§ 155.27. Net worth—fixed formula.
(a) Net worth is the sum of the taxpayer’s issued and outstanding capital stock, surplus and undivided profits as per books set forth on the income tax return filed by the taxpayer with the Federal government, or if no return is made, as would have been set forth had a return been made.
(b) In the case of a taxpayer which has investments in the common stock of another corporation, net worth is the consolidated net worth of the taxpayer computed in accordance with generally accepted accounting principles. Book value for investments of stock of other corporations includes original cost plus the investor’s share of the investee’s earnings or losses. For the purpose of this subsection, investments in the common stock of another corporation means investments which shall be accounted for using the equity method of accounting or which shall be consolidated under generally accepted accounting principles.
(c) Net worth may not be less than zero.
(d) Net worth does not include the cost of treasury stock.
(e) Net worth as reported by the taxpayer is subject to correction by the Department for fraud, evasion or error.
(f) Net worth includes the amount of a contingent liability or surplus reserve which is not recorded as a liability or a reduction in an asset account by an entry in the books of account of the corporation. Contingent liability or surplus reserve which is included as a parenthetical comment in the main body of the financial statements or by a footnote to the financial statements may not result in a reduction or increase to net worth.
(g) Changes in a taxpayer’s capital structure, including contributions and distributions of capital, purchases of treasury stock and liquidation distributions, may not be prorated.
Example 1. The taxpayer, which files on a calendar year basis, issued common stock on July 1. The value of the common stock issued is $300,000. The net worth at the end of the tax year is $1 million. The net worth to be used in computing capital stock value is $1 million.
Example 2. The taxpayer, which reports on a calendar year basis, has discontinued business operations. On January 1 of the taxable year, taxpayer has a net worth of $100,000 and total assets of $1 million. On December 1 of the taxable year, taxpayer distributes all of its assets. The net worth to be used in computing capital stock value is zero.
(h) Commencing with calendar year 1987 and fiscal years beginning in 1987 and each year thereafter, the following rule applies: if net worth as arrived at under subsections (a)—(g) for the current tax year is greater than twice or less than 1/2 of the net worth which would have been calculated under subsections (a)—(g) as of the first day of the current tax year, then net worth for the current tax year shall be the average of these two amounts.
Authority The provisions of this § 155.27 issued under section 408 of the Tax Reform Code of 1971 (72 P. S. § 7408).
Source The provisions of this § 155.27 adopted January 16, 1987, effective January 17, 1987, 17 Pa.B. 273.
Notes of Decisions Capital Stock Value
Corporation has not demonstrated a due process violation, but rather can claim only that where the total property, payroll, and sales of the unitary business enterprise included in the fractions of the three-factor formula, its tax due would be approximately 44.5% less than the figure arrived at by the Board of Finance and Revenue in its calculation under the three-factor formula, where a 44.5% disparity between calculations does not lie outside of the constitutional margin of error delineated by the United States Supreme Court. Unisys Corp. v. Commonwealth, 812 A.2d 448 (Pa. 2002); cert. denied 540 U. S. 812 (U. S. 2003).
Cross References This section cited in 61 Pa. Code § 155.10 (relating to single factor apportionment); and 61 Pa. Code § 155.21 (relating to general).
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