       v.                                       : No. 108 F.R. 2016
                                                : ARGUED: June 11, 2020
Commonwealth of Pennsylvania,                   :
                Respondent                      :

BEFORE:          HONORABLE MARY HANNAH LEAVITT, President Judge
                 HONORABLE RENÉE COHN JUBELIRER, Judge
                 HONORABLE P. KEVIN BROBSON, Judge
                 HONORABLE PATRICIA A. McCULLOUGH, Judge
                 HONORABLE MICHAEL H. WOJCIK, Judge
                 HONORABLE CHRISTINE FIZZANO CANNON, Judge
                 HONORABLE ELLEN CEISLER, Judge

OPINION BY JUDGE CEISLER                                               FILED: July 24, 2020
       Synthes USA HQ, Inc. (Synthes) petitions for review from a decision of the
Board of Finance and Revenue (Board). The Board affirmed a decision of the
Department of Revenue (Department) denying a corporate net income tax refund
sought by Synthes for the 2011 tax year.1

       The Commonwealth, through the Attorney General (Commonwealth), is the
respondent before this Court.2 The Commonwealth has taken a position before this
Court that would alter drastically the Department’s longstanding interpretation of a
corporate net income tax provision applicable to pre-2014 tax years.                         The
Department has therefore applied to intervene. This Court listed the application to
intervene for disposition with the merits.


       1
           It is undisputed that the refund petition and all appeals were timely.

       2
         Rule 1571(c) of the Rules of Appellate Procedure requires that a petition for review by a
taxpayer must name the Commonwealth (rather than the Department or the Board of Finance and
Revenue (Board)) as the Respondent. Pa. R.A.P. 1571(c).
       After thorough review, we grant the Department’s application to intervene,
reverse the decision of the Board, and remand to the Board for a further remand to
the Department to issue an appropriate tax refund to Synthes.
                                        I. Background
       Synthes, a Pennsylvania-based corporation, provides research, development,
and management services to affiliates located outside Pennsylvania. In calculating
its 2011 Pennsylvania corporate net income tax, Synthes determined its percentage
of out-of-state sales of services by applying an interpretation of the Tax Reform
Code of 19713 (Tax Code) that differed from the interpretation the Department had
consistently applied for many years. Synthes later requested a refund because the
Department’s interpretation of the Tax Code would have resulted in a lower tax. The
Department denied the refund request because it found Synthes failed to present
sufficient evidence to demonstrate where its sales occurred.
       Synthes appealed to the Board, which upheld the Department’s refund denial,
agreeing that Synthes did not satisfy its burden of proof. See Br. of Resp’t at 10;
Stipulated Facts ¶¶ 66, 68, Ex. D at 95, Ex. E, Ex. F at 101-02. Synthes then
petitioned for review in this Court.4
       The Commonwealth acknowledges that Synthes eventually established the
evidence needed to support its refund claim under the Department’s interpretation
of the Tax Code, once its claim had reached this Court. See Br. of Resp’t at 10;
Stipulated Facts ¶¶ 12, 15-16, 18-20, 24-33, 63-64. The Department does not


       3
           Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§ 7101 – 10004.

       4
         This Court reviews decisions of the Board de novo based on stipulated facts or a record
created before this Court. Pa. R.A.P. 1571(h); Plum Borough Sch. Dist. v. Commonwealth, 860
A.2d 1155 (Pa. Cmwlth. 2004), aff’d without op., 891 A.2d 726 (Pa. 2006). Here, the record
consists of stipulated facts and stipulated documents.


                                                2
contend otherwise. The Commonwealth argues, however, that the Department’s
interpretation of the Tax Code was in error and is not entitled to any deference from
this Court.   Thus, the Commonwealth contends Synthes is not entitled to a tax
refund, but for a different reason from that found by the Department and the Board.
      The Department, as putative intervenor, maintains that its interpretation of the
Tax Code concerning calculation of Synthes’s Pennsylvania sales was correct.
Indeed, that interpretation was not placed at issue until the Commonwealth raised it
before this Court. The Department therefore seeks to intervene and be heard on the
issue along with the parties.
      Synthes argues that regardless of which calculation method was correct,
Synthes is entitled to the same tax break other taxpayers received from the
Department.
                                     II. Issues
      Synthes asserts two arguments before this Court. First, Synthes contends the
Department’s interpretation of the Tax Code was correct regarding calculation of the
sales factor for apportioning corporate net income tax among multiple states. Like
the Department, Synthes argues its sales of services should be apportioned according
to where customers received the benefits of Synthes’s services, not where Synthes
incurred costs of performing those services.
      Second, Synthes asserts it is entitled to a tax refund based on the Department’s
interpretation of the Tax Code, even if the Department’s interpretation was incorrect
and Synthes used the correct calculation method at the time it paid the tax. Synthes
insists the Department must accord Synthes the same tax break it gave other




                                          3
corporate taxpayers, as required by the Uniformity Clause of Article VIII, Section 1
of the Pennsylvania Constitution.5
                                         III. Discussion
                             A. Tax Code – Subparagraph 17
       In Pennsylvania, a corporation with taxable business activities in more than
one state must apportion its income among the applicable states for income tax
purposes, using a formula provided in the Tax Code. The statutory formula includes
a property factor, a payroll factor, and a sales factor. See Sections 401(3)2.(a)(2)
and 401(3)2.(a)(9)(A)(iv) of the Tax Code, 72 P.S. §§ 7401(3)2.(a)(2),
7401(3)2.(a)(9)(A)(iv). Only the sales factor is at issue in this case.6
       The taxpayer’s income from sales of services is taxed based on the proportion
of its sales that occur in Pennsylvania. The sales factor is expressed as a fraction.
The numerator is the dollar amount of the taxpayer’s sales in Pennsylvania for the
applicable tax year. The denominator is the taxpayer’s total sales everywhere for
the tax year. 72 P.S. § 7401(3)2.(a)(15).
       Synthes sells services to customer affiliates located in other states. Thus, the
question here is whether sales of services by Synthes, a Pennsylvania corporation,
to businesses outside Pennsylvania constitute sales in Pennsylvania or sales where
the purchasing businesses are located, for purposes of calculating the sales factor.




       5
          “All taxes shall be uniform, upon the same class of subjects, within the territorial limits
of the authority levying the tax, and shall be levied and collected under general laws.” PA. CONST.
art. VIII, § 1.

       6
        All of Synthes’s $271 million in property is in Pennsylvania, and 95% of its 2011 payroll
of $156 million was paid in Pennsylvania. Stipulated Facts ¶¶ 60-61.
(Footnote continued on next page…)

                                                 4
       Under the Tax Code as it applies to this case,7 a sale of a service occurs in
Pennsylvania if:

       (A) The income-producing activity is performed in this State; or
       (B) The income-producing activity is performed both in and outside this
           State and a greater proportion of the income-producing activity is
           performed in this State than in any other state, based on costs of
           performance [(costs-of-performance method)].

72 P.S. § 7401(3)2.(a)(17) (Subparagraph 17). The Tax Code does not define either
“income-producing activity” or “costs of performance.”

                            B. Intervention by the Department
       In support of its application for intervention, the Department points out that it
is the agency charged with settling and collecting taxes for the Commonwealth, as
well as issuing refunds when appropriate.8 See Br. of Intervenor at 4-5 (citing
Sections 201 – 203 and 206 of the Fiscal Code,9 72 P.S. §§ 201-203, 206; Sections
201-212, 401(7), 407.1, 407.3(d), 407.5, and 3003.1 of the Tax Code, 72 P.S.
§§ 7201-12, 7401(7), 7407.1, 7407.3(d), 7407.5,10 and 10003.111). The Department

       7
       The applicable provision, designated here and by the parties as Subparagraph 17, was
amended by the legislature effective January 1, 2014. The amendment is discussed below.

       8
         Although the Attorney General asserts that its office is the entity charged with collecting
taxes, Section 204(c) of the Commonwealth Attorneys Act, Act of October 15, 1980, P.L. 950, 71
P.S. §§ 732-204(c), provides: “The Attorney General shall collect, by suit or otherwise, all debts,
taxes and accounts due the Commonwealth which shall be referred to and placed with the
Attorney General for collection by any Commonwealth agency.” (Emphasis added.) The
Department did not place any tax with the Attorney General for collection. Rather, Synthes
appealed from the Department’s refusal to refund taxes previously paid.

       9
           Act of April 9, 1929, P.L. 343, as amended.

       10
            Sections 407.1, 407.3, and 407.5 were added by Act of October 18, 2006, P.L. 1149.

       11
            Section 3003.1 was added by Act of July 1, 1985, P.L. 78.


                                                 5
also observes that it is a party to proceedings before the Board. Br. of Intervenor at
5 (citing Section 704(d.1)(2) of the Fiscal Code, 72 P.S. § 704(d.1)(2)). As such, the
Department was entitled to intervene as of right within 30 days after notice of filing
of the petition for review, or thereafter by obtaining permission to intervene. Pa.
R.A.P. 1531(a). However, the Department asserts it was not subject to the 30-day
requirement because Synthes failed to name the Department as a Respondent and
include a Notice to Participate directed to the Department. Br. of Intervenor at 6
(citing Lautek Corp. v. Unemployment Comp. Bd. of Review, 583 A.2d 7, 9-10 (Pa.
Cmwlth. 1990)).
       Alternatively, the Department argues that even if it needs permission to
intervene, this Court should grant such permission. The Department contends it did
not become fully aware of the Commonwealth’s position concerning interpretation
of Subparagraph 17 until the Commonwealth filed its brief in January 2020.12


       12
          The Commonwealth appears in this action through the Attorney General. Section 204(c)
of the Commonwealth Attorneys Act, Act of October 15, 1980, P.L. 950, as amended, requires the
Attorney General to represent a Commonwealth agency in any action brought by or against the
agency. 71 P.S. § 732-204(c). We note with dismay the Attorney General’s assertion in this case
of a legal position directly adverse to that of its client, the Department. Rather than advocating
the Department’s longstanding construction of a tax statute, a matter peculiarly within the
Department’s expertise, the Attorney General has forced the Department to seek intervention in
order to defend its interpretation of the tax provision at issue.
        We are unaware of any constitutional or statutory authorization or mandate for such
conduct. Section 204 of the Commonwealth Attorneys Act requires an agency to follow the advice
of the Attorney General when sought, or seek a declaratory judgment from this Court if the agency
disagrees with the advice in question. 71 P.S. § 732-204(a)(1), (2). Here, however, neither the
Department nor the Board sought the Attorney General’s advice concerning the proper
interpretation of Subparagraph 17. Moreover, to the extent the Attorney General believed itself
entitled to control the position to be advocated in this Court, and upon reaching a legal
interpretation contrary to that of the Department, the Attorney General should have so advised the
Department. The Department could then have initiated a request for a declaratory judgment as
anticipated by Section 204(a).
(Footnote continued on next page…)

                                                6
       The Commonwealth has not taken a position either supporting or opposing
the Department’s application for intervention.               Synthes initially opposed the
Department’s request for intervention, but withdrew its opposition at oral argument.
       The Department has a clear interest in the Tax Code issue presented in this
case. The Department was entitled to intervene as of right within 30 days after notice
of the petition for review. No other party contends that any prejudice would arise
from allowing the Department to intervene at this point. For these reasons, we grant
the Department’s application for intervention.
                              C. Synthes’s Refund Request
       The parties have stipulated that Synthes’s customers received the benefits of
Synthes’s services outside Pennsylvania.              See Stipulated Facts, ¶ 63, Ex. C.
However, Synthes incurred costs in performing its services for its affiliate
customers, and most of those costs were incurred in Pennsylvania. Thus, whether
Synthes must calculate its sales factor using the costs-of-performance method or the
benefits-received method has a major impact on the determination of its sales factor,
and consequently on the amount of state income tax it must pay.
       Although the Department never issued a regulation or formal policy
concerning its construction of Subparagraph 17, it interpreted and enforced
Subparagraph 17 consistently for decades, including during the tax years relevant to

         Additionally, Section 204(c) of the Commonwealth Attorneys Act (Act of October 15,
1980, P.L. 950, as amended), provides that “[t]he Attorney General may, upon determining that it
is more efficient or otherwise is in the best interest of the Commonwealth, authorize the General
Counsel or the counsel for an independent agency to initiate, conduct, or defend any particular
litigation or category of litigation in his stead.” 71 P.S. § 732-204(c). Here, rather than acting
directly adversely to its client’s position, the Attorney General could have authorized counsel for
the Department or the Board to litigate this matter before this Court, thereby avoiding this
unseemly conflict between the Commonwealth and its own agency concerning a statutory
construction issue within the agency’s expertise.
(Footnote continued on next page…)

                                                7
Synthes’s refund claims.13 The Department treated each sales receipt as a separate
income-producing activity. It then deemed each income-producing activity as
having occurred at the location where the customer received the benefit of the service
(benefits-received method). Stipulated Facts, ¶ 37. In its brief before this Court, the
Department asserts this same interpretation of Subparagraph 17.
       Synthes originally calculated and paid its 2011 corporate net income taxes
using the costs-of-performance method of determining the sales factor. Synthes
subsequently sought a refund from the Department on the basis that the Department
had consistently applied the benefits-received method of interpretation of
Subparagraph 17.
       Notwithstanding its consistent application of the benefits-received method,
the Department denied Synthes’s refund request because it found Synthes offered
inadequate evidence to establish where its sales occurred. The Board affirmed the
Department’s decision on the same basis.                  Before this Court, however, the
Commonwealth concedes, and the Department does not dispute, that Synthes has
now supported its refund claim with sufficient evidence. Therefore, under the
Department’s interpretation of Subparagraph 17, Synthes has established entitlement
to a tax refund. If Synthes is entitled to use the benefits-received method, it will
receive a refund of more than $2 million for the 2011 tax year.
       Synthes also asserts that it is still entitled to a refund even if the Department
erred in applying the benefits-received method. Synthes argues that pursuant to the
Uniformity Clause, it should be treated the same as other taxpayers for the same tax



       13
          Synthes filed petitions for review in this Court concerning refunds for other tax years in
addition to 2011. Those petitions have been stayed pending the outcome of this case. They are
docketed at Nos. 107, 109, and 110 F.R. 2016.


                                                 8
year, whose taxes were calculated by the benefits-received method, as enforced by
the Department and the Board.
      Nonetheless, as discussed above, the Commonwealth argues that the
Department erred in applying the benefits-received method, and that Synthes was
correct when it calculated its 2011 tax using the costs-of-performance method.
                       D. Construction of Subparagraph 17
      The Commonwealth acknowledges that the Department has consistently
applied and enforced the benefits-received method of calculating the sales factor
under Subparagraph 17. Where taxpayers have filed petitions for review, the Board
has consistently upheld the Department’s position. If further petitions for review
were filed with this Court, the Commonwealth reached compromise settlements with
the petitioners.   Stipulation of Facts ¶¶ 50(D), 51(D), 53(D). Thus, this case
represents the first time this issue has reached this Court.
                           1. The Department’s Position
      The Department, supported by Synthes, argues the benefits-received method
of calculating the sales factor represents the correct interpretation of Subparagraph
17. The Department asserts that the benefits-received method is consistent with the
language of the Tax Code. The Department points out that as the agency charged
with interpreting and applying the Tax Code, it is entitled to deference in its
interpretation.
      The Department begins from the premise that the Tax Code fails to define
either “income-producing activity” or “costs of performance.” The Department
reasons that under Subparagraph 17(A), “income-producing activity” for the sale of
a service is the actual provision of the service to the customer, because that is what
generates the taxpayer’s income. Therefore, the Department concludes that the place



                                           9
where the income-producing activity occurs is the place where the customer receives
the benefit of the service, or in other words, where the customer is located.
Accordingly, if a customer is outside Pennsylvania, Synthes’s income-producing
activity regarding that customer occurs outside Pennsylvania.
      As for the “costs of performance” under Subparagraph 17(B), the Department
reasons that analysis applies only where a customer receives services both inside and
outside of Pennsylvania. In that instance, the Department determines whether to
allocate each sale of a service to Pennsylvania based on whether the seller incurred
more costs of performing the service inside or outside Pennsylvania.
      The Department argues the plain meaning of “performance” is “‘fulfillment
or accomplishment of a promise, contract, or other obligation….’” Br. of Intervenor
at 13 (quoting Black’s Law Dictionary (5th ed. 1979)). Therefore, the Department
contends the location where performance is fulfilled, i.e., the location where the
customer receives the service, is the location where income-producing activity is
performed.
      The Department asserts that its interpretation is consistent with our Supreme
Court’s analysis in Commonwealth v. Gilmour Manufacturing Co., 822 A.2d 676
(Pa. 2003). In Gilmour, the Supreme Court found that with regard to sales of
personal property, “the numerator of the sales factor represents the contribution of
Pennsylvania consumers and purchasers to the entity’s sales, while the denominator
represents the contribution of all consumers and purchasers.” Id. at 683. The
Department suggests there is no reason to calculate the sales factor differently
regarding sales of services.
      The Department further argues that the benefits-received method of
calculating the sales factor apportions sales of services more fairly than the costs-of-



                                          10
performance method advocated by the Commonwealth.                    Under the costs-of-
performance method, out-of-state corporations providing services to Pennsylvania
customers would be able to avoid taxes on services that would be taxable if
performed by a Pennsylvania corporation, thus imposing a disadvantage on
Pennsylvania businesses and providing a disincentive for businesses to locate in
Pennsylvania.
       The Department also points out that although Pennsylvania did not formally
adopt the Uniform Disposition of Income for Tax Purposes Act (Uniform Act),14 the
language of Subparagraph 17 is taken directly from the Uniform Act. Br. of
Intervenor at 22 (citing Gilmour). The Department posits that statutes uniform with
those of other states should be construed to effect their general purpose of uniformity
with the laws of those other states. Br. of Intervenor at 15 (citing 1 Pa. C.S. § 1927).
The Department cites decisions from several other jurisdictions that have applied the
Uniform Act consistently with the Department’s interpretation of Subparagraph 17.
See Br. of Intervenor at 16-17 (citing, e.g., Walter E. Heller Western, Inc. v. Ariz.
Dep’t of Revenue, 775 P.2d 1113, 1116 (Ariz. 1989) (consumer’s location controls
allocation of sales other than tangible personal property; “the term, ‘income
producing activity,’ in our regulation contemplates only direct sales payment activity
by the consumer”); Bank of Am. Consumer Card Holdings v. N.J. Div. of Taxation,
29 N.J. Tax 427, 464 (2016) (service fee is earned where customer receives the
benefit of the service); DIRECTV, Inc. v. S.C. Dep’t of Revenue, 804 S.E.2d 633,
640-41 (S.C. App. 2017) (sales factor for corporation providing service to customers

       14
          The Uniform Disposition of Income for Tax Purposes Act (Uniform Act) was drafted by
the National Conference of Commissioners on Uniform State Laws (National Conference). The
National Conference recommended the Uniform Act in 1957 for adoption by all of the states.
https://www.uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFile
Key=1ed71060-2212-9426-e7f7-e723d9cb4929&forceDialog=0 (last visited July 23, 2020).


                                             11
in multiple states was calculated based on where customers receiving services were
located)); cf. Ameritech Publ’g, Inc. v. Wis. Dep’t of Revenue (Wis. Ct. App. No.
2009AP445, filed June 24, 2010), 2010 WL 2519583 at *12 (service provided by
Wisconsin corporation distributing phone directory consisted of providing access to
local Wisconsin directory market, not merely delivery of phone books in other states;
therefore, sales factor was to be calculated based on fees paid by Wisconsin
advertisers rather than phone book recipients).
      Finally, the Department argues that as the agency charged with applying and
enforcing the Tax Code, it is entitled to deference in its interpretation of the Tax
Code’s provisions.    Br. of Intervenor at 17 (citing Phila. Suburban Corp. v.
Commonwealth, 601 A.2d 893, 898 (Pa. Cmwlth. 1992)). The Department observes,
moreover, that because the Tax Code is technically complex, this Court should be
even more reluctant to substitute its discretion for that of the Department, the agency
with expertise in interpreting the Tax Code. Br. of Intervenor at 17-18 (citing Phila.
Suburban; Smithkline Beckman Corp. v. Commonwealth, 482 A.2d 1344, 1353 (Pa.
Cmwlth. 1984)).
                        2. The Commonwealth’s Position
      The    Commonwealth       contends       the   Department’s   interpretation   of
Subparagraph 17 is incorrect.       The Commonwealth insists Synthes correctly
calculated its sales factor for its 2011 taxes by applying the costs-of-performance
method. Therefore, Synthes is not entitled to a refund.
      The Commonwealth first asserts that the Department’s interpretation of
Subparagraph 17 is not entitled to substantial deference because it was never adopted




                                          12
as a legislative regulation.15 Because the Department’s interpretation is merely an
interpretive rule, it does not have the force of law. Br. of Resp’t at 17 (citing Dechert
LLP v. Commonwealth, 998 A.2d 575, 584 n.8 (Pa. 2010); Graham Packaging Co.,
LP v. Commonwealth, 882 A.2d 1076, 1079 n.5 (Pa. Cmwlth. 2005)).                         The
Commonwealth observes that a court may disregard an agency’s interpretive rule if
it is unwise or violates the legislature’s intent. Br. of Resp’t at 17 (citing Gilmour,
822 A.2d at 679; Girard Sch. Dist. v. Pittenger, 392 A.2d 261, 263 (Pa. 1978)).
       The Commonwealth contends the Department’s application of the benefits-
received method of calculating the sales factor fails to effectuate the legislature’s
intent. The Commonwealth acknowledges that the plain language of a statute is the
best indication of legislative intent, but the terms “income-producing activity” and
“costs of performance” in Subparagraph 17 are not defined in the Tax Code. The
Commonwealth argues the Department’s interpretation of Subparagraph 17 is
incorrect because it views Subparagraph 17 from the customer’s perspective rather
than based on the taxpayer’s actions. The Commonwealth notes there is no express
“benefits-received” language in Subparagraph 17. The Commonwealth further
asserts that Subparagraph 17 contains no language supporting the Department’s
treatment of each service receipt as a separate income-producing activity.
       The Commonwealth suggests the Department’s application of the benefits-
received method produces a result the legislature could not have intended. Contrary
to the Department’s argument that it properly construes Subparagraph 17
consistently with the calculation of the sales factor for sales of tangible property, the


       15
           The Commonwealth correctly points out that the Department’s interpretation of
Subparagraph 17 is contained only in “general policy statements” such as “internal memoranda,
instructions to auditors, correspondence, and Information Notice – Corporation Taxes 2014-01.”
Br. of Resp’t at 18.


                                             13
Commonwealth argues the two provisions have different language and the
legislature would not have enacted two different provisions if it had wanted them to
be applied the same way. Br. of Resp’t at 21 (citing 72 P.S. § 7401(3)2.(a)(16) &
(17)).
         The Commonwealth further observes that Subparagraph 17(B) expressly
requires a costs-of-performance analysis if income-producing activities for sales of
services occur both inside and outside of Pennsylvania.         The Commonwealth
contends that the Department’s interpretation of Subparagraph 17 would render this
requirement of Subparagraph 17(B) meaningless. (However, as discussed above,
the Department explained that Subparagraphs 17(A) and (B) apply in different
situations.)
         The Commonwealth concedes Subparagraph 17 is a verbatim adoption of the
language of Section 17 of the Uniform Act. However, the Commonwealth argues
that Section 17 of the Uniform Act has drawn criticism because changes in
economics, developing technology, and increasing globalization allow both goods
and services to be supplied remotely to a much greater degree than was possible
when the Uniform Act was originally drafted in the 1950s.
         In 2014, the Multistate Tax Commission (Commission), created in 1967 to
promote uniform taxation of multistate businesses, recommended amending Section
17 of the Uniform Act to a rule clearly sourcing service receipts to the state in which
services were delivered.     In other words, the Commission recommended an
amendment clarifying application of the benefits-received rule, which the
Department was already applying.
         Pennsylvania’s legislature enacted the recommended amendment to
Subparagraph 17 effective January 1, 2014. For calculation of the sales factor,



                                          14
service receipts16 are now expressly sourced to Pennsylvania “if the service is
delivered to a location in this State. If the service is delivered both to a location in
and outside this State, the sale is in this State based upon the percentage of total
value of the service delivered to a location in this State.” See Act of July 9, 2013,
P.L. 270, 72 P.S. § 7401(3)2.(a)(16.1)(C)(I).
       The Commonwealth argues there would have been no need for the legislature
to amend Subparagraph 17 if it already provided for application of the benefits-
received method as the Department claims. Therefore, the Commonwealth insists
the legislature’s amendment of Subparagraph 17 in 2014 demonstrates that the pre-
2014 version of Subparagraph 17 was not intended to have the meaning ascribed to
it by the Department. The Commonwealth also asserts that although the legislature
amended Subparagraph 17 regarding sales of services, the costs-of-performance
method continues to apply to sales of intangibles. The Commonwealth contends this
further demonstrates that the legislature previously intended the pre-2014
Subparagraph 17 to apply the costs-of-performance method to sales of services.
       In contrast to the Department’s citation of Gilmour as analogous, the
Commonwealth cites RB Alden Corp. v. Commonwealth, 142 A.3d 169 (Pa. Cmwlth.
2016), in which it contends this Court construed Subparagraph 17 in terms of
performance costs, without mentioning the benefits-received method. We find the
Commonwealth’s contention unpersuasive. RB Alden concerned taxation on the
capital gain from the sale of a partnership interest. At issue was whether the
proceeds of the sale should be sourced to New York, where the partnership (a

       16
          The pre-2014 language of Subparagraph 17 continues to apply to sales other than those
under Subparagraphs 16 (sales of tangible personal property) and 16.1 (the amended provision
regarding sales of services). See 72 P.S. § 7401(3)2.(a)(17). Subparagraph 16.1 was added by the
Act of July 9, 2013, P.L. 270.
(Footnote continued on next page…)

                                              15
Delaware taxpayer) was headquartered, or Pennsylvania, where the real property
from which the sale was derived was located.17 Id. at 172. The taxpayer argued that
“all of the activities associated with the acquisition, holding and disposition of the
[p]artnership interest occurred at the headquarters in New York.” Id. at 179.
       However, this Court found in RB Alden that the taxpayer’s income-producing
activity, which was its operation and management of the real property from which
the sale was derived, occurred in Pennsylvania, where the property was located. Id.
This Court observed further that the costs related to performing the taxpayer’s
management services were also generated in Pennsylvania. Thus, both the costs of
performing management services and the benefits of those services arose in
Pennsylvania. Id. Accordingly, a choice between the costs-of-performance method
and the benefits-received method under Subparagraph 17 was not at issue in RB
Alden.
       The Commonwealth counters the Department’s citation of decisions from
other states applying the benefits-received method with its own list of decisions it
claims have applied, either explicitly or implicitly, the costs-of-performance method.
See Br. of Resp’t at 29-30 (citing Univ. of Phoenix, Inc. v. Ind. Dep’t of State
Revenue, 88 N.E.3d 805, 810-12 (Ind. T.C. 2017); AT&T Corp. v. Dep’t of Revenue,
358 P.3d 973, 982 (Or. 2015); Comcast Holdings Corp. v. Tenn. Dep’t of Revenue
(Tenn. Ct. App. No. M2017-02250-COA-R3-CV, filed April 25, 2019), 2019 Tenn.
App. LEXIS 193; Corp. Exec. Bd. Co. v. Va. Dep’t of Taxation, 822 S.E.2d 918,
921-23, 930 (Va. 2019)). University of Phoenix concerned an Indiana tax provision
that specifically related to telecommunications and broadcast services and spoke
expressly and exclusively in terms of costs of performance, regardless of whether

       17
         Also at issue, although not relevant here, was whether the sale of the partnership interest
generated business income or non-business income.


                                                16
such costs were incurred inside or outside of Indiana. See Univ. of Phoenix, 88
N.E.3d at 812 (citing Ind. Code § 6-3-2-2(f)(2)). AT&T and Comcast applied state
statutes that, unlike the Tax Code in Pennsylvania, expressly defined both “income-
producing activity” and “costs of performance.” AT&T, 358 P.3d at 983-84 (quoting
Or. Rev. Code 150-314.665(4)(2), (4)); Comcast, slip op. at __, 2019 Tenn. App.
LEXIS 193 at *29-*31 (quoting Tenn. Comp. R. & Regs. 1320-06-01-.34). In
Corporate Executive Board, the court specifically observed that “there is no standard
market sourcing rule akin to the cost-of-performance rule that used to be more
prevalent.” Corp. Exec. Bd., 822 S.E.2d at 929. Rather, various states apply various
rules, including the benefits-received approach, and in each state, differences may
exist even where the same approach is applied. Id. Thus, these decisions do not
advance the Commonwealth’s position.
      The Commonwealth also asserts that the Indiana Tax Court’s decision in
University of Phoenix surveyed decisions from around the country and opined that
the benefits-received method was supportable in states where a statute or a regulation
imposed that interpretation. Br. of Resp’t at 31 (citing Univ. of Phoenix, 88 N.E.3d
at 813). The Commonwealth posits that because the Department has not formally
enacted such a regulation, the costs-of-performance method necessarily applies to
corporate taxpayers in Pennsylvania. However, University of Phoenix does not stand
for such a proposition, and we are not persuaded by the Commonwealth’s reasoning.
                        3. Ambiguity of Subparagraph 17
      A statute is ambiguous when it is reasonably susceptible of more than one
interpretation or its language is vague, uncertain, or indefinite. McCloskey v. Pa.
Pub. Util. Comm’n, 219 A.3d 692 (Pa. Cmwlth. 2019). Here, the Department and
the Commonwealth assert differing interpretations of Subparagraph 17. Both are



                                         17
facially reasonable, especially because the Tax Code fails to define the terms
“income-producing activity” and “costs of performance.” We therefore conclude
Subparagraph 17 is ambiguous.             Accord AT&T Corp., 358 P.3d at 982
(“[c]ommentators have routinely criticized [Section 17 of the Uniform Act] for its
ambiguity”).
       When a statute is ambiguous, courts generally defer to the expertise of the
agency charged with interpretation and enforcement responsibilities with respect to
that statute. In this case, that agency is the Department. See Stodghill v. Pa. Dep’t
of Corr., 150 A.3d 547, 554 (Pa. Cmwlth. 2016) (citing 1 Pa. C.S. § 1921(c)(8);
Packer v. Bureau of Prof’l & Occupational Affairs, Dep’t of State, State Bd. of
Nursing, 99 A.3d 965, 969 (Pa. Cmwlth. 2014), overruled on other grounds by
McGrath v. Bureau of Prof’l & Occupational Affairs, State Bd. of Nursing, 146 A.3d
310 (Pa. Cmwlth. 2016); Velocity Express v. Pa. Human Relations Comm’n, 853
A.2d 1182, 1185 (Pa. Cmwlth. 2004)). Deference applies unless the agency’s
interpretation of its enabling statute is erroneous or frustrates the legislature’s intent.
Stodghill, 150 A.3d at 554 (citing Packer; Rosen v. Bur. of Prof. & Occupational
Affairs, State Architects Licensure Bd., 763 A.2d 962, 968 (Pa. Cmwlth. 2000)).
       The Commonwealth contends that the Department’s interpretation of
Subparagraph 17 is not entitled to deference because it frustrates the legislature’s
intent. The Commonwealth points to the legislature’s amendment of Subparagraph
17 in 2014 to provide clearly for application of the benefits-received method. The
Commonwealth argues that amendment would have been pointless if Subparagraph
17 already required application of the benefits-received method.               Thus, the
Commonwealth asserts there was no other possible reason for the amendment other
than to disapprove the Department’s prior interpretation of the pre-2014 version of



                                            18
Subparagraph 17. Therefore, the Commonwealth posits that the Department’s
interpretation of Subparagraph 17 prior to its amendment must have been incorrect.
        However, it is undisputed that the Department has consistently interpreted
Subparagraph 17 as applying the benefits-received method for many years. The
legislature acquiesced in that interpretation. In fact, the legislature’s amendment of
Subparagraph 17 clarified, rather than altered, the application of the benefits-
received method the Department was already applying and enforcing. When the
legislature amends a statute that has been the subject of a longstanding
administrative interpretation, but does not revise or repeal the agency’s
interpretation, this is evidence that the legislature has acquiesced in the interpretation
and that the interpretation is, in fact, the one the legislature intended. Gilligan v. Pa.
Horse Racing Comm’n, 422 A.2d 487, 491 (Pa. 1980).                       We reject the
Commonwealth’s argument that the legislature’s amendment of Subparagraph 17
disapproved the Department’s longstanding interpretation, because we find the
legislative amendment did not change that interpretation, but merely eliminated any
previous ambiguity, as recommended by the Commission.
        We conclude that the Department’s interpretation of Subparagraph 17 is not
contrary to the legislature’s intent.      Therefore, we uphold the Department’s
application of the benefits-received method of calculating the sales factor. Inasmuch
as the Commonwealth concedes that Synthes met its burden of showing entitlement
to a refund under the benefits-received method, we reverse the Board’s decision and
remand this matter for issuance of the appropriate tax refund to Synthes for tax year
2011.




                                           19
                              E. Uniformity Clause
      Finally, because we agree with Synthes that it is entitled to the tax refund it
seeks, we do not address its alternate argument under the Uniformity Clause.
“‘When a case raises both a constitutional and a non-constitutional issue, a court
should not reach the constitutional issue if the case can properly be decided on non-
constitutional grounds.’” Commonwealth v. Martinez, 147 A.3d 517, 530 (Pa. 2016)
(quoting P.J.S. v. Pa. State Ethics Comm’n, 723 A.2d 174, 176 (Pa. 1999)).
                                  IV. Conclusion
      Based on the foregoing discussion, we grant the Department’s application to
intervene. Further, we find that the Department’s interpretation of Subparagraph 17,
rather than the Commonwealth’s interpretation, is correct. Therefore, Synthes is
entitled to the tax refund it seeks. Accordingly, we reverse the Board’s decision and
remand to the Board for further remand to the Department to issue the appropriate
tax refund.

                                       __________________________________
                                       ELLEN CEISLER, Judge

Judge Cohn Jubelirer dissents and wishes to be so noted.




                                         20
           IN THE COMMONWEALTH COURT OF PENNSYLVANIA


Synthes USA HQ, Inc.,                  :
                Petitioner             :
                                       :
      v.                               : No. 108 F.R. 2016
                                       :
Commonwealth of Pennsylvania,          :
                Respondent             :


                                      ORDER


      AND NOW, this 24th day of July, 2020:
      The application of the Pennsylvania Department of Revenue (Department) for
intervention is GRANTED.
      The order of the Commonwealth of Pennsylvania, Board of Finance and
Revenue (Board), is REVERSED.
      This matter is REMANDED to the Board, and the Board is directed to remand
this matter to the Department for issuance of a tax refund to Synthes USA HQ, Inc.
for tax year 2011, in an amount to be determined by the Department consistent with
the foregoing opinion.
      Unless exceptions are filed within 30 days pursuant to Pa. R.A.P. 1571(i), this
order shall become final.
      Jurisdiction is relinquished.

                                       __________________________________
                                       ELLEN CEISLER, Judge
                  IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Synthes USA HQ, Inc.,                               :
                                  Petitioner        :
                                                    :
                   v.                               :   No. 108 F.R. 2016
                                                    :   Argued: June 11, 2020
Commonwealth of Pennsylvania,                       :
                     Respondent                     :



BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge
        HONORABLE RENÉE COHN JUBELIRER, Judge
        HONORABLE P. KEVIN BROBSON, Judge
        HONORABLE PATRICIA A. McCULLOUGH, Judge
        HONORABLE MICHAEL H. WOJCIK, Judge
        HONORABLE CHRISTINE FIZZANO CANNON, Judge
        HONORABLE ELLEN CEISLER, Judge


CONCURRING OPINION
BY JUDGE BROBSON                                    FILED: July 24, 2020


          I wholeheartedly embrace the majority’s disposition of this matter. I write
separately to emphasize my agreement with the majority’s conclusion that the
Pennsylvania Office of Attorney General overstepped its authority under the
Commonwealth Attorneys Act (CAA)1 by assuming the mantles of both counsel and
client.
          Section 204(c) of the CAA, 71 P.S. § 732-204(c), provides, in relevant part,
that the Attorney General “shall represent the Commonwealth and all
Commonwealth agencies . . . in any action brought by or against the Commonwealth
or its agencies.” (Emphasis added.) This Court has noted: “The Commonwealth

          1
              Act of October 15, 1980, P.L. 950, 71 P.S. §§ 732-101 to -506.
acts through the General Assembly and through the Commonwealth’s various
agencies . . . and its departments . . . . Each of these entities is part of the
Commonwealth . . . .” In re Condemnation No. 2 by Cmwlth. ex rel. Dep’t of Gen.
Servs., 943 A.2d 997, 1001 (Pa. Cmwlth. 2007), appeal denied, 954 A.2d 578 (Pa.),
cert. denied sub nom. Ate Kays Co. v. Pa. Dep’t of Gen. Servs., 555 U.S.
1070 (2008). As the majority astutely points out, in matters of taxation, the General
Assembly, through legislation, has empowered the Department of Revenue
(Department), not the Office of Attorney General, to act for the Commonwealth.
(See Maj. Op. at 5.) “[T]he Department . . . is charged with execution and application
of the” Tax Reform Code of 1971 (Tax Code).2 Phila. Gas Works ex rel. City of
Phila. v. Cmwlth., 741 A.2d 841, 844 (Pa. Cmwlth. 1999), aff’d, 757 A.2d 360
(Pa. 2000).
      “[W]hen the legislature statutorily invests an agency with certain functions,
duties and responsibilities, the agency has a legislatively conferred interest in such
matters . . . . [U]nless the legislature has provided otherwise, such an agency has an
implicit power to be a litigant in matters touching upon its concerns.” Pa. Game
Comm’n v. Dep’t of Envtl. Res., 555 A.2d 812, 815 (Pa. 1989) (discussing agency
standing). Recognizing this legislative designation of agency interests, we have
specifically held that Section 204(c) of the CAA “does not vest in the Attorney
General the administrative agency power to investigate or enforce a particular
statute” or “to become the agency itself,” but only “to serve as the agency’s lawyer
in actions at law or in equity.” Trometter v. Pa. Labor Relations Bd., 147 A.3d 601,



      2
          Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§ 7101-10004.
(Footnote continued on next page…)

                                            PKB-2
608 (Pa. Cmwlth. 2016) (emphasis in original).3 It would be incongruous to construe
the Attorney General’s duty under Section 204(c) to “represent” the Commonwealth
in legal proceedings as authority for the Attorney General to override, as it has done
in this matter, the voice of the legislatively designated Commonwealth agency on a
particular subject matter.
       Here, there is no dispute between Synthes USA HQ, Inc. (Synthes), the
appealing taxpayer, and the Department, acting for the Commonwealth as its
legislatively authorized agent, as to the proper interpretation of the Tax Code
provision that governs this tax dispute. The Board of Finance and Revenue (Board)
applied the Department’s interpretation, and Synthes does not challenge that aspect
of the Board’s decision on appeal. As the parties agree that Synthes has met its
evidentiary burden and is entitled to a refund under the Commonwealth’s current
interpretation of the applicable provision of the Tax Code, I concur in the majority’s
disposition to reverse and remand. I would reach this result, however, without
entertaining the Office of Attorney General’s collateral attack on the
Commonwealth’s longstanding construction of the Tax Code provision. (Maj. Op.
at 8-19.)




                                               P. KEVIN BROBSON, Judge



       3
         In Trometter, we rejected an argument by the Pennsylvania Labor Relations Board that
Section 204(c) of the CAA somehow vests the Attorney General with authority to pursue an
agency’s legislative mandates. Trometter, 147 A.3d at 608. Instead, we held that
Section 204(c) “provides only that the Attorney General must provide legal representation to the
[Pennsylvania Labor Relations] Board in litigation” and makes the Attorney General “[the
agency’s] lawyer by statutory default.” Id. (second emphasis added).

                                            PKB-3
            IN THE COMMONWEALTH COURT OF PENNSYLVANIA


Synthes USA HQ, Inc.,           :
                                :
                     Petitioner :
                                :
           v.                   : No. 108 F.R. 2016
                                : Argued: June 11, 2020
Commonwealth of Pennsylvania,   :
                                :
                     Respondent :


BEFORE:        HONORABLE MARY HANNAH LEAVITT, President Judge
               HONORABLE RENÉE COHN JUBELIRER, Judge
               HONORABLE P. KEVIN BROBSON, Judge
               HONORABLE PATRICIA A. McCULLOUGH, Judge
               HONORABLE MICHAEL H. WOJCIK, Judge
               HONORABLE CHRISTINE FIZZANO CANNON, Judge
               HONORABLE ELLEN CEISLER, Judge


CONCURRING AND DISSENTING OPINION
BY JUDGE WOJCIK                                                     FILED: July 24, 2020


               Section 204(c) of the Commonwealth Attorneys Act (CAA)1 states, in
relevant part, “The Attorney General shall represent the Commonwealth and all
Commonwealth agencies and upon request, the Department[] of . . . State Treasury
. . . in any action brought by or against the Commonwealth or its agencies[.]”
Additionally, Section 401 of the CAA states, “Each independent agency may appoint
. . . a chief counsel and such assistant counsel as it deems necessary to provide it
with legal assistance or request such legal services from the Office of General
Counsel.”      71 P.S. §732-401.        Moreover, Section 204(c) also provides, “The

      1
          Act of October 15, 1980, P.L. 950, 71 P.S. §732-204(c).
Attorney General may, upon determining that it is more efficient or otherwise is in
the best interest of the Commonwealth, authorize the General Counsel or the counsel
for an independent agency to . . . conduct or defend any particular litigation . . . in
his stead.”2
               However, Section 403 of the CAA addresses the interplay between the
Attorney General’s representation of the Commonwealth’s and an agency’s interests
in a matter, and the agency’s representation of its own interests, stating:

               (a) Representation of agency by agency counsel.—
               Whenever any action is brought by or against any
               independent agency[], the agency head may request in
               writing, setting forth his reasons, the Attorney General to
               authorize the agency counsel to supersede the Attorney
               General and represent the agency[.]

               (b) Intervention by agency counsel.—If the Attorney
               General does not grant the request, the agency head may
               authorize the agency counsel to intervene in the litigation.
               Such intervention shall be a matter of right and when
               exercised, confer upon the agency counsel the obligation
               to represent the agency. The Attorney General shall at all
               times continue to represent the Commonwealth.
71 P.S. §732-403.
               The import of the foregoing provision was explained by the
Pennsylvania Supreme Court, as follows:

                      As [the Pennsylvania Turnpike Commission
               (Commission)] counsel concedes, [S]ection 204(c) of the
               [CAA], 71 P.S. §732–204(c), gives the Attorney General
               both the right and duty to assume the representation of the
               [Commission] when it has been sued. Section 403 of the

       2
         See also Section 402(2) of the CAA, 71 P.S. §732-402(2) (“The chief counsel . . . [m]ay
request the assistance of the General Counsel or the Attorney General, or both of them, in any
matter or action involving the agency. If advice is requested from the Attorney General, such
advice when received shall be followed by the agency[.]”) (emphasis added).
                                          MHW - 2
               [CAA], while permitting the Attorney General to delegate
               that duty to agency counsel upon request, in no way affects
               the continued right of the Attorney General to represent
               the agency if he so chooses. The concluding language of
               [Section] 403(b) makes this clear by providing that the
               Attorney General shall “continue to represent the
               Commonwealth” when agency counsel intervenes. The
               preceding sentence, which states that the agency counsel
               shall be obligated to represent the agency when the right
               of intervention is exercised, speaks only to the duty of the
               agency counsel as intervenor, not to the position of the
               Attorney General in the litigation. Thus it is apparent that
               [S]ection 403(b) does not compel the ouster of the
               Attorney General when agency counsel intervenes.
               Rather, the [CAA] contemplates the possibility of dual
               representation where the Attorney General and the
               members of an agency disagree as to the agency’s interests
               or where . . . the members of an agency are themselves
               unable to agree upon the agency’s interests and the
               Attorney General disagrees with the agency’s chairman.
Fidelity Bank v. Pennsylvania Turnpike Commission, 444 A.2d 1154, 1160-61 (Pa.
1982).
               Based on the foregoing, I strongly disagree with the majority’s assertion
that the Attorney General, while representing the interests of the Commonwealth,
the Treasury Department, and the Department of Revenue in this matter, acted
inappropriately by presenting a legal argument that conflicts with the position of the
Department of Revenue below or that of the Office of General Counsel in its
representation of the Department of Revenue on appeal. The CAA clearly and
explicitly3 confers upon the Attorney General the primary authority to determine and

       3
          See, e.g., Section 1921(a) of the Statutory Construction Act of 1972 (Construction Act),
1 Pa. C.S. §1921(a) (“The object of all interpretation and construction of statutes is to ascertain
and effectuate the intention of the General Assembly. Every statute shall be construed, if possible,
to give effect to all its provisions.”); Pennsylvania Gaming Control Board v. Office of Open
Records, 103 A.3d 1276, 1285 (Pa. 2014) (“[S]tatutory language must be read in context, that is,
in ascertaining legislative intent, every portion of statutory language is to be read ‘together and in
(Footnote continued on next page…)
                                             MHW - 3
present to this Court what he perceives those interests to be, in spite of what the
Department of Revenue or the Treasury Department may perceive them to be, and
specifically contemplates dual representation of the agencies where those perceived
interests are conflicting. The majority’s contrary conclusion is patently incorrect.
Nevertheless, based on the conflicting legal positions, the majority correctly granted
the Department of Revenue’s application to intervene in this case, via representation
by the Office of General Counsel, to present its own interests in this matter.
                On the merits, I believe that the Attorney General has presented a
convincing argument that although the Department of Revenue erred in its pre-
amendment application of the Tax Reform Code of 19714 (Tax Code) in disposing
of Synthes USA HQ, Inc.’s (Taxpayer) petition for a refund of its corporate net
income tax (CNIT) paid for the 2011 tax year, the Board of Finance and Revenue’s
(F&R) order denying Taxpayer’s petition for review of the Department of Revenue’s
Board of Appeal’s order should be affirmed nonetheless.5 Taxpayer calculated its


conjunction’ with the remaining statutory language, ‘and construed with reference to the entire
statute’ as a whole.”) (citation omitted).

       4
           Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§7101-10004.

       5
           As we have explained:

                 This Court’s review in this matter is “de novo in nature, with no
                record being certified by [F&R].” Pa. R.A.P. 1571. “Although the
                Court hears these cases under its appellate jurisdiction, the Court
                functions essentially as a trial court.” Our decision is based on
                either a record created before this Court or, as in this case, stipulated
                facts.

General Motors Corporation v. Commonwealth, 222 A.3d 454, 459 n.3 (Pa. Cmwlth. 2019)
(citations omitted). Additionally, “[t]his Court has held that a reviewing court may affirm an order
of an administrative agency if it is correct for any reason regardless of the reasons given by the
(Footnote continued on next page…)
                                              MHW - 4
CNIT for the 2011 tax year based, in part, on the definition of “Taxable income”
provided in Section 401(3)2.(a)(17) (Subparagraph 17) of the Tax Code,6 which was
applicable before the General Assembly amended the Tax Code in 2013 by adding
Section 401(3)2.(a)(16.1)(C) (Subparagraph 16.1).7                    On its return, Taxpayer


tribunal whose order is under review.” Millvale Health Center, Inc. v. Department of Public
Welfare, 538 A.2d 625, 627 (Pa. Cmwlth. 1988) (citation omitted).

       6
         72 P.S. §7401(3)2.(a)(17). Section 401(3)2.(a)(17), defining “Taxable income,” states,
in relevant part:

              2. In case the entire business of any corporation . . . is not transacted
              within this Commonwealth, the tax imposed by this article shall be
              based upon such portion of the taxable income of such corporation
              for the fiscal or calendar year . . . and may be determined as follows

              (a) Division of Income.

                                                 ***

              (17) Sales . . . are in this State if:

              (A) The income-producing activity is performed in this State; or

              (B) The income-producing activity is performed both in and
              outside this State and a greater proportion of the income-producing
              activity is performed in this State than in any other state, based on
              costs of performance. [(Emphasis added.)]

       7
         Added by the Act of July 9, 2013, P.L. 270, 72 P.S. §7401(3)2.(a)(16.1)(C).
Subparagraph 16.1 states, in relevant part:

              (C)(I) Sales from the sale of service, if the service is delivered to a
              location in this State. If the service is delivered both to a location in
              and outside this State, the sale is in this State based upon the
              percentage of total value of the service delivered to a location in this
              State.

(Footnote continued on next page…)
                                             MHW - 5
properly applied Subparagraph 17 for apportioning income, including a sales factor
among the three factors, and sourced all receipts to Pennsylvania because the
greatest proportion of the costs of performing the services at issue was incurred here.
This computation method, the “costs-of-performance” method, is inconsistent with
the Department’s interpretation of Subparagraph 17, applying the “benefits-
received” method for these services, as subsequently provided for in Subparagraph
16.1 and applicable to Taxpayer’s CNIT following its enactment. See generally
Honigman Miller Schwartz and Cohn LLP v. City of Detroit, ___ N.W.2d ___, ___
(Mich., Dkt. No. 157522, filed May 18, 2020), slip op. at 8-10 (outlining the
evolution from the application of the costs-of-performance method to the benefits-
received method of calculating CNIT for income derived from providing multistate
services under the relevant Michigan tax statute); University of Phoenix, Inc. v.
Indiana Department of State Revenue, 88 N.E.3d 805, 811-13 (Ind. T.C. 2017)
(analyzing a number of states’ interpretation of similar provisions and applying the
costs-of-performance method under the relevant Indiana tax statute).
             To my mind, the General Assembly’s 2013 enactment of Subparagraph
16.1, while keeping Subparagraph 17 intact, demonstrates a legislative intent to alter


             (II) If the state or states of assignment under unit (I) cannot be
             determined for a customer who is an individual that is not a sole
             proprietor, a service is deemed to be delivered at the customer’s
             billing address.

             (III) If the state or states of assignment under unit (I) cannot be
             determined for a customer, except for a customer under unit (II), a
             service is deemed to be delivered at the location from which the
             services were ordered in the customer’s regular course of operations.
             If the location from which the services were ordered in the
             customer’s regular course of operations cannot be determined, a
             service is deemed to be delivered at the customer’s billing address.
(Footnote continued on next page…)
                                         MHW - 6
the calculation of CNIT for income received for the sale of services from the costs-
of-performance method to the benefits-received method by specifically adding this
provision to the Tax Code, and by specifically excepting the application of
Subparagraph 17 to income within the ambit of Subparagraph 16.1.8 See, e.g.,
Masland v. Bachman, 374 A.2d 517, 521 (Pa. 1977) (“A change in the language of
a statute ordinarily indicates a change in legislative intent.”); Haughey v. Dillon, 108
A.2d 69, 72 (Pa. 1954) (“A change of language in subsequent statutes on the same
matter indicates a change of legislative intent. Commonwealth v. Lowe Coal Co.,
[145 A. 916, 918-19 (Pa. 1929)]. Why else would the legislature change the
language?”). See also Section 1921(c)(5) of the Construction Act, 1 Pa. C.S.
§1921(c)(5) (“When the words of the statute are not explicit, the intention of the
General Assembly may be ascertained by considering, among other matters . . . [t]he
former law, if any, including other statutes upon the same or similar subjects.”);
Section 1928(b)(3) of the Construction Act, 1 Pa. C.S. §1928(b)(3) (“All provisions
of a statute of the classes hereafter enumerated shall be strictly construed: . . . (3)
Provisions imposing taxes.”).
               As a result, the Department of Revenue’s grant of Taxpayer’s refund
application for the 2011 tax year would be void because its interpretation of
Subparagraph 17 as requiring an assessment based on the benefits-received method
of allocation is not supported by the express language of the applicable Tax Code
provision in effect at that time. See 72 P.S. §7401(3)2.(a)(17) (“Sales . . . are in this
State if . . . [t]he income-producing activity is performed in this State; or . . . [it] is

       8
          The only amendment to Subparagraph 17 that was made by Section 19 of the Act of July
9, 2013, P.L. 270, was the replacement of the phrase “other than sales of tangible personal
property” in the first line with the phrase “other than sales under paragraphs (16) and (16.1).” No
amendments were made to the relevant provisions of Subparagraph 17 that are stated above and
that are at issue in this matter.
                                           MHW - 7
performed both in and outside this State and a greater proportion . . . is performed in
this State than in any other state, based on costs of performance.”) (emphasis added).
As this Court has previously explained:

                     It is well-settled that administrative agencies, such
              as the Department, are creatures of the General Assembly
              and can only exercise the powers that are conferred upon
              them by statute. Small v. Horn, [722 A.2d 664, 669 (Pa.
              1998)]; Capital BlueCross v. Pennsylvania Ins. Dep’t, 937
              A.2d 552, 569 (Pa. Cmwlth. 2007)[.] The Department
              thus acts ultra vires when it acts either without statutory
              authority or contrary to statutory authority.
Grimaud v. Pennsylvania Insurance Department, 995 A.2d 391, 405 (Pa. Cmwlth.
2010). See also SugarHouse HSP Gaming, L.P. v. Pennsylvania Gaming Control
Board, 162 A.3d 353, 375-76 (Pa. 2017) (“[A]lthough we accord an administrative
agency such as the [Gaming] Board substantial deference in construing the laws it is
tasked with administering, ‘we need not defer uncritically, particularly if we find
that the interpretation is imprudent or inconsistent with legislative intent.’”) (citation
omitted).9

       9
         The Attorney General also sets forth a convincing argument that rejecting the Department
of Revenue’s past incorrect interpretation of Subparagraph 17, and directing a correct
interpretation for the relevant tax year, does not present a Uniformity Clause issue. See
Commonwealth v. Westinghouse Electric Corporation, 386 A.2d 491, 494 (Pa. 1978), wherein the
Supreme Court stated:

                      Even if the Commonwealth erred in allowing the two
              corporations to deduct the foreign taxes, these isolated instances of
              taxpayers receiving deductions through the mistakes of the
              Commonwealth’s employees should not serve as a justification for
              this Court’s extension of relief and further mistake to appellant. The
              fact remains that “no errors or misinformation of (the
              Commonwealth’s) officers or agents can estop the government from
              collecting taxes legally due.” Commonwealth v. Western Maryland
              Railway[ Co., 105 A.2d 336, 341 (Pa. 1954)]. Moreover, appellant
(Footnote continued on next page…)
                                           MHW - 8
                Accordingly, like the majority, I would grant the Department of
Revenue’s application to intervene in this matter; however, unlike the majority, I
would affirm F&R’s order on the merits.




                                                MICHAEL H. WOJCIK, Judge

Judge Cohn Jubelirer joins in this Concurring/Dissenting Opinion.




                failed to meet its burden of proving that the Commonwealth
                deliberately and purposefully discriminated against appellant.

See also Stilman v. Tax Review Board, City of Philadelphia, 166 A.2d 661, 662-63 (Pa. 1961)
(“[T]o establish a denial of constitutional rights-in situations such as this-there must be a deliberate
and purposeful discrimination in the application of the tax. Prior error by an administrative official
when interpreting a valid tax statute is insufficient, in itself, to constitute a violation of the rights
of due process and equal protection of the laws.”) (citation omitted).
                                              MHW - 9
