S & H Transport, Aplt. v. City of York ( 2019 )

[J-99-2018] [MO: Todd, J.]
IN THE SUPREME COURT OF PENNSYLVANIA
MIDDLE DISTRICT
S & H TRANSPORT, INC., : No. 8 MAP 2018
:
Appellant : Appeal from the Order of the
: Commonwealth Court at No. 242 CD
: 2017 entered October 5, 2017
v. : Reversing the Order of the Court of
: Common Pleas of York County, Civil
: Division, at No. 2012-SU-4143-54,
CITY OF YORK, : dated February 7, 2017, entered
: February 9, 2017.
Appellee :
: ARGUED: December 5, 2018
DISSENTING OPINION
JUSTICE DOUGHERTY DECIDED: July 17, 2019
I respectfully dissent.
At issue is whether appellant, S & H Transport, Inc. (“S & H”), which is a broker of
freight services, may claim a “freight delivery exclusion” when calculating the amount of
business privilege tax (“BPT”) on gross receipts it owes to appellee, the City of York. In
my view, the Commonwealth Court correctly determined S & H may not claim the
exclusion based on a plain reading of the York Business Privilege and Mercantile Tax
Ordinance (“Ordinance”), York Business Privilege Tax Rules and Regulations
(“Regulation”), and the Local Tax Enabling Act (“LTEA”), 53 P.S. §6924.101-6924.901.
The majority determines the exclusion under the LTEA, id. at §6924.301.1(f)(12)(ii)
(excluding from any municipality’s BPT of gross receipts those “charges advanced by a
seller for freight, delivery or other transportation for the purchaser in accordance with the
terms of a contract of sale”) is inapplicable, and does “not bar the City from imposing its
BPT on the monies S & H receive[s] from its brokered shipping arrangements.” Majority
Op. at 17. The majority concludes, however, that the exclusionary language in the local
Regulation (excluding from the BPT those “gross receipts which constitute … [f]reight
delivery or transportation charges paid by the seller for the purchaser”) is susceptible to
several reasonable interpretations — specifically, the word “seller” can be read broadly
enough to encompass one who is engaged in the sale of services only, such as S & H.
See id. at 19, citing Regulation §206(j)(2). On that basis, the majority finds the
Regulation’s language ambiguous, and determines it must be construed in favor of the
taxpayer and against the taxing body. I disagree. The plain language controls and
compels the conclusion that the freight delivery exclusion is inapplicable under both the
LTEA and the Regulation. Accordingly, I respectfully dissent.
The BPT at issue places a “tax on every dollar of the whole or gross volume of
business transacted within the territorial limits of the City[.]” Ordinance Article 343.02(a).
“Business” as defined by the Ordinance is “any activity … including but not limited to …
the sale of merchandise or other tangible personalty or the performance of services.”
Ordinance Article 343.01(a) (emphasis added). The term “gross volume of business” is
defined as “the money or money’s worth received by any vendor in, or by reason of, the
sale of goods, wares, merchandise or services rendered.” Id. at Article 343.01(f)
(emphasis added). The Regulation defines “sale” as “the passing of ownership from a
seller to a buyer for a price” and defines “service” to mean “any act or instance of helping
or benefiting another for consideration.” Regulation §201.
In my view, the plain language and meanings of the words contained in the
Ordinance and Regulation establish that sales and services are separate activities.
Moreover, the activities are separately taxed under the BPT, with services being taxed at
[J-99-2018] [MO: Todd, J.] - 2
a higher rate than sales.1 The definition of “gross volume of business” is money received
for “the sale of goods, wares, merchandise, or services rendered.” Ordinance Article
343.01(f) (emphasis added). Under principles of statutory construction, words and
phrases are construed according to the rules of grammar, and the use of the disjunctive
“or” in the Ordinance sets the phrase “services rendered” apart from “sales.” See 1
Pa.C.S. §1903(a) (“Words and phrases shall be construed according to rules of grammar
and according to their common and approved usage[.]”); In re Nomination Petition of
Paulmier, 937 A.2d 364, 373 (Pa. 2007) (“The word ‘or’ is defined as a conjunction ‘used
to connect words, phrases, or clauses representing alternatives.’ In other words, ‘or’ is
disjunctive. It means one or the other of two or more alternatives.”) (citation omitted).
I am of the position, if the local government entity that drafted the Regulation and
Ordinance intended services rendered and sales to be one and the same, it would not
have used the disjunctive “or,” but the conjunctive “and” — and would have defined “gross
volume of business” as “the sale of goods, wares, merchandise, and services.” Reading
the Regulation’s exclusion in concert with the definitions of “business” and “gross volume
of business” contained in the Ordinance, I see no ambiguity in the term “seller” which
might support application of the exclusion to business conducted by S & H. Additionally,
even if it was plausible to construe the term “seller” contained in the exclusion to include
one involved in the sale of “services rendered” or sale of “the performance of services,”
such that a “seller” might be deemed a purveyor of services and not “goods, wares or
merchandise,” as the majority determines that phrase might be construed, the plain
1 The Ordinance provides “on receipts attributable to the performance of services” the
rate imposed will be 3.5 mills ($3.50 on every $1000) of “gross volume of business[.]”
Ordinance Article 343.02(a)(1). The rate imposed on receipts for the performance of
services is greater than the rate imposed on wholesale sales (1 mill) and retail sales (1.5
mills).
[J-99-2018] [MO: Todd, J.] - 3
language of the word “purchaser” in the exclusion contained in the Regulation and LTEA
renders the exclusion inapplicable here.
S & H simply does not remit “charges paid by the seller for the purchaser[,]”
Regulation §206(j)(2) (emphasis added), and it does not handle “charges advanced by a
seller for freight, delivery or other transportation for the purchaser.” 53 P.S.
§6924.301.1(f)(12) (emphasis added). S & H is a freight brokerage company. It acts as
a middleman that connects its customers, the sellers of products, by arranging the
shipping of products between sellers and purchasers of those products through
independent carriers. Shipping charges are paid by the seller of a product through the
freight broker, S & H. This arrangement is strictly a pass-through transaction. S & H,
however, does not remit or advance the seller’s payment to the purchaser. Instead, S &
H remits or advances the seller’s money to the carrier, i.e. another provider of services,
and not the purchaser, i.e. the entity purchasing and ultimately receiving the shipped
goods.2 The majority’s determination the “purchaser” in such transactions is the “shipper
of goods or commodities[,]” see Majority Op. at 20, is simply not a plausible reading of
the plain words of the Regulation, Ordinance and LTEA.
Finally, I note all parties concede the “pass-through” nature of the monies collected
by S & H from sellers of goods that it transmits to freight carriers. I disagree with any
suggestion such pass-through payments do not amount to gross receipts. See Wightman
Health Ctr. v. Pittsburgh, 430 A.2d 717 (Pa. Cmwlth. 1981) (Medicare, Medicaid and other
third party payments to healthcare center not excluded from gross receipts for purposes
2 As the Commonwealth Court aptly noted, “S & H is neither the seller nor the purchaser
in the transactions at issue but merely a broker of services.” S & H Transport, Inc. v. City
of York, 174 A.3d 679, 683 (Pa. Cmwlth. 2017). Neither, in my view, does S & H advance
a seller’s money covering the cost of shipment “for the purchaser.” See Regulation
§206(j)(2); see also 53 P.S. §6924.301.1(f)(12).
[J-99-2018] [MO: Todd, J.] - 4
of Pittsburgh BPT, even though center was merely a conduit for flow of funds).
Accordingly, I dissent and would affirm the order of the Commonwealth Court.
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