Section 170.11. Documentation requirements to establish out-of-State sales after Gilmour Manufacturing decision

(a) In Commonwealth v. Gilmour Manufacturing Corporation, 573 Pa. 143, 822 A.2d 676 (2003), the Supreme Court held that for purposes of calculating its Pennsylvania sales apportionment factor for the Corporate Net Income Tax, a Pennsylvania corporation is not required to include in the numerator sales of goods to out-of-State buyers who retrieve the goods at the seller’s place of business in this Commonwealth and then transport the goods out of this Commonwealth. The Court determined that section 401(3)2(a)(16) of the Tax Reform Code (72 P. S. § 7401(3)2(a)(16)) mandated that conclusion with regard to the ‘‘dock sales,’’ regardless of whether the buyer personally retrieves the item using his own means of transport or by engaging the services of a for-hire motor carrier. The Court ruled that the Department regulation on the subject, § 153.26(b)(2) (relating to sales factor), was inconsistent with the statutory requirement insofar as it required the inclusion of the sales in the numerator of the taxpayer’s sales factor.

(b) The Court’s holding excludes from the Pennsylvania portion of the apportionment factor only sales to out-of-State buyers who transport the goods out of this Commonwealth. Sales to purchasers who do not transport the goods outside of this Commonwealth for use or resale are Pennsylvania sales for purposes of calculating the sales factor numerator. Thus, in the absence of sufficient evidence establishing an ultimate destination to an out-of-State location, sales of goods in which delivery is made to the buyer at a Pennsylvania location must be reported as Pennsylvania sales and included in the numerator of the Pennsylvania sales apportionment fraction.

(c) Documentation sufficient to establish an out-of-State sale includes:

(1) Bills of lading of the carrier establishing that the goods were destined for or delivered to an out-of-State location.

(2) Delivery instructions from the purchaser to the carrier establishing that the goods were to be transported out of this Commonwealth.

(3) Warehouse receipts of the purchaser showing that the goods were delivered to an out-of-State location.

(4) Invoices issued by the taxpayer/seller to the purchaser showing an out-of-State delivery address.

(d) Documentation which will be deemed insufficient to establish that the ultimate destination of goods is to an out-of-State location:

(1) Invoices issued by the taxpayer/seller to the purchaser showing an out-of-State mailing address.

(2) Affidavits or other declarations from the seller, its employees or agents that the ultimate destination of goods was an out-of-State location.

(e) Examples of documentation are as follows: A taxpayer sells plumbing fixtures to Company X, a New Jersey corporation which has retail stores in New Jersey and Pennsylvania.

(1) Examples of sufficient documentation:

Example 1. Company X uses a carrier to pick the goods up at A’s warehouse in Pennsylvania. Company X provides documentation it procured from the carrier showing that the merchandise was delivered to X’s warehouse in New Jersey.

Example 2. A taxpayer secures a copy of the delivery instructions from Company X to the carrier directing that the fixtures be taken to Company X’s warehouse in New Jersey.

Example 3. Company X uses a carrier to pick up the merchandise. The taxpayer secures a copy of the bill of lading showing the fixtures were delivered to the New Jersey location.

(2) Examples of insufficient documentation:

Example 1. A taxpayer produces invoices submitted to Company X at its headquarters in New Jersey and a remittance letter accompanying the check from X’s New Jersey headquarters.

Example 2. The same as Example 1, except the taxpayer provides an affidavit from its sales manager asserting that the merchandise sold to Corporation X was delivered to X’s warehouse in New Jersey.

The provisions of this § 170.111 adopted July 14, 2006, effective July 15, 2006, 36 Pa.B. 3673.