Equitable Gas Co. v. Com.

• Decision Date: 16 April 1975
• Citation: 18 Pa.Cmwlth. 418,335 A.2d 892
• Parties: EQUITABLE GAS COMPANY, Appellant, v. COMMONWEALTH of Pennsylvania, Appellee.
• Court: Pennsylvania Commonwealth Court

Page 892

335 A.2d 892

18 Pa.Cmwlth. 418

EQUITABLE GAS COMPANY, Appellant, v. COMMONWEALTH of Pennsylvania, Appellee.

Commonwealth Court of Pennsylvania.

Argued Feb. 4, 1975.

Decided April 16, 1975.

Ronald M. Katzman, Goldberg, Evans & Katzman, James E. Reid, Jr., Harrisburg, for appellant.

Paul S. Roeder, Asst. Atty. Gen., Dept. of Revenue, Harrisburg, for appellee.

Before BOWMAN, President Judge, and CRUMLISH, J., KRAMER, MENCER, ROGERS and BLATT, JJ.

OPINION

KRAMER, Judge.

This is an appeal filed by Equitable Gas Company (Equitable) from an adjudication of the Board of Finance and Revenue (Board) dated May 12, 1966, refusing the prayer of Equitable's petition for a refund of use tax in the amount of $258.44 which had been assessed by the Department of Revenue upon paving materials, i.e., sand, gravel, cement, etc., used by Equitable in the construction, reconstruction and repairing of public road surfaces incident to work on gas lines and mains beneath the roads. This is an old case which as languished about on the dockets of the Court of Common Pleas of Dauphin County (Commonwealth Division) since June 27, 1966. It was transferred to this Court in 1970, and, after prodding of the parties by this Court, a stipulation of facts was filed with this Court on August 2, 1974, and the matter was finally set down for argument for final determination. For the purposes of this opinion we have accepted all of the stipulated facts.

Equitable is a Pennsylvania corporation and a public utility engaged in the business of providing natural gas service to the public in the Pittsburgh area. As a result of an audit of the books of a supplier of Equitable by the Pennsylvania Department of Revenue, an assessment was made against Equitable for sales or use tax under the provisions of the Tax Act of 1963 for Education (Act), Act of March 6, 1956, P.L. (1955) 1228, as amended. ¹ The assessment was made upon Equitable's purchases and use of paving materials, all of which were used, consumed and required in the reperiing, paving and repaving of public roads. The assessment was restricted to the period August 1, 1963 to November 30, 1964. All of the paving and repaving was performed directly by Equitable pursuant to its responsibilities under the Public Utility Law, Act of May 28, 1937, P.L. 1053, as amended, 66 P.S. § 1101 et seq. The public roads into which the subject paving materials were incorporated were under the ownership, maintenance and control of various governmental bodies of the Commonwealth. Although the amount of the tax assessment ($258.44) is insignificant when compared with the total cost of service of Equitable, the legal principles involved in this case have a far-reaching effect not only upon Equitable but upon all public utilities operating within the Commonwealth. Equitable paid the tax under protest and filed a petition for a refund claiming that all of the road resurfacing materials it purchased are directly used in rendering its public utility service and, therefore, excluded under section 2(n)(4)(c)(iii) of the Act, 72 P.S. § 3403--2(n)(4)(c)(iii).

In carrying out its public utility service, Equitable is required to construct and repair gas pipelines beneath public road surfaces. From time to time, this necessitates the excavation of public roads and, after the installation or repair of gas pipelines, Equitable purchases road resurfacing materials to pave or repave the roads. The issue presented to us is rather narrow. Equitable contends that such materials are directly used by it in furnishing its public utility service. The Commonwealth contends that such materials are not directly used by Equitable in rendering its public utility service. The case turns on our interpretation of the applicable statutory provisions excluding certain items from the tax imposed by the Act.

Among the 'definitions' contained in section 2 of the Act, 72 P.S. § 3403--2, we find the pertinent exclusionary statutory language. The term 'use' is defined in subsection (n) as follows:

'(4) (T)he term 'use' shall not include--

'(c) The use or consumption of Tangible personal property including, but not limited to machinery and equipment and parts and foundations therefor, and supplies . . . Directly in any of the operations of--

'(iii) The producing, delivering or rendering of a public utility service, or in construction, reconstructing, remodeling, repairing or maintaining the facilities used in such service, whether or not such facilities constitute real estate

'The exclusions provided in subparagraphs . . . (iii) . . . shall not apply to tangible personal property or services to be used or consumed in managerial sales or other nonoperational activities.

'The exclusion provided in subparagraph (iii) shall not apply to (a) construction materials used to construct, reconstruct, remodel, repair or maintain facilities Not used directly in the production, delivering or rendition of public utility service, or (b) tools and equipment used but not installed in the maintenance of facilities used in the production, delivering or rendition of a public utility service.' (Emphasis added.)

It seems clear to us that this statutory language was intended to create an Exclusion to the tax, rather than an Exemption. The legal consequences of the distinction between a tax exclusion and a tax exemption were set forth by our Supreme Court in Commonwealth v. Sitkin's Junk Co., 412 Pa. 132, 194 A.2d 199 (1963), wherein it was pointed out that only Exemptions are to be strictly construed against the taxpayer. Exclusions are items which are not intended to be taxed in the first place, and to the extent there is doubt about the meaning of the statutory language, such exclusionary provisions are to be construed against the taxing body. Alan Wood Steel Company v. Philadelphia School District, 425 Pa. 455, 299 A.2d 881 (1967) and Tyger & Karl Complete Water Systems Co., Inc. v. Commonwealth, 5 Pa.Cmwlth. 154 (1972).

In determining what may be included within the term 'public utility service,' we are guided by Commonwealth v. Equitable Gas Company,415 Pa. 113, 202 A.2d 11 (1964), where the Court utilized the definition found in section 2(20) of the Public Utility Law, 66 P.S. § 1102(20), which defines such 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 utilties . . . in the performance of their duties under (the Public Utility Law) to their patrons . . . and the public . . ..' There is also ample authority in the law under which a public utility is required, in the performance of its public utility service, to properly reconstruct and repave public roads after an excavation necessitated by the installation or repair of a utility service line. See Postal Telegraph-Cable Company v. Pennsylvania Public Utility Commission, 154 Pa.Super. 340, 35 A.2d 535 (1943); West Penn Railways Company v. Pennsylvania Public Utility Commission, 142...