Suburban Cable TV Co., Inc. v. Com.

• Decision Date: 14 February 1990
• Citation: 131 Pa.Cmwlth. 368,570 A.2d 601
• Parties: SUBURBAN CABLE TV CO., INC., Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent. (Three Cases) LEBANON VALLEY CABLE TV CO., INC., Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent. (Three Cases) WARNER CABLE CORP. of PITTSBURGH, Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent. (Three Cases) WARNER AMEX CABLE COMMUNICATIONS, INC., Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent.
• Court: Pennsylvania Commonwealth Court

Page 601

570 A.2d 601

131 Pa.Cmwlth. 368

SUBURBAN CABLE TV CO., INC., Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent. (Three Cases)

LEBANON VALLEY CABLE TV CO., INC., Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent. (Three Cases)

WARNER CABLE CORP. of PITTSBURGH, Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent. (Three Cases)

WARNER AMEX CABLE COMMUNICATIONS, INC., Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent.

Commonwealth Court of Pennsylvania.

Argued Sept. 13, 1989.

Decided Feb. 14, 1990.

[131 Pa.Cmwlth. 370] Arthur R. Littleton, with him, Dennis R. Bartholomew and Peter Konolige, Hoyle, Morris & Kerr, and Robert H. Louis, Fox, Rothschild, O'Brien & Frankel, for petitioners, Suburban Cable TV Co., Inc. and Lebanon Valley Cable TV Co.

Marvin A. Fein, with him, Philip Baskin, Dusty Elias Kirk and William J. Moorhead, Jr., Baskin, Flaherty, Elliott & Mannino, P.C., for petitioners, Warner Cable Corp. of Pittsburgh and Warner Amex Cable Communications, Inc.

Robert P. Coyne, with him, Matthew W. Tomalis, Deputy Attys. Gen., and Ernest D. Preate, Jr., Atty. Gen., for respondent.

Before CRUMLISH, Jr., President Judge, and CRAIG, DOYLE, BARRY, COLINS, McGINLEY and SMITH, JJ.

CRAIG, Judge.

SUMMARY INTRODUCTION

These appeals, consolidated from proceedings at ten different docket numbers of this court, are from adjudications of the Board of Finance and Revenue, some in capital stock tax cases and others in sales and use tax cases. The taxpayers in the case at 2757 C.D.1988 and the five 1979 docket numbers in the 1600's are Suburban Cable TV Co., Inc. (Suburban) and Lebanon Valley Cable TV Company (Lebanon), who seek exemption from capital stock tax only. ("Suburban/Lebanon" will be the term used when referring to the entire group of six cases.)

The taxpayers in the remaining four cases, with 1984 and 1985 docket numbers, are Warner Cable Corp. of Pittsburgh and Warner Amex Cable Communications, Inc. (Warner). In these appeals, Warner seeks exemption from sales and use tax as well as from capital stock tax, and No. 1510 [131 Pa.Cmwlth. 371] C.D.1985 involves an additional question as to whether the appeal to the board was untimely filed.

With the exception of the latter case, which the board dismissed as untimely filed, the board decisions refused the capital stock tax and sales and use tax exemptions sought by the taxpayers.

STATUTES AND REGULATIONS APPLICABLE

Section 602, the capital stock tax provisions, in the Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6, as amended, 72 P.S. § 7602, imposes upon a corporate taxpayer a tax which is now the greater of a $75 minimum tax or an amount computed at the rate of 9 to 10 mills (depending upon the year) upon each dollar of defined capital stock value. Except as to the $75 minimum tax, the section declares that

the provisions of this section shall not apply to the taxation of the capital stock of entities organized for manufacturing, processing, research or development purposes, which is invested in and actually exclusively employed in carrying on manufacturing, processing, research or development within the State.... (Emphasis added.)

The definitions section as to the capital stock tax § 601, 72 P.S. § 7601, does not define "manufacturing" but it does define "processing" in part as follows:

'Processing.' The following activities when engaged in as a business enterprise:

....

(11) The publishing of books, newspapers, magazines or other periodicals, printing and broadcasting radio and television programs by licensed commercial or educational stations. (Emphasis added.)

The applicable sales and use tax provisions are also in the Tax Reform Code, where section 201, 72 P.S. § 7201, excludes from taxable sales all transfers for the purposes of [131 Pa.Cmwlth. 372] "manufacture" and "processing." Section 201, in pertinent part, also defines those terms as follows:

(c) 'Manufacture.' The performance of manufacturing, fabricating, compounding, processing or other operations, engaged in as a business, which place any personal property in a form, composition or character different from that in which it is acquired whether for sale or use by the manufacturer, and shall include, but not limited to ---

(1) Every operation commencing with the first production stage and ending with the completion of personal property having the physical qualities (including packaging, if any, passing to the ultimate consumer) which it has when transferred by the manufacturer to another;

(2) The publishing of books, newspapers, magazines and other periodicals and printing;

....

(d) 'Processing.' The performance of the following activities when engaged in as a business enterprise:

....

(12) The broadcasting of radio and television programs of licensed commercial or educational stations. (Emphasis added.)

With respect to the exemption of broadcasting as a category of processing, one must particularly note that the capital stock tax provision exempts the broadcasting of radio and television programs "by" licensed commercial or educational stations, and the sales and use tax provision exempts the broadcasting of radio and television programs "of" licensed commercial or educational stations.

The Department of Revenue has promulgated, in the sales and use tax regulations, an administrative expansion of the broadcasting exemption including definitions of "licensed commercial or educational station" and of "Broadcasting," in 61 Pa.Code § 42.1 which, in its entirety, states:

[131 Pa.Cmwlth. 373] § 42.1. Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:

A licensed commercial or educational station--A licensed commercial station shall be defined in accordance with the following:

(i) A broadcasting station operating under one of the following Federal Communications Commission licenses is a licensed commercial or educational station:

(A) Standard broadcasting station

(B) Frequency modulation station

(C) Commercial television station

(D) Noncommercial television or FM radio station. Reference should be made to § 42.5 (relating to nonprofit educational stations).

(ii) Registered cable television companies operated under the authority of the Federal Communications Commission are not considered to be licensed commercial or educational stations, even though they are engaged in origination cable casting and access cable casting.

Broadcasting--The dissemination of radio or television communications intended to be received by the public, directly or by the intermediary of relay stations.

Also pertinent to these cases, in addition to the First and Fourteenth Amendments to the United States Constitution, is Pa. Const. art. VIII, § 1, which states:

§ 1. Uniformity of taxation.

All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.

ISSUES

As preserved by taxpayers Suburban/Lebanon and Warner, the issues are as follows:

1. Are cable television operators entitled to the same exemption from capital stock tax and sales and use tax that [131 Pa.Cmwlth. 374] is permitted to manufacturers; i.e., does the transformation of an electronic signal through the use of equipment and personnel, from a form that may not be viewed on a television set to one that may be viewed on a television set, constitute manufacturing under the capital stock and sales and use tax laws?

2. Are cable television operators entitled to the same processing exemption from capital stock tax and sales tax that is granted to television operators other than cable television; i.e., are cable television operators engaged as a business enterprise in the broadcasting of radio and television programs of or by licensed commercial or educational stations?

3. If the named tax laws impose, or are construed to impose, taxes upon the capital stock and equipment of cable television operators, when there is no imposition of those taxes on non-cable television operators, would such imposition or interpretation result in an unconstitutional denial of free speech under the First Amendment, discrimination under the Fourteenth Amendment or a violation of the uniformity clause of the Pennsylvania Constitution?

FINDINGS OF FACT

As formal findings of fact in numbered paragraph form, the court hereby adopts

paragraphs 1-6 inclusive of the Suburban/Lebanon Procedural Stipulation of Facts, paragraphs 1-15 inclusive of the Warner Procedural Stipulation of Facts, Paragraphs 1-49 inclusive of the Suburban/Lebanon Stipulation of Substantive Facts and paragraphs 1-53 inclusive of the Warner Stipulation of Facts, together with the exhibits appended to and incorporated within the Suburban/Lebanon stipulations and the exhibits appended to and incorporated within the Warner stipulations

On the basis of an evidentiary hearing in this court, during which the trial judge received additional exhibits and testimony, the court makes the following additional findings of fact:

[131 Pa.Cmwlth. 375] AF1. Lebanon and Suburban are operators of cable television systems headquartered in, respectively, Lebanon, Pennsylvania and Pottstown, Pennsylvania. Warner operates a cable television system in the City of Pittsburgh pursuant to a franchise agreement between Warner and the city on February 25, 1980. Suburban and Lebanon operate pursuant to formal authorization granted by local governmental bodies.

AF2. The physical plant involved in the cable television system is exemplified by Warner's facilities in Pittsburgh which include a television production studio, a control room, motor vehicle vans for electronic field production and news gathering, editing rooms, postproduction rooms, cable cost origination center, an audio/video equipment center, five neighborhood studios for community-originated programming for...