Lehigh Valley Co-op. Farmers v. Com., Bureau of Employment Sec. Dept. of Labor and Industry

• Citation: 423 A.2d 18,55 Pa.Cmwlth. 13
• Parties: LEHIGH VALLEY COOPERATIVE FARMERS, Petitioner, v. COMMONWEALTH of Pennsylvania, BUREAU OF EMPLOYMENT SECURITY, DEPARTMENT OF LABOR AND INDUSTRY, Respondent.
• Decision Date: 25 November 1980
• Court: Pennsylvania Commonwealth Court

Page 18

423 A.2d 18

55 Pa.Cmwlth. 13

LEHIGH VALLEY COOPERATIVE FARMERS, Petitioner, v. COMMONWEALTH of Pennsylvania, BUREAU OF EMPLOYMENT SECURITY, DEPARTMENT OF LABOR AND INDUSTRY, Respondent.

Commonwealth Court of Pennsylvania.

Argued Oct. 7, 1980.

Decided Nov. 25, 1980.

J. Jackson Eaton, III, Butz, Hudders & Tallman, Allentown, for petitioner.

Mary Ellen Krober, Allen C. Warshaw, Norman J. Watkins, Dept. of Justice, Harrisburg, for respondent.

Before CRUMLISH, President Judge, and MENCER, ROGERS, MacPHAIL and PALLADINO, JJ.

MacPHAIL, Judge.

Lehigh Valley Cooperative Farmers (Petitioner) raises only one issue for our review: whether, as an agricultural cooperative subject to the Co-operative Agricultural Association Corporate Net Income Tax Act (Tax Act), Act of May 23, 1945, P.L. 893, as amended, 72 P.S. § 3420-21 et seq., Petitioner is exempt from the payment of unemployment compensation fund contributions pursuant to Pennsylvania's Unemployment Compensation Law (Law), Act of December 5, 1936, Second Ex.Sess., P.L. (1937) 2897, as amended, 43 P.S. § 751 et seq. ¹ The Bureau of Employment Security (Bureau) held that Petitioner was not exempt from such contributions. For the reasons which follow, we reverse the order of the Bureau and remand this case for further proceedings.

The parties have stipulated to the facts of this case. Petitioner is an agricultural cooperative consisting of approximately 700 members and was formed pursuant to the Act of April 30, 1929, P.L. 885, as amended, 15 P.S. § 12151. ² In October, 1977, Petitioner filed with the Bureau a claim for refund of unemployment compensation contributions amounting to $357,733.43 paid between the third quarter of 1973 and the second quarter of 1977. The Bureau denied the claim on May 24, 1979, and Petitioner appealed to this Court.

At the time of Petitioner's application for refund, Section 3 of the Tax Act, 72 P.S. § 3420-23, read: ³

"Every association shall be subject to, and shall pay for, the privilege of doing business in this Commonwealth, or having capital or property employed or used in the Commonwealth, by, or in the name of itself, or any other person, partnership or association, a State excise tax at the rate of four per centum (4%) per annum upon each dollar of the net income, which tax shall be collected in lieu of any other excise tax including corporate net income tax or property tax. The property shall be free from any county tax excepting tax on real estate." (Emphasis added.)

Statutory provisions creating tax exemptions are subject to strict interpretation and Petitioner here has the burden of proving that it is entitled to the tax exemption it claims. Fidelity-Philadelphia Trust Co. v. Hines, 337 Pa. 48, 53, 10 A.2d 553, 555 (1940); Wayne County Board of Assessment v. Federation of Jewish Philanthropies, 43 Pa.Cmwlth. 508, 510-11, 403 A.2d 613, 615 (1979).

Petitioner's argument in support of its claimed tax exemption is easily stated: unemployment compensation contributions constitute excise taxes; agricultural cooperatives are exempt from paying excise taxes; ⁴ therefore, the cooperative is exempt from making unemployment compensation contributions. The Bureau, in turn, argues that the basic premise of Petitioner's argument, i. e. that unemployment compensation contributions constitute excise taxes, is faulty and, therefore, that the entire syllogism fails.

The Courts of Pennsylvania have long held that payments made to the unemployment compensation fund are excise taxes. Commonwealth v. Sun Ray Drug Co., 360 Pa. 230, 233-34, 61 A.2d 350, 351 (1948); Department of Labor and Industry v. New Enterprise Rural Electric Cooperative, Inc., 352 Pa. 413, 415-16, 43 A.2d 90, 92 (1945); Fidelity-Philadelphia Trust Co. v. Hines, 337 Pa. at 51, 10 A.2d at 555. A similar conclusion has been reached by the United States Supreme Court ⁵ and by the courts in numerous other jurisdictions. ⁶

Despite the overwhelming authority in support of that conclusion, the Bureau asserts that it is incorrect. Taxes, the Bureau argues, are levied for the purpose of generating revenue. Because unemployment compensation contributions are not collected for the purpose of generating general state revenue but rather for the purpose of providing financial assistance to those who lose their employment through no fault of their own, the contributions cannot be considered an excise tax. ⁷ The Bureau, in support of its contention, cites our Supreme Court's decision in Commonwealth v. Perkins, 342 Pa. 529, 21 A.2d 45 (1941), aff'd per curiam, 314 U.S. 586, 62 S.Ct. 484, 86 L.Ed. 743 (1942). While it is true that the opinion of the Court of Common Pleas, on which the Supreme Court based its opinion, distinguished between general appropriations and appropriations from the Pennsylvania Unemployment Compensation Fund, it clearly treated the Law as a taxing statute and did not indicate that it was not an excise tax merely because the funds it generated did not flow through the general state treasury. We also note that the Court in Perkins relied on the decision in Fidelty-Philadelphia Trust Co. v. Hines which clearly held the unemployment compensation assessment to be an excise tax.

We find the Bureau's argument to be much too narrow and we think it is well answered by the language of the Court in Department of Labor and Industry v. New Enterprise Rural Electric Cooperative, Inc., 55 Dauphin 345, 348 (1944), aff'd, 352 Pa. 413, 43 A.2d 90:

"That the contributions do not constitute state funds within the contemplation of Section 18 (now Section 29), Article III, of the Constitution (See Commonwealth v. Perkins, 342 Pa. 529 (21 A.2d 45), supra.) does not prevent such contributions from being state taxes. While the funds do not become a part of the general fund of the Commonwealth so as to be subject to appropriation other than as prescribed by the act, they are funds raised by the Commonwealth for a public purpose through the exercise of the police power .... The tax is not a general tax, the proceeds of which are to be appropriated for any public purpose which the legislature thereafter may select, but it is a tax expressly levied for a specified purpose, and nonetheless a tax: Carmichael vs. So. Coal and Coke Company, 301 U.S. 495, 530 (57 S.Ct. 868, 882, 81 L.Ed. 1245)."

We hold that unemployment compensation contributions constitute an excise tax.

Based upon our holding, it is clear from the face of Section 3 of the Tax Act that Petitioner is exempt from paying such contributions. The words of the statute-"which tax shall be collected in lieu of any other excise tax"-are clear and unambiguous and there is no reason to apply rules of statutory construction in interpreting the Tax Act, as the Bureau suggests we do. Pennsylvania Labor Relations Board v. Teamsters Union Local No. 77, 20 Pa.Cmwlth. 410, 412, 342 A.2d 158, 159 (1975); Section 1921(b) of the Statutory Construction Act of 1972, 1 Pa. C.S. § 1921(b). We will, however, address the other arguments raised by the Bureau.

The Bureau first argues that because the purpose of the Tax Act was to raise revenue, exemptions set forth therein would apply only to revenue raising taxes. Since the unemployment compensation contributions are not intended to raise general revenues, the argument continues, the exemption does not apply to them. We have already addressed this issue in terms of the excise tax in general and we need say nothing more except that merely because unemployment compensation contributions do not flow through the general treasury does not mean that they are precluded from being revenue raising measures or legitimate exemptions under Section 3.

The Bureau next argues that if we construe the Tax Act, enacted in 1945, so as to exempt Petitioner from unemployment compensation assessments, we will be effecting an implied repealer of the Law, enacted in 1936. The Bureau cites no authority to support its assertion and we have found none. We note that a situation similar to that here existed in Department of Labor and Industry v. New Enterprise Rural Electric Cooperative, Inc., a case in which the Court exempted electric cooperatives from paying unemployment compensation funds. The statute in question in that case ⁸ also was enacted subsequent to the Law, yet the Court said nothing concerning implied repealer. Furthermore, we note that Section 1933 of the Statutory Construction Act of 1972, 1 Pa. C.S. § 1933, provides that where a general provision of one statute conflicts with a special provision of another statute and the two cannot be construed so that both may be effective, the special provision shall prevail. Clearly the Section 3 exemption is a special provision and prevails over the general provisions of the Law. There is no implied repealer involved in this case.

The Bureau next argues that the Supreme Court's opinion in Department of Labor and Industry v. New Enterprise Rural Electric Cooperative, Inc. concerned a tax exemption much broader in scope ⁹ than the one at issue here and, therefore, is not controlling. Although it is not controlling, we do find the Court's decision in New Enterprise to be persuasive. We also find persuasive the decisions of this Court in Lehigh Valley Cooperative Farmers v. Commonwealth, 8 Pa.Cmwlth. 18, 305 A.2d 908 (1973) and of the Court of Common Pleas of Allegheny County in Eastern Order Buying Co. Appeals, 26 Pa.D. & C.2d 193 (1961). In each, the Court spoke about the special circumstances surrounding an agricultural cooperative and about the reasons for a tax exemption.

In Lehigh Valley, where we held that the cooperative was exempt from paying a sales tax, we said:

"We have no reservations that the Legislature has placed agricultural cooperatives in a more advantageous position than other corporate organizations of a similar nature, because the Legislature patently intended to encourage the raising, producing, and marketing of agricultural...