Commonwealth v. Erie Excavating & Grading Co.

• Court: Pennsylvania Commonwealth Court
• Writing for the Court: BOWMAN, J.
• Citation: Commonwealth v. Erie Excavating & Grading Co., 42 Pa. D. & C.2d 544 (Pa. Commw. Ct. 1967)
• Decision Date: 01 May 1967
• Docket Number: Commonwealth docket,696,1965
• Parties: Commonwealth v. Erie Excavating & Grading Co

42 Pa. D. & C.2d 544

Commonwealth v. Erie Excavating & Grading Co

Commonwealth docket, 1965, No. 696

Common Pleas Court of Dauphin County, Pennsylvania

May 1, 1967

John M. Wolford, Robert A. Mills and Richard C Fox, for appellant.

William C. Sennett, Attorney General, and Vincent X. Yakowicz, Deputy Attorney General, for Commonwealth.

OPINION

Appeal from order of Board of Finance and Revenue.

BOWMAN, J.

This is an appeal from an order of the Board of Finance and Revenue in proceedings under the Tax Act of 1963 for Education ^[1] denying appellant's petition for review of a use tax assessment against appellant.

A written agreement to waive a jury trial has been filed by the parties as provided by the Act of April 22, 1874, P. L. 109, 12 PS § 688; and they have stipulated a substantial number of facts which we adopt and some of which we will refer to in the course of this opinion. Additional evidence was taken at a hearing, but we do not deem such evidence to have produced any facts essential to a determination of the issues here raised, and we make no findings of fact based upon such evidence.

This appeal is before us as a result of a use tax assessment being made by the taxing authorities against appellant in connection with its use of tangible personal property in the performance of a construction contract.

Appellant, a Pennsylvania corporation, entered into the contract in question with the United States of America acting through the United States Corps of Army Engineers for the construction of a railroad roadbed with structures and bridges. Such construction was necessitated because of the anticipated flooding of an existing roadbed of the Erie Railroad Company which would result upon completion of the Shenango River Reservoir Project of the Army Corps of Engineers, and by reason of an agreement that had been entered into between the Erie Railroad Company and the Army Corps of Engineers, that the latter would relocate the affected roadbed at its expense in consideration of the railroad company's waiving damages.

The construction of the project was at the direct expense of the Army Corps of Engineers. At all relevant times in question, the materials upon which the tax was assessed were utilized in the performance of the contract by appellant for the Army Corps of Engineers which owned the property upon which the construction contract was being performed and the materials in question when incorporated into the construction.

Upon completion of the contract, the work was accepted by the Army Corps of Engineers in accordance with its contract with appellant, and thereafter, the project was turned over to the Erie Railroad Company, which presently utilizes it for the transportation of persons and property as a common carrier.

As part of the change in its right of way from that portion to be flooded by the Shenango River Reservoir Project to that relocated under its agreement with the Army Corps of Engineers, the Erie Railroad Company, prior to taking over the relocated roadbed structures and bridges, obtained various orders from the Pennsylvania Public Utility Commission authorizing sundry actions relating to this change.

Neither appellant nor the Army Corps of Engineers is a public utility. The Erie Railroad Company is a public utility.

Appellant has exhausted its procedural rights and remedies before the appropriate administrative agencies and, by timely appeal to this court, seeks to have the use tax assessment and resulting interest charge declared null and void.

In doing so, it raises the narrow issue of whether the so called " public utility exclusion" contained in the taxing statute is applicable to materials used in a construction project when the project does not become part of a public utility facility until after its completion.

Section 201(b) of the Act of March 6, 1956, P. L. (1955) 1228, as amended, imposes a tax upon " . . . the use . . . within this Commonwealth of tangible personal property purchased at retail. . . .", ^[2] and section 2(n) (4) (c), after defining " use", then further provides that the term " use" shall not include:

" The use or consumption of tangible personal property including, but not limited to machinery and equipment and parts and foundations therefor, . . . .

" (iii) . . . in constructing, reconstructing, remodeling, repairing or maintaining the facilities used in such [a public utility] service, . . . ." ^[3]

This particular statutory exclusion from taxation has been the subject of a number of opinions of this court and of our Supreme Court.

In Commonwealth v. McHugh, 406 Pa. 566 (1962), our Supreme Court held that materials used in the construction of new public utility facilities, as well as those used in the repair or improvement of existing facilities, were within the exclusion from taxation. In reaching this conclusion, it stated, page 570:

" Nor are we persuaded that the words of the statute, 'the facilities used in such service,' connote that the facilities involved have to be already in actual use in order to come within the legislative meaning and tax exclusion. In our opinion, 'used in such service' is descriptive of the purpose for which the materials or tangible property is used and, is not restrictive to the time of use" ; and further, page 571:

" Without auxiliary verbs, or other words, indicating past, present or future tense, the word 'used' is a participial adjective which has no fixed meaning in terms of time. See Webster's New International Dictionary (2d Ed. 1959). Standing alone, 'used' can sound in the past, present or future tense" .

This decision was followed by that of Commonwealth v. Equitable Gas Company, 415 Pa. 113 (1964), wherein the court was concerned with the meaning of the word " service" as contained in the exclusionary language. In concluding that a public utility is not subject to the sales or use tax on its purchase or use of gas meters installed at customers' premises, in that such devices were necessary to the rendering of the required service consistent with applicable regulations, it was held, pages 116-17:

" We are not here presented with statutory language which requires either a search for legislative intention or the application of rules of statutory construction. The public utility service language is clear and unmistakable. The Legislature has classified not only the public utility property uses excluded from taxation, but also the property upon which the tax is imposed. The determinative inquiry here is whether meters are used in the direct operational function of rendering a public utility service or whether the property is utilized in the nonoperational ('managerial sales') activities.

" Although 'public utility service' is not defined in the Act (and there appears no reason why the Legislature should engage in repetitive definition of an already well understood term), there is no uncertainty as to what it embraces. The Legislature, in the Public Utility Law, defines 'service' as being used 'in its broadest and most inclusive sense, and includes any and all acts done, rendered, or performed, and any and all things furnished or supplied, and any and all facilities used, furnished, or supplied by public utilities . . . in the performance of their duties under this act to their patrons . . . and the public. . . .' Act of May 28, 1937, P. L. 1053, Section 2(20), as amended, 66 P. S. § 1102(20).

" The absence of a definition of 'public utility service' in the Sales and Use Tax Act is a positive indication that the Legislature did not wish to disturb the categorization of service already established by statutory enactments, the Public Utility Commission and decisional authorities. The character of such service remains precisely as it was prior to this Act" .

This decision was considered controlling by our court in Commonwealth v. Lafferty, 84 Dauph. 190 (1965), exceptions dismissed, 86 Dauph. 107 (1966), ^[4] in which it was held that services performed by a contract carrier by motor vehicle were not a public utility service within the meaning of the exclusionary language in question, inasmuch as a contract carrier is not a public utility as defined by the Public Utility Law of May 28, 1937, P. L. 1053, as amended, even though its business is affected by the public interest subjecting it to regulatory action and its services were similar to services performed by public utilities.

In Commonwealth v. Public Constructors, Inc., 85 Dauph. 281 (1966),4 we recently concluded that the public utility exclusion was not available with respect to materials used in the construction of runways at an airport which was owned and operated by a municipal authority which was not a public utility. We said, pages 283-85:

" The public exemption, as interpreted by Commonwealth v McHugh, Appellant, 406 Pa. 566 (1962), only extends to contracts performed for a public utility. . . .

" The runways were constructed by the appellant pursuant to contracts it had with the owners of the respective airports and not with the air carriers who concededly are engaged in a public utility service. Upon completion of the work by the appellant, the acceptance or rejection of the work was solely the responsibility of the owners. The appellant was accountable only to the owners of the airports and it relied solely on such owners for payment.

" The fact that, upon completion, air carriers would use the runways constructed by the appellant in nowise alters the fact that the construction of the runways was not for a public utility.

" The appellant contends that the service of transporting passengers...