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Noting in a footnote the “potential chilling effect” its decision would have on the commonwealth, the state Supreme Court has declared the manufacturing exemption to the capital stock tax, which was designed to bolster a better climate for manufacturers in Pennsylvania, in direct violation of the Commerce Clause of the U.S. Constitution.

“By employing the manufacturing exemption to the capital stock tax as a means of inducing other business operations, i.e., manufacturing, to be performed in Pennsylvania, Section 602 unconstitutionally forecloses `tax neutral decisions’ and affords preferential treatment to corporations that engage in manufacturing activities in the Commonwealth,” wrote Justice Stephen A. Zappala in PPG Industries v. Commonwealth Board of Finance and Revenue, PICS Case No. 99-1184 (Pa. June 17, 1999) Zappala, J. (13 pages).

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