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

[J-99-2018]
IN THE SUPREME COURT OF PENNSYLVANIA
MIDDLE DISTRICT
SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.
S & H TRANSPORT, INC., : No. 8 MAP 2018
:
Appellant : Appeal from the Order of the
: Commonwealth Court entered October
: 5, 2017 at No. 242 CD 2017 reversing
v. : the Order of the Court of Common
: Pleas of York County, Civil Division,
: dated February 7, 2017, entered
CITY OF YORK, : February 9, 2017 at No. 2012-SU-
: 4143-54
Appellee :
: ARGUED: December 5, 2018
OPINION
JUSTICE TODD DECIDED: July 17, 2019
In this appeal, we are asked to consider whether the Business Privilege and
Mercantile Tax (“BPT”) imposed by Appellee the City of York (“City”), must be paid by
Appellant, S & H Transport, Inc. (“S & H”), a freight broker, on the total yearly amount of
money S & H receives from its customers for arranging shipping of commercial goods
with freight carriers on their behalf, where, after deducting its commission, S & H remits
the remaining money to the freight carriers as payment of their shipping fees. After careful
review, we find that the amount of money S & H collects and passes on to freight carriers
for their fees is excluded from taxation under the City’s BPT. We therefore reverse the
order of the Commonwealth Court.
I. Background and Procedural History
S & H is a freight brokerage company which arranges freight delivery for sellers of
commercial goods, via a common carrier.1 Freight brokers do not directly ship or transport
freight; rather, they function as intermediaries which facilitate the shipment of goods.
Reiter v. Cooper, 507 U.S. 258, 261 (1993); cf. 49 U.S.C. § 13102(2) (defining “[b]roker”
as “a person, other than a motor carrier or an employee or agent of a motor carrier, that
as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation,
advertisement, or otherwise as selling, providing, or arranging for, transportation by motor
carrier for compensation.”). They are the “connecting link between shippers and carriers,
uniting shippers who have cargo to deliver with carriers who have available motor
transportation.” Jeffrey S. Kinsler, Motor Freight Brokers: A Tale of Federal Regulatory
Pandemonium, 14 Northwestern Journal of International Law and Business 289 (1994).
As explained by the Commonwealth Court in its opinion in this matter, freight
brokerage is a process in which a freight broker such as S & H receives an order from a
customer (“seller”) who desires to ship commercial goods to a buyer. The broker then
contracts with a common carrier to perform this task. Once the goods have been
delivered to the buyer, the broker will invoice the seller for the amount of the shipping fee
charged by the common carrier, as well as its broker’s commission. When the seller pays
the amount of the invoice to the broker, the broker remits the shipping fee to the common
carrier, while retaining its commission. S & H Transport, Inc. v. City of York, 174 A.3d
679, 680 (Pa. Cmwlth. 2017).
1 A common carrier is “[a] commercial enterprise that holds itself out to the public as
offering to transport freight or passengers for a fee . . . [and] generally [is] required by law
to transport freight or passengers without refusal if the approved fare or charge is paid.”
Black's Law Dictionary 256 (10th ed. 2014).
[J-99-2018] - 2
S & H is headquartered in York, Pennsylvania, and, thus, like all businesses within
that City, it is obligated to pay that City’s BPT, which was created by an ordinance passed
by York City Council, pursuant to the authorization of the Local Tax Enabling Act
(“LTEA”).2
Briefly, by way of background, the LTEA is the means by which the General
Assembly has conferred on local municipalities the authority to impose a broad range of
taxes other than just real estate taxes, which were, historically, the means by which their
governments derived revenue to provide necessary public services to their residents.
Joseph C. Bright, Summary of Pennsylvania Jurisprudence, Taxation § 17:1 (2018). As
a general matter, the LTEA authorized local municipalities to enact taxes on tangible
objects or activities which the Commonwealth does not itself tax, subject to certain
legislatively specified restrictions. After the LTEA became law in 1966, various
municipalities utilized the authority granted to them by this enactment to levy taxes on the
gross receipts of businesses within their jurisdiction for “the privilege of doing business.”
53 P.S. § 6924.301.1(a.1)(1). As our Court has explained, the LTEA allowed such local
taxation “as a quid pro quo for businesses advantaging themselves of local governmental
benefits, including the availability of police, fire, and other services.” V.L. Rendina,
Incorporated v. City of Harrisburg, 938 A.2d 988, 995 (Pa. 2007).3
2 Act of December 31, 1965, P.L. 1257, No. 511, 53 P.S. §§ 6924.101 to 6924.901.
3 In 1988, as part of a broad initiative to fundamentally restructure the manner in which
municipalities collect local taxes, the legislature enacted the “Local Tax Reform Act,” Act
of December 13, 1988, P.L. 1121, No. 145. Section 533 of that Act, 72 P.S. § 4750.533,
prohibited municipalities from enacting new ordinances levying business privilege taxes
on the gross receipts of businesses after November 30, 1988; however, it preserved the
business privilege taxes which municipalities had already enacted, but capped their rates
to those which were in effect on that date. The majority of the provisions of the Local Tax
Reform Act were set to take effect upon the passage of a constitutional amendment to
implement it, but the voters of the Commonwealth rejected this amendment in the primary
election of May 16, 1989. Subsequently, the General Assembly repealed the majority of
the Local Tax Reform Act, except for Section 533 and a few other provisions.
[J-99-2018] - 3
Although municipalities were authorized to impose such “business privilege” taxes,
the General Assembly also excluded from this taxing power certain enumerated objects
or activities. See generally 53 P.S. § 6924.301.1. Pertinent to the issues we are
considering in the case at bar, municipalities are forbidden “[t]o levy, assess and collect
a mercantile or business privilege tax on gross receipts or part thereof which are: . . . (ii)
charges advanced by a seller for freight, delivery or other transportation for the purchaser
in accordance with the terms of a contract of sale.” Id. § 6924.301.1(f)(12)(ii).
As noted, York enacted its BPT via ordinance (“BPT Ordinance”), which provides,
in pertinent part:
LEVY; RATE; EXEMPTIONS; BUSINESS VOLUME.
There is hereby levied . . . a tax for general revenue purposes
on the privilege of doing business as herein defined in the
City.
BPT Ordinance, § 343.02. The tax is imposed on “the whole or gross volume of business
transacted within the territorial limits of the City.” Id. § 343.02(a). The BPT Ordinance
further defines these terms in the following fashion:
(a) “Business” means any activity carried on or exercised for
gain or profit in the City, including but not limited to, the sale
of merchandise or other tangible personalty or the
performance of services. As to those taxpayers having a
place of business within the City, “business” includes all
activities carried on within the City and those carried on
outside the City attributable to the place of business within the
City.
* * *
(f) “Gross volume of business” means the money or money’s
worth received by any vendor in, or by reason of, the sale of
goods, wares, merchandise, or services rendered.
(g) “Service” means any act or instance of helping or
benefitting another for consideration.
Id. § 343.01.
[J-99-2018] - 4
In 2004, pursuant to the BPT Ordinance, the City promulgated an interpretative
regulation (“BPT Regulation”) to “provide a formal interpretation” of the BPT Ordinance,
and to establish criteria for its administration. See BPT Ordinance, Introduction. The
section of the BPT Regulation applicable to the instant matter defines the “gross receipts”
of a business subject to taxation as:
Cash, credits or property of any kind received in exchange for
merchandise sold or services performed or other business
activity conducted within or attributable to the City, without
deduction there from [sic] on account for costs of property or
merchandise sold; materials, labor or services furnished or
used; interest or discount paid; or any other business related
expense, as permitted by regulation.
BPT Regulation § 201. The Regulation further describes “sale” as: “[t]he passing of
ownership from a seller to a buyer for a price, or for a consideration,” and “service” to
mean “any act or instance of helping or benefiting another for consideration.” Id. Of
particular relevance here, the Regulation also excludes from taxation of a business’s
gross receipts any “[f]reight delivery or transportation charges paid by the seller for the
purchaser.” Id. § 206(j)(2).4
In 2011, an audit of S & H’s business privilege tax returns conducted by the City
revealed that, for the tax years 2007-2011, S & H claimed that, under the “public utility
service” exemption of the LTEA,5 it was entitled to deduct from its gross receipts the
shipping fees it collected. The City took the position that S & H was not entitled to claim
this exemption and, consequently, issued a tax assessment against S & H in the amount
of $118,346.88, plus interest and penalties. S & H appealed to the Court of Common
Pleas of York County, arguing that it was entitled to claim this exemption, and raising
4Although the BPT Ordinance contains the same definition of “service” as does the BPT
Regulation, it does not define “sale”.
5 53 P.S. § 6924.301.1(f)(2).
[J-99-2018] - 5
other arguments as to why it was not subject to the BPT. The trial court concluded that
S & H qualified for the “public utility service” exemption of the LTEA, and vacated the
assessment order on that basis.6
The City next appealed to the Commonwealth Court, which reversed the trial court
based on its finding that S & H was ineligible for the exemption because it was not
rendering a public utility service through its business activities. S & H Transport, Inc. v.
City of York, 102 A.3d 599 (Pa. Cmwlth. 2014). S & H further appealed that decision to
our Court, and we unanimously upheld the Commonwealth Court’s decision. S & H
Transport, Inc. v. City of York, 140 A.3d 1 (Pa. 2016). However, we remanded the matter
to the trial court for it to rule on S & H’s other challenges to the imposition of the BPT,
which it had not previously addressed.
One of these challenges, which is the subject of the present appeal, was S & H’s
claim that the City improperly included in its calculation of S & H’s gross receipts the
amount of shipping fees it was paid by sellers utilizing its services, which it then remitted
to the carriers it hired to deliver the sellers’ products, in addition to the commissions it
earned for arranging the transactions. S & H maintained that it was only responsible for
paying the gross receipts tax on the portion of the total sum paid to it by the seller of the
products that S & H retained as its commission. The City, by contrast, contended that S
& H was a middleman which arranged transportation for sellers of goods and, as such,
all money it received as a result of performing this service was taxable as gross receipts,
regardless of the fact that S & H passed the shipping fees it collected on to the carrier.
6 The Honorable John W. Thompson adjudicated this matter before his retirement from
the Court of Common Pleas of York County.
[J-99-2018] - 6
The trial court ruled in favor of S & H.7 It interpreted the BPT Ordinance as applying
solely to the gross revenue earned by S & H for acting as an agent of the seller — its
commissions. The court viewed S & H as merely a “conduit” of the shipping fees charged
by the carrier and paid by the seller. Trial Court Opinion, 2/9/17, at 6. The court
analogized this arrangement to one where a real estate closing company acts as a conduit
of monies related to the sale of the property, like mortgage proceeds and down payment
funds, which it merely passes through to other parties to the sale, but does not itself retain.
The court considered it “patently unfair” to impose the BPT on such monies which merely
passed through S & H’s accounts. Id.
The trial court also noted that the BPT Regulation “specifically provides for delivery
or transportation charges paid by a seller for a buyer to be excluded.” Id. In the court’s
view, it was immaterial for purposes of this exclusion whether the seller paid the charges
directly or “by an agent of the seller, i.e., S & H, acting as a conduit for the seller.” Id.
The City appealed to the Commonwealth Court, which reversed in a unanimous
published opinion authored by Senior Judge Dante Pellegrini.8 S & H Transport, Inc. v.
City of York, 174 A.3d 679 (Pa. Cmwlth. 2017). First, the Commonwealth Court
emphasized that it has repeatedly held that fairness is not the standard utilized in
interpreting tax statutes; rather, only the legislative intent to include or exclude the
proceeds of particular business activities from a BPT is relevant. Thus, the
Commonwealth Court found that the trial court erred in evaluating the tax for fairness or
reasonableness.
7 Due to Judge Thompson’s retirement, the matter was reassigned to Judge Stephen P.
Linebaugh.
8 Judge Pellegrini was joined by Judges Kevin Brobson and Patricia McCullough.
[J-99-2018] - 7
In order to ascertain the legislative intent regarding the taxability of the monies at
issue under the BPT, the Commonwealth Court examined what it considered to be the
governing provisions of the Ordinance and the Regulation. The court observed that,
under the BPT Ordinance, the tax is levied on all “business” occurring within the City,
including “any activity carried on, or exercised for gain or profit, in the City, including . . .
the provision of services,” and, thus, encompassed S & H’s freight brokerage services.
Id. at 682 (quoting BPT Ordinance § 343.01(a)).
Next, the Commonwealth Court noted that the BPT is assessed on the “gross
volume of business,” which is further defined by the BPT Ordinance 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. (quoting BPT Ordinance § 343.01(f)). The court
found that “[t]his broad language indicates that the City intended to impose the BPT on
all gross receipts attributable to corporations such as S & H conducting business within
the City, not just to gross profits as was held by the trial court.” Id. (emphasis original).
The Commonwealth Court further determined that the shipping fees received by
S & H were not excludable under the BPT Regulation’s exclusion for “[f]reight delivery or
transportation charges paid by the seller for the purchaser.” BPT Regulation § 206(j)(2).
Likewise, the court concluded that the shipping fees were not barred from taxation under
Section 6924.301.1(f)(12) of the LTEA, which, as noted above, prohibits local
municipalities like the City from taxing gross receipts comprised of “charges advanced by
a seller for freight, delivery or other transportation for the purchaser in accordance with
the terms of a contract of sale.” S & H Transport, 174 A.3d at 683 (quoting 53 P.S.
§ 6924.301.1(f)(12)).
With respect to both the BPT Regulation and the LTEA, the court observed that, in
the transactions at issue, S & H, acting in its capacity as a broker, was neither the seller
[J-99-2018] - 8
nor purchaser of the goods which were the subject of the transactions, nor did it transport
those goods; hence, the court reasoned that neither the plain text of the LTEA, nor the
BPT Regulation, permitted S & H to exclude the shipping fees it received. Additionally,
the court found no legal authority to support the trial court’s treatment of an agent of the
seller as if it were the seller, in order to allow the agent to claim the seller’s tax exemption.
Lastly, the court observed that it had previously rejected a similar argument that
money which merely passed through a business entity was exempt from a business
privilege tax because the business received no profit on it. Id. at 683 (citing Wightman v.
City of Pittsburgh, 430 A.2d 717, 718 (Pa. Cmwlth 1981) (rejecting nursing home’s
argument that it was exempt from paying Pittsburgh’s business privilege tax on Medicaid
and Medicare monies, which it passed through in the form of payment to private
contractors that the nursing home hired to perform services, on the basis that the BPT is
imposed “on gross receipts without regard to related expenses or the ultimate profitability
of the taxpayer’s enterprise”)).
S & H filed a petition for allowance of appeal, which our Court granted as to the
following issues, as set forth by S & H:
1. Whether a freight broker is permitted to exclude freight
delivery charges, to which the broker has no right to retain but
rather utilizes solely for the purposes of purchasing
transportation services for its customers, from its taxable
gross receipts under the City of York’s Business Privilege and
Mercantile Tax Ordinance?
2. Whether a municipality may rely on more narrowly tailored
exclusionary language contained in the Local Tax Enabling
Act, 53 P.S. 5924.101 et seq., to interpret and enforce a more
broadly worded exclusion contained in the municipalit[y’s]
ordinances.
S & H Transport, Inc. v. City of York, 182 A.3d 994 (Pa. 2018) (order).
II. Arguments of the Parties
[J-99-2018] - 9
S & H first claims that the LTEA and the BPT Regulation create what it refers to as
“freight delivery exclusions,” and, as tax exclusions, they must be construed against York
as the taxing body. Accordingly, S & H argues that the Commonwealth Court erred in
construing these provisions against it as the taxpayer.
In this regard, S & H notes that, under federal laws which govern the interstate
shipping of goods, no transportation charges may be levied until delivery of the goods is
confirmed through issuance of a bill of lading9 by the carrier. S & H asserts that, as a
broker, it is required by federal law to retain the bill of lading, and document that it
collected the shipping charges from the shipper and paid them to the carrier. According
to S & H, the Pennsylvania Public Utility Commission also requires that charges collected
by a broker for shipping be paid in full to the carrier without deduction for its fees, and that
it must post a bond to ensure such payment. Thus, in S & H’s view, these laws and
regulations establish that it has no legal right to possess money paid by a shipper to it for
the delivery of the shipper’s goods, so these monies do not qualify as a “receipt” under
either the LTEA or the BPT Ordinance.
With respect to the BPT Regulation, S & H argues that the freight delivery
exclusion, as set forth in the Regulation, applies broadly to all “freight delivery or
transportation charges paid by the seller for the purchaser,” and it does not limit the class
of individuals who can be considered sellers to only those who are sellers of goods, as
the Commonwealth Court found. S & H Brief at 11 (quoting BPT Regulation § 206(j)(2)).
Indeed, S & H points out that the Federal Motor Carrier Act defines a “freight broker,”
such as itself, as a person who “sells, offers for sale, negotiates for, or holds itself out . .
. as selling . . . transportation by motor carrier for compensation,” id. (quoting 49 U.S.C.
9 A bill of lading is “the receipt a common carrier gives to a shipper for goods given to the
carrier for transportation.” Jack P. Friedman, Barron’s Dictionary of Business Terms 52
(2d ed. 1994).
[J-99-2018] - 10
§ 13102), so it, as a broker, can be considered a seller for purposes of this exclusion.
S & H asserts that the BPT Ordinance itself indicates that the tax can be levied on the
monetary value of services rendered, so, from its perspective, it is engaged in the type of
activity — furnishing a service — which makes it subject to the tax, but also eligible for
this exclusion. Id. at 12 (quoting BPT Ordinance § 343.02(a)(1)).10
S & H contends that, because the plain language of the BPT Regulation does not
limit the class of sales covered by the exclusion to only the sale of goods, in order to
justify its interpretation of the Regulation, the Commonwealth Court improperly relied on
the narrower exclusionary language in Section 6924.301.1(12) of the LTEA, which refers
only to contracts for the sale of goods. Such a construction, S & H argues, is at odds with
the principle that these types of enactments should be construed against the taxing
authority.
The City responds by arguing that, in order for the freight delivery exclusion
contained in the BPT Regulation to apply, “[a]s is the case with the LTEA . . . the entity
claiming the exclusion must be a seller who is paying the transportation charges for the
purchaser.” City Brief at 3. The City offers as an example a situation where a
manufacturer/seller of a product agrees to pay the upfront shipping costs to a purchaser
in order for the product to be delivered. Thereafter, once delivery of the product is
complete, the seller bills the purchaser for the product plus the shipping costs. In the
City’s view, the purpose of the exclusion is to ensure that the shipping costs reimbursed
to the seller are not included in the seller’s gross receipts since they essentially represent
a loan. The City asserts that S & H is not similarly situated.
10S & H contends that, if the Commonwealth Court’s interpretation is left to stand, it would
have federal constitutional ramifications. However, as S & H acknowledges, we did not
accept for review any issue concerning whether the City’s BPT tax is unfairly apportioned
such that it violates the United States Constitution. Consequently, we will not further
address this portion of S & H’s argument.
[J-99-2018] - 11
In furtherance of its argument that the BPT Regulation does not permit the
exclusion of these shipping fees, in that they were not sales of commercial goods, the
City notes that the terms “sales” and “services” are both uniquely defined in the BPT
Ordinance as two different types of activities which are each individually subject to
taxation — i.e., sales of tangible things, and services performed. Id. at 5 (citing BPT
Ordinance § 343.01(a), (g)). It notes that the BPT Ordinance maintains this dichotomy
between “sales” and “services” in the definition of “gross volume of business,” which the
BPT Ordinance defines 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. (quoting
BPT Ordinance § 343.01(f)). According to the City, this distinct treatment shows that
whenever “sale” is referred to elsewhere in the Regulation, it must be understood to mean
the transfer of goods for consideration. The City adds that, had it wished to treat sales
as encompassing the sale of services as well as goods, it could easily have said so and
would not have gone through the bother of defining the two terms separately.
Moreover, the City asserts that S & H cannot be considered a “seller” under the
BPT Regulation, given that its brokerage business procures services, but sells no goods.
As the City highlights, the term “sale” is specifically defined in the Regulation as “the
passing of ownership from a seller to a buyer for a price,” which contemplates the idea
that there must be transfer of title to a tangible object in order for the transferor to be
deemed a “seller” under the freight delivery exclusion. Id. at 8 (quoting BPT Regulation
§ 201). The City proffers that this is also consistent with how Black’s Law Dictionary
defines the term “seller,” as “someone who sells or contracts to sell goods; a vendor, UCC
§2-103(1)(d),” or “the transferor of property in a contract of sale.” Id. (quoting Black’s Law
Dictionary (10th ed. 2014)). By contrast, the term “[s]ervice” is defined in the Regulation
[J-99-2018] - 12
as “any act or instance of helping or benefiting another for consideration,” id. (quoting
BPT Regulation § 201), which describes S & H’s business activity.
Additionally, and in answer to S & H’s assertions, the City argues the definition of
“freight broker” as that term is used in the Federal Motor Carrier Act has no applicability
here, as the term “seller” is not ambiguous, nor is it a “term of art” which has acquired
unique meaning, and, thus, resorting to technical definitions from unrelated statutes is
unnecessary and unhelpful. Moreover, the City points out, even if the term “seller” could
include the sale of services, here, it is the common carrier that actually sells the shipping
services, not a broker like S & H.
To S & H’s broader argument, the City notes that there is no express provision in
the BPT Ordinance excluding so-called “conduit payments” received by a business and
forwarded to a third party from the tax. City Brief at 11. The City reminds that this tax is
a tax on the privilege of doing business in a particular community and is imposed on
“every dollar of the whole or gross volume of business transacted within the territorial
limits of the city.” Id. (quoting BPT Ordinance § 343.02(a)) (emphasis original).
Consequently, the City maintains that the only relevant and dispositive inquiry is whether
a business receives money from a particular activity, not whether it profits from doing so.
Lastly, the City denies that the Commonwealth Court improperly rested its
interpretation of the freight delivery exclusion afforded by the Regulation on Section
6924.301.1(f)(12) of the LTEA, inasmuch as that tribunal never discussed the contract of
sale language contained in that section in arriving at its conclusion that, under the BPT
Regulation, a business must be a seller of goods to qualify for this exclusion. Rather, the
[J-99-2018] - 13
City contends, the Commonwealth Court interpreted the BPT Regulation according to the
plain and common meaning of its words.11
III. Analysis
The issues presented for our consideration involve the interpretation of statutes
and ordinances, which are legislative enactments, and the interpretation of an
administrative regulation promulgated to implement a municipal ordinance. These are all
questions of law of which our standard of review is de novo and our scope of review is
plenary. Verizon v. Commonwealth, 127 A.3d 745, 753 n.12 (Pa. 2015); Popowsky v.
Public Utility Commission, 910 A.2d 38, 48 (Pa. 2006). In interpreting both statutes and
ordinances, we follow the principles set forth in the Statutory Construction Act (“SCA”), 1
Pa.C.S. §§ 1921-39. Williams v. City of Philadelphia, 188 A.3d 421, 428 (Pa. 2018);
Council of Middletown Twp., Delaware County v. Benham, 523 A.2d 311, 315 (Pa. 1987).
11 The City of Allentown has filed an amicus brief in support of the City of York, noting
that it has a similar ordinance, and that multiple business entities located in Allentown are
seeking to utilize the exclusions furnished by the LTEA; hence, it seeks clarity from our
Court regarding this question. Contrary to the City’s position, it concludes the
Commonwealth Court’s decision relied on Section 6924.301.1(f)(12) of the LTEA.
Allentown contends that the Commonwealth Court properly looked to the LTEA because
the Regulation was at odds with the LTEA, and, under the doctrine that an administrative
rule cannot contravene a legislative enactment, the LTEA takes precedence. Thus,
Allentown reasons that, because the term “contract of sale,” as used in Section
6924.301.19(f)(12) of the LTEA, refers to purchased goods or merchandise, shipping
costs should be viewed as only “incidental” costs attendant to a retail transaction involving
goods or merchandise which must be shipped, akin to the collection of sales taxes.
Amicus Brief at 7-8. Allentown notes, however, that S & H does not actually sell anything
which requires shipping, nor is it a common carrier. Allentown points out that the fact that
S & H is required to collect the shipping fees under federal law establishes that doing so
is part of its normal business activities, and, hence, like all other business activities it is
subject to the tax.
Allentown also proffers a novel argument that the freight delivery exclusion renders
the LTEA violative of the Uniformity Clause of our state charter. That argument, however,
is beyond the scope of our allocatur grant.
[J-99-2018] - 14
Likewise, as a general matter, we employ the interpretative principles of the SCA to
construe a regulation implementing a legislative enactment. Freedom Medical Supply v.
State Farm Fire and Casualty Company, 131 A.3d 977, 984 (Pa. 2016); Slippery Rock
Area School District v. Pennsylvania Cyber Charter School, 31 A.3d 657, 667 (Pa. 2011).
The primary goal of this interpretive process is “to ascertain and effectuate the
intention” of the governmental body enacting a statute or ordinance, or promulgating a
regulation. 1 Pa.C.S. § 1921; Snyder Brothers, Inc. v. PUC, 198 A.3d 1056, 1071 (Pa.
2018); Council of Middletown Township, 523 A.2d at 315; Slippery Rock Area School
District, 31 A.3d 663. Thus, we will interpret the terms of a statute, ordinance, or
regulation in accordance with their plain meaning, unless those enactments are
ambiguous. Williams, 188 A.3d at 429; Council of Middletown Township, 523 A.2d at
315; Pelton v. Commonwealth Department of Welfare, 523 A.2d 1104, 1108 n.3 (Pa.
1987). In situations where the language of the statute, ordinance, or regulation is
ambiguous, the additional factors enumerated in Section 1921(c) of the SCA may be
employed to ascertain the meaning of its provisions.
Whenever a tax enactment is found to be ambiguous, the SCA provides special
rules of construction. See 1 Pa.C.S. § 1928(b)(3) (requiring strict construction of
“[p]rovisions imposing taxes”); id. § 1928(b)(5) (mandating strict construction of
“provisions exempting persons and property from taxation”). However, these rules of
strict construction will be employed only if all other efforts at interpreting the enactment
using the tools of statutory construction enumerated in Section 1921(c) “yield no definitive
conclusion.” Snyder Brothers Inc., 198 A.3d at 1073 n.20 (quoting Dechert L.L.P. v.
Commonwealth, 998 A.2d 575, 584 n.8 (Pa. 2010)).
As a general matter, an enactment which imposes a tax is strictly construed in
favor of the taxpayer against the taxing body. Greenwood Gaming v. Commonwealth
[J-99-2018] - 15
Department of Revenue, 90 A.3d 699, 711 (Pa. 2014). Likewise, a provision of a tax
enactment that excludes certain property, income, or activities from being subject to the
tax is also to be strictly construed in favor of the taxpayer and against the taxing body.
AMP Incorporated v. Commonwealth, 852 A.2d 1161, 1167 (Pa. 2004).
In our Commonwealth, the foundation of a municipality’s authority to levy a tax,
and the permissible scope of that tax, is based on the grant of such power by the General
Assembly:
Absent a grant or a delegation of the power to tax from the
General Assembly, no municipality . . . has [a]ny power or
authority to levy, assess or collect taxes. To determine
whether a municipality possesses the power to tax and, if so,
the extent of such power, recourse must be had to the acts of
the General Assembly.
Mastrangelo v. Buckley, 250 A.2d 447, 452–53 (Pa. 1969). Hence, because the City’s
authority to subject particular business activities to its BPT is conferred by the LTEA, and
concomitantly circumscribed by any restrictions contained therein, our analysis
necessarily begins with a consideration of whether the controlling provision of the LTEA,
Section 6924.301.1(f)(12), prohibits the City from imposing the BPT on the shipping fees
S & H collects. The City’s authority to impose its BPT on these monies cannot, as the
City has argued, be determined by solely examining its own BPT Ordinance or
Regulation, inasmuch as they are subordinate to the LTEA.
As set forth above, Section 6924.301.1(f)(12)(ii) of the LTEA explicitly forbids a
municipality such as the City from taxing “charges advanced by a seller for freight, delivery
or other transportation for the purchaser in accordance with the terms of a contract of
sale.” 53 P.S. § 6924.301.1(f)(12)(ii). Rejecting S & H’s argument to the contrary, the
Commonwealth Court found that this prohibition did not apply, inasmuch as S & H was
“neither the seller nor the purchaser in the transactions at issue but merely a broker.”
S & H Transport, 174 A.3d at 683. We discern no error in this conclusion, given that there
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was no “contract of sale” between S & H and a buyer of goods under which S & H
advanced the costs of shipping such commodities to the buyer. Although the term
“contract of sale” is not defined in the LTEA, it is well understood in the context of
commercial transactions to mean a contract for the sale of goods. See, e.g., 13 Pa.C.S.
§ 2106 (defining “[c]ontract for sale,” for purposes of the Pennsylvania Uniform
Commercial Code, as including “both a present sale of goods and a contract to sell goods
at a future time.”). As the Commonwealth Court found, and as S & H admits, it is not a
seller of goods, nor does it ship any goods itself; rather, it contracts with common carriers
to perform that task, and there is no record evidence to show that it, at any time, advanced
monies as part of these transactions. Consequently, Section 6924.301.1(f)(12)(ii) of the
LTEA did not bar the City from imposing its BPT on the monies S & H received from its
brokered shipping arrangements.
This does not, however, end our inquiry. While all local taxing ordinances must
comport with the restrictions imposed by the LTEA, there are no provisions in the LTEA
which mandate that a local municipality adopt a specific kind of tax, nor does the LTEA
limit the exclusions a municipality may afford taxpayers if it elects to adopt such a tax.
Thus, we must consider, as did the Commonwealth Court, whether the terms of the City’s
BPT Regulation excluded the shipping fees S & H collected from the gross receipts tax.
First, we reject S & H’s argument that the shipping fees it collected and then
remitted to the carrier were not “gross receipts” within the meaning of that term as it is
used in the Regulation. Section 201 of the BPT Regulation defines “gross receipts” in
relevant part to mean “[c]ash . . . received in exchange for . . . services performed or other
business activity conducted within or attributable to the City, without deduction there from
[sic] on account for costs of property or merchandise sold; materials, labor or services
furnished or used; interest or discount paid; or any other business related expense, as
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permitted by regulation.” BPT Regulation § 201. The BPT Regulation further defines
“business” as “any activity carried on or exercised for gain or profit in the City, including
but not limited to, the sale of merchandise or other tangible personalty or the performance
of services.” Id. Finally, “service” is defined in the BPT Regulation as “any act or instance
of helping or benefitting another for consideration.” Id.
The record in this matter supports the Commonwealth Court’s conclusion that
S & H was carrying on a business activity within the City, whereby it provided a service
to its customers of arranging shipping of their goods, and that it did so for consideration
— namely, payment in exchange for the performance of those services, albeit those
payments included both the cost of shipping and its commission. Therefore, the monies
paid to S & H by its customers constituted taxable gross receipts within the meaning of
Section 201 of the BPT Regulation and was subject to assessment of the tax.
However, with respect to the applicability of the “freight delivery exclusion” afforded
by Section 206(j)(2) of the BPT Regulation, we conclude S & H must prevail. This section
excludes from the BPT “gross receipts which constitute . . . [f]reight delivery or
transportation charges paid by the seller for the purchaser.” BPT Regulation § 206(j)(2)
(emphasis added). A comparison of the plain terms of BPT Regulation § 206(j)(2) and
Section 6924.301.1(f)(12)(ii) of the LTEA, indicates that the class of gross receipts
excluded from taxation by the BPT Regulation is broader than that excluded by the LTEA.
The BPT Regulation excludes all freight delivery charges “paid” by a seller for the
purchaser, whereas the LTEA specifically restricts the application of the exclusion to only
those shipping costs “advanced” by a seller to a purchaser pursuant to the terms of a
contract of sale. Thus, the BPT Regulation allows exclusion of all shipping costs paid by
a seller for a purchaser at any time, while the LTEA exclusion requires that a seller
[J-99-2018] - 18
advance the costs of shipping to a purchaser according to the provisions of a contract of
sale, which means that those costs be paid prior to the shipping taking place.12
We acknowledge the credibility of the City’s argument, which is endorsed by the
dissent, see Dissenting Opinion (Dougherty, J.), that the BPT Regulation’s separate
definition of sales and services, and its treatment of the two activities disjunctively in its
definition of “gross volume of business,” see BPT Regulation § 201, indicates that, for
purposes of the BPT Regulation, the two terms were intended to describe separate
activities — the selling of goods and the provision of services. Thus, it is plausible that
the term “seller” in Section 206(j)(2) of the BPT Regulation could be read as referring only
to a seller of goods; however, critically, this restrictive definition is not the only reasonable
interpretation of this exclusion.
S & H’s argument that the term “seller” as used in Section 206(j)(2) could be read
broadly enough to encompass its core business activities — the selling of shipping
services — is equally reasonable. Significantly, though the BPT Regulation initially
defines sales and services separately, nothing in the plain language of the exclusion
created by Section 206(j) limits the class of sellers entitled to claim the exclusion to only
those businesses which sell physical goods or merchandise. As S & H has contended,
because the nature of its brokerage business is the selling of transportation services to
shippers of goods, it is reasonable for it to be considered a “seller” for purposes of Section
206(j). Cf. 49 U.S.C. § 13102(2) (defining broker as “a person, other than a motor carrier
or an employee or agent of a motor carrier, that as a principal or agent sells . . .
12 It is for these reasons we cannot agree with our colleagues that the exclusion created
by the BPT Regulation merely mirrors the exclusion established by the LTEA. See
Concurring Opinion (Saylor, C.J.) at 1 (this exclusion “merely effectuates the parallel
requirement for exclusion of the LTEA”); Concurring and Dissenting Opinion (Baer, J.) at
2 (the analysis of this exclusion is “[s]imilar to the analysis of the parallel provision of the
LTEA”).
[J-99-2018] - 19
transportation by motor carrier for compensation”). Consequently, because S & H pays
the delivery or transportation costs for the purchaser of its services — the shipper of
goods or commodities — to the common carrier who transported those items to the
shipper’s designated recipient; accordingly, for purposes of Section 206(j), S & H may be
deemed to have paid the shipping costs “for the purchaser.” BPT Regulation § 206(j).
Given that both suggested interpretations of Section 206(j) offered by the parties
are reasonable under the circumstances, we find this provision to be ambiguous. See
Snyder Brothers, 198 A.3d at 1073. Notably, the City, which drafted and adopted this
exclusionary regulation, has not presented us with any legislative history to support its
suggested construction, nor has the City argued the applicability of any of the other factors
in Section 1921(c) of the SCA which would favor one interpretation over the other. Hence,
because the BPT Regulation uses the ambiguous term “seller,” which we conclude is
broad enough to be read as to include both a seller of physical merchandise and a seller
of services, and due to the fact the BPT Regulation’s “freight delivery exclusion” is an
exclusion of income from taxation, the principles of construction set forth in Section 1928
of the SCA control. We therefore construe this regulation in favor of S & H, as the
taxpayer, and against the City, inasmuch as the General Assembly has directed that the
taxpayer is entitled to the benefit of any ambiguity in such situations. Accordingly, we
conclude that S & H was entitled to exclude from its gross receipts the amount of the
delivery costs it was paid by shippers who purchased its services.
For all of the aforementioned reasons, we reverse the order of the Commonwealth
Court. Jurisdiction relinquished.
Justice Donohue, Wecht and Mundy join the opinion.
Chief Justice Saylor files a concurring opinion.
Justice Baer files a concurring and dissenting opinion.
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Justice Dougherty files a dissenting opinion.
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