Crawford Cent. School Dist. v. Com.

• Decision Date: 27 December 2005
• Citation: 888 A.2d 616
• Parties: CRAWFORD CENTRAL SCHOOL DISTRICT, Appellant v. COMMONWEALTH of Pennsylvania, Appellee.
• Court: Pennsylvania Supreme Court

888 A.2d 616

CRAWFORD CENTRAL SCHOOL DISTRICT, Appellant v. COMMONWEALTH of Pennsylvania, Appellee.

Supreme Court of Pennsylvania.

Argued March 8, 2005.

Decided December 27, 2005.

COPYRIGHT MATERIAL OMITTED

Douglas Robert Roeder, Chambersburg, Paul S. Roeder, for Crawford Central School District.

Gerald J. Pappert, Philadelphia, PA, Bartholomew J. Deluca, Harrisburg, for Com.

Before CAPPY, C.J., CASTILLE, NIGRO, NEWMAN, SAYLOR, EAKIN, BAER, JJ.

OPINION

Justice EAKIN.

Appellant Crawford Central School District appeals the order of the Commonwealth Court affirming the order of the Board of Finance and Revenue, granting in part and denying in part its request for a refund of sales and use tax paid by contractors on personal property purchased or used during construction of a new school building.¹ We affirm in part, and reverse in part.

The District hired various contractors to build a new school. The contracts between the District and the contractors assigned the District the right to any refund of sales and use tax paid by the contractors, and required the contractors to maintain records of purchases and payments, including sales and use tax paid. At the conclusion of the project, the contractors remitted sales and use tax to the Commonwealth in the amount of at least $36,697.44, based on their purchase or use of property used to build the new facility. The District then attempted to assert its assigned right to obtain a tax refund; it filed a petition, alleging the overpayment of sales and use tax with the Board of Appeals, Pennsylvania Department of Revenue. The Board of Appeals held a hearing and denied the petition in its entirety. The Board of Appeals found the District failed to prove it paid the relevant taxes, and, even if it did, many items were subject to tax when purchased by the contractors.

The District appealed to the Board of Finance and Revenue. The Board granted the District a partial refund of $10,621.08 on transactions involving electrical, air conditioning, and plumbing equipment. The Board concluded those items were building and machinery equipment transferred by a construction contractor to the Commonwealth or its instrumentalities or political subdivisions; Section 204 of the Tax Reform Code of 1971, see 72 P.S. § 7204(57)(ii), as amended July 1, 1998, provides a tax exemption for "[t]he sale at retail to or use by a construction contractor of building machinery and equipment and services thereto that are: ... (ii) transferred to ... the Commonwealth or its instrumentalities or political subdivisions. . . ." Id. The Board, however, denied a refund for tax paid on other items, finding they were not "[b]uilding machinery and equipment" as defined by 72 P.S. § 7201(pp).

The District appealed to the Commonwealth Court. The parties stipulated that the District was entitled to a $10,621.08 refund for the tax on electrical, air conditioning, and plumbing equipment, and that the remaining items for which a refund was sought are not "[b]uilding machinery and equipment" as defined by 72 P.S. § 7201(pp). It was also stipulated that the contractors installed the disputed items in the new school building, but each item could be removed without damage to itself or to the real estate, and each item could be reused if removed. It was agreed that the contracts were entered July 1, 1998, the same date Act 45 of 1998, which amended portions of the Tax Code, became effective. The parties also agreed that if the Commonwealth Court ruled in the District's favor, the District would receive an additional refund of $9,650.14 plus interest for tax paid; if the Commonwealth prevailed, the District would receive an additional refund of $467.02 plus interest.

The Commonwealth Court affirmed the Board's decision. See Crawford Central School District v. Commonwealth, 839 A.2d 1213 (Pa.Cmwlth.2004).² The District filed a direct appeal to this Court, arguing it is entitled to a refund on the remaining taxed items pursuant to 72 P.S. § 7204(12), because they are tangible personal property. The issue before us is whether a government entity, acting as an assignee of a contractor's rights, is exempt from sales and use tax on tangible personal property the contractor purchased and installed in the government entity's building. This issue in turn depends upon whether the contractors possessed a right to receive a refund of all sales and use tax; if the answer is yes, then the District is entitled to a refund as assignee.

The scope of review of Board decisions is governed by Pa.R.A.P. 1551(a) and 1571(h). Since the facts are undisputed, we are left with a question of law. As with all questions of law, our standard of review is plenary. PPG Industries, at 266 (citing Phillips v. A-Best Products Company, 542 Pa. 124, 665 A.2d 1167 (1995)); see also Citadel Development Company v. Board of Assessment Appeals of Erie County, 574 Pa. 84, 828 A.2d 1057, 1061 (2003) (citing Thornburgh v. Lewis, 504 Pa. 206, 470 A.2d 952, 953 (1983)).

An assignment is a transfer of property or a right from one person to another; unless qualified, it extinguishes the assignor's right to performance by the obligor and transfers that right to the assignee. Legal Capital, LLC. v. Medical Professional Liability Catastrophe Loss Fund, 561 Pa. 336, 750 A.2d 299, 302 (2000). "Under the law of assignment, the assignee succeeds to no greater rights than those possessed by the assignor." Employers Insurance of Wausau v. Commonwealth, Department of Transportation, 581 Pa. 381, 865 A.2d 825, 830-31 (2005) (citing Himes v. Cameron County Construction Corporation, 497 Pa. 637, 444 A.2d 98, 100 (1982)). An assignee's rights, however, are not inferior to those of the assignor. U.S. Steel Homes Credit Corporation v. South Shore Development Corporation, 277 Pa.Super. 308, 419 A.2d 785, 789 (1980). Ultimately, an assignee stands in the shoes of the assignor. Hedlund Manufacturing Company, Inc. v. Weiser, Stapler & Spivak, 517 Pa. 522, 539 A.2d 357, 358 (1988). Privity is not an issue in cases involving assignment claims; an assignee does not pursue a cause of action in its own right. Id.

The Tax Code imposes a six percent tax on the sale at retail of tangible personal property, which the vendor collects from the purchaser. 72 P.S. § 7202. "Sale at retail" is defined as "[a]ny transfer, for a consideration, of the ownership, custody or possession of tangible personal property, including the grant of a license to use or consume whether such transfer be absolute or conditional and by whatsoever means the same shall have been effected." Id., § 7201(k)(1). "Sale at retail" does not include the transfer of personal property for the purpose of resale. Id., § 7201(k)(8).

The Tax Code also imposes a six percent tax on the use within Pennsylvania of tangible personal property purchased at retail; the user pays the tax unless the sales tax has been paid under 72 P.S. § 7202(a). Id., § 7202(b). "Use" is defined as:

(1) The exercise of any right or power incidental to the ownership, custody or possession of tangible personal property and shall include, but not be limited to transportation, storage or consumption.

* * *

(17) The obtaining by a construction contractor of tangible personal property or services provided to tangible personal property which will be used pursuant to a construction contract whether or not the tangible personal property or services are transferred.

Id., § 7201(o)(1), (17).

The Tax Code, however, provides for certain exemptions and exclusions from sales and use taxes. "Exemptions" are given for the tax paid on items that, though ordinarily subject to taxation, are excused from taxation because certain criteria have been met. Adelphia House Partnership v. Commonwealth, 709 A.2d 967, 969 n. 9 (Pa.Cmwlth.1998). "Exclusions" are given for tax paid on items not intended to be taxed in the first place. Id.; see also Rossi v. Commonwealth, 20 Pa.Cmwlth. 517, 342 A.2d 119, 122 (1975). Exclusions are to be strictly construed against the taxing body, Adelphia House Partnership, at 969 n. 9 (citing Lancaster Laboratories, Inc. v. Commonwealth, 158 Pa.Cmwlth. 165, 631 A.2d 739 (1993)), while exemptions are to be strictly construed against the taxpayer. Citadel Development Company, at 1061 (citing 1 Pa.C.S. § 1928(b)(5); Lehigh Valley Cooperative Farmers v. Commonwealth, Bureau of Employment Security Department of Labor and Industry, 498 Pa. 521, 447 A.2d 948, 950 (1982)).

Whether a tax provision is considered an "exemption" or an "exclusion" is not controlled by how it is characterized, but by its language and the effect of that language. Adelphia House Partnership, at 970. "Section 204 of the Tax Code is derived from and supplants the former Section 3403-203 of what was known as the Selective Sales and Use Tax Act of March 6, 1956, P.L. (1955-56) 1228, as amended 72 P.S. 3403-203 (Tax Act)." Adelphia House Partnership, at 970. Like 204, 203 of the predecessor Tax Act was entitled "Exclusions to tax"; the "exclusions," however, were generally interpreted as "exemptions" from taxation for items that would otherwise be considered "tangible personal property." Adelphia House Partnership, at 970; see also Commonwealth v. Sitkin's Junk Co., 412 Pa. 132, 194 A.2d 199, 204 (1963) (predecessor Tax Act's "true exemptions" were contained in 203 of that Act). Courts have continually interpreted the modern 204 as containing exemptions, not exclusions. See Plum Borough School District v. Commonwealth, 860 A.2d 1155, 1157-58 n. 4 (Pa.Cmwlth.2004); Adelphia House Partnership, at 970 (citing American Airlines, Inc. v. Commonwealth, 542 Pa. 1, 665 A.2d 417 (1995) (describing 72 P.S. 7204(29) as tax exemption for food and beverages sold for human consumption); Magazine Publishers of America v. Commonwealth, Department of Revenue, 539 Pa. 563, 654 A.2d 519 (1995) (describing 72 P.S. 7204(30) as tax exemption for newspapers); PICPA Foundation for Education Research v....