Legal Alert: Pulp and Circumstance – Pennsylvania Supreme Court Characterizes Gain as Business Income


On January 22, 2013, the Pennsylvania Supreme Court held that the gain on the sale of out-of-state timberlands constituted business income under the state’s amended definition of business income. Glatfelter Pulpwood Co. v. Cmwlth, No. 62 MAP 2011, 2013 WL 221791, at *1 (Pa. Jan. 22, 2013). The decision is the first Pennsylvania Supreme Court case to interpret the definition of business income as amended in 2001, and comes as a surprise to practitioners and taxpayers who considered the 2001 amendments a clarification of the law – and not an elimination of the “liquidation exception” to the definition of business income.

The Glatfelter decision is also noteworthy because it comes on the heels of the United States Supreme Court denying certiorari in another business/nonbusiness income case involving gain from the sale of timberlands. In re: Kimberly-Clark Corporation and Kimberly-Clark Worldwide, Inc. v. Alabama Dep’t of Rev., 69 So.3d 144 (Ala. 2010), cert. denied, U.S. S. Ct., Dkt. No. 12-401 (Jan. 14, 2013). Unlike the Pennsylvania Supreme Court, the Alabama Supreme Court reached the conclusion that gain on the sale of a paper mill and timberlands by a company in the business of manufacturing and selling paper-related products constituted allocable, nonbusiness income.

Background -

Glatfelter Pulpwood Company’s (Glatfelter) sole business activity was the procurement of pulpwood for its parent corporation’s Pennsylvania-based paper manufacturing operations. Glatfelter grew and harvested trees from its timberlands in Maryland, Delaware, Pennsylvania, and Virginia.

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