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Note: The following is an excerpt from the introduction to the
article as published in The State and Local Tax Lawyer. Author citations have been
omitted for brevity.
Capital Stock Exemptions That Burden Multi-State Expansion: PPG Industries, Inc. v. Commonwealth
Stephen A. Welch
INTRODUCTION
In PPG Industries, Inc. v. Commonwealth, the Supreme Court of Pennsylvania found facial discrimination against interstate commerce in the manufacturing exemption to the Commonwealth’s capital stock tax. The court held that the exemption afforded preferential treatment to corporations expanding their manufacturing operations in Pennsylvania while penalizing corporations for manufacturing in other states, which had the effect of foreclosing tax neutral business decisions. Rather than ruling the exemption unconstitutional, the court remanded the case to the Commonwealth court for a determination of whether the exemption could be constitutionally justified as a compensatory tax.
Part I of this note provides the facts of PPG, background on capital stock taxation in Pennsylvania, the decisions rendered by the Commonwealth Court, and the opinion of the Supreme Court of Pennsylvania. The analysis in Part II concludes that the Supreme Court’s decision that the manufacturing exemption facially discriminates against interstate commerce was a correct application of Commerce Clause precedent. Part III considers the vexing problem of finding a suitable remedy when a tax provision that has been in operation for many years is suddenly pronounced unconstitutional.
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