Williams v. City of Phila.

• Decision Date: 14 June 2017
• Docket Number: No. 2078 C.D. 2016,No. 2077 C.D. 2016,2077 C.D. 2016,2078 C.D. 2016
• Citation: 164 A.3d 576
• Parties: Lora Jean WILLIAMS; Gregory J. Smith; CVP Management, Inc. d/b/a or t/a City View Pizza; John's Roast Pork, Inc. f/k/a John's Roast Pork; Metro Beverage of Philadelphia, Inc. d/b/a or t/a Metro Beverage; Day's Beverages, Inc. d/b/a or t/a Day's Beverages; American Beverage Association; Pennsylvania Beverage Association; Philadelphia Beverage Association ; and Pennsylvania Food Merchants Association, Appellants v. CITY OF PHILADELPHIA and Frank Breslin, in His Official Capacity as Commissioner of the Philadelphia Department of Revenue
• Court: Pennsylvania Commonwealth Court

164 A.3d 576

Lora Jean WILLIAMS; Gregory J. Smith; CVP Management, Inc. d/b/a or t/a City View Pizza; John's Roast Pork, Inc. f/k/a John's Roast Pork; Metro Beverage of Philadelphia, Inc. d/b/a or t/a Metro Beverage; Day's Beverages, Inc. d/b/a or t/a Day's Beverages; American Beverage Association; Pennsylvania Beverage Association; Philadelphia Beverage Association ; and Pennsylvania Food Merchants Association, Appellants
v.
CITY OF PHILADELPHIA and Frank Breslin, in His Official Capacity as Commissioner of the Philadelphia Department of Revenue

No. 2077 C.D. 2016
No. 2078 C.D. 2016

Commonwealth Court of Pennsylvania.

Argued: April 5, 2017
Filed: June 14, 2017

Shanin Specter and Charles L. Becker, Philadelphia, for appellants.

Mark A. Aronchick, Philadelphia, for appellees.

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE ROBERT SIMPSON, Judge HONORABLE ANNE E. COVEY, Judge HONORABLE MICHAEL H. WOJCIK, Judge HONORABLE JULIA K. HEARTHWAY, Judge HONORABLE JOSEPH M. COSGROVE, Judge

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OPINION BY JUDGE WOJCIK

Lora Jean Williams, et al. (Objectors) appeal the orders of the Philadelphia County Court of Common Pleas (trial court) sustaining the preliminary objections of the City of Philadelphia and Frank Breslin, Commissioner of the Philadelphia Department of Revenue (Department) (collectively, City) and dismissing Objectors' complaint regarding the validity of the Philadelphia Beverage Tax (PBT), and denying Objectors' petition for a special injunction.¹ We affirm.

In June 2016, the City enacted Ordinance No. 160176. In Section 1, the City amended the Philadelphia Code, imposing the PBT effective January 1, 2017, to be paid quarterly. Phila. Code § 19–4103(1); § 19–4106(1). The PBT applies broadly to "sugar-sweetened beverages," which are defined as "[a]ny nonalcoholic beverage that lists as an ingredient" either "any form of caloric sugar-based sweetener" or "any form of artificial sugar substitute," and "[a]ny nonalcoholic syrup or other concentrate that is intended to be used in the preparation of a beverage and that lists" either of the foregoing sweeteners as an ingredient. Phila. Code § 19–4101(3)(a), (b). The PBT provides the following as examples of "sugar-sweetened beverages": "soda; non-100% fruit drinks; sports drinks; flavored water; energy drinks; pre-sweetened coffee or tea; and non-alcoholic beverages intended to be mixed into an alcoholic drink." Phila. Code § 19–4101(3)(d). The PBT specifically excludes: (1) baby formula; (2) "medical food" as defined under the Orphan Drug Act;² (3) any product that is milk by more than 50% of volume; (4) any product that is fresh fruit, vegetable, or a combination more than 50% of volume; (5) unsweetened drinks to which sweetener can be added at the point of sale by the purchaser or seller; and (6) any syrup or other concentrate that the purchaser combines with other ingredients to create a beverage. Phila. Code § 19–4101(3)(c).

The PBT defines "dealer" as "[a]ny person engaged in the business of selling sugar-sweetened beverages for retail sale within the City" and defines "distributor" as "[a]ny person who supplies sugar-sweetened beverages to a dealer." Phila. Code § 19–4101(1), (2). The PBT states that "[n]o dealer may sell at retail, or hold out or display for sale at retail any sugar-sweetened beverage ... unless ... [t]he sugar-sweetened beverage was acquired by the dealer from a registered distributor; and ... [t]he dealer has complied with the notification requirements³ ...

164 A.3d 580

and received confirmation from the registered distributor of such notification, as well as confirmation that the distributor is a registered distributor ...." Phila. Code § 19–4102(1).

The PBT imposes a 1.5¢ per fluid ounce tax, generally payable by a distributor, "upon each of the following: the supply of any sugar-sweetened beverage to a dealer; the acquisition of any sugar-sweetened beverage by a dealer; the delivery to a dealer in the City of any sugar-sweetened beverage; and the transport of any sugar-sweetened beverage into the City by a dealer." Phila. Code § 19–4103(1), (2)(a). "The tax is imposed only when the supply, acquisition, delivery or transport is for the purpose of the dealer's holding out for retail sale within the City the sugar-sweetened beverage or any beverage produced therefrom." Phila. Code § 19–4103(1). The PBT is also imposed upon "the per ounce of syrup or other concentrate that yields [1.5¢] per fluid ounce on the resulting beverage, prepared to the manufacturer's specifications." Phila. Code § 19–4103(2)(b).⁴

"The tax shall be paid to the City by the registered distributor; and the dealer shall not be liable to the City for payment of the tax; so long as the registered distributor has received from the dealer notification ... that the recipient is a dealer." Phila. Code § 19–4105(1). However, "a dealer who fails to provide the notification [of dealer status]; and a dealer who sells at retail, or holds out or displays for sale at retail, any sugar-sweetened beverage in violation of § 19–4102(1), shall be liable to the City for payment of any tax owing under this Chapter ...." Phila. Code § 19–4105(2).

Moreover, "[w]here a dealer is also a registered distributor, no additional tax shall be owing on the supply of any sugar-sweetened beverage by such dealer/distributor to another dealer if the tax already has been imposed on the supply or delivery of the beverage to the dealer/distributor or the acquisition of the beverage by the dealer/distributor." Phila. Code § 19–4105(3). Nevertheless, "[i]n the event that a court of competent jurisdiction rules in a decision from which no further appeal lies that any portion of this Chapter cannot be applied to a distributor ... then any dealer that holds out for retail sale in the City sugar-sweetened beverages ... shall be liable to the City for the tax on those sugar-sweetened beverages." Phila. Code § 19–4105(4).

The Ordinance further provides that "a violation of § 19–4102(1) (sale of product purchased from other than a registered distributor or without proper notification to a registered distributor) shall constitute a Class II Offense ... and each separate sale, transaction or delivery shall constitute a separate offense," but that "the Department may grant a full or partial waiver to a dealer from the provisions of § 19–4102(1)" "[u]pon a showing of extraordinary circumstances, where distribution channels would make purchase of sugar-sweetened beverage from a registered distributor substantially impracticable ...." Phila. Code §§ 19–4107(1), 19–4108(1).

In September 2016, Objectors filed the instant complaint in the trial court seeking

164 A.3d 581

declaratory and injunctive relief. In Count I, Objectors assert that the City's authority to enact the PBT under the statute commonly referred to as the Sterling Act⁵ is expressly preempted by Section 202(a) of the Pennsylvania Tax Reform Code of 1971 (Tax Code)⁶ imposing a tax on the retail sale of "soft drinks" (Sales Tax) because the Sterling Act precludes the imposition of a tax on the same subject of the state tax. In Count II, Objectors contend that the PBT is implicitly preempted because it conflicts with Sections 201(k)(8) of the Tax Code⁷ precluding a tax on the resale of "soft drinks," and 202(a) by obstructing the Commonwealth's collection of the tax and reducing the amount of tax collected. In Count III, Objectors submit that the PBT is implicitly preempted because it conflicts with Section 2013(a) of the federal Food Stamp Act,⁸ the federal

164 A.3d 582

regulations related thereto,⁹ and Section 204(46) of the Tax Code¹⁰ prohibiting the imposition of a tax on items purchased with food stamps. In Counts IV through VII, Objectors also claim that the PBT violates the Uniformity Clause of Article 8, Section 1 of the Pennsylvania Constitution¹¹ because it is non-uniform and creates unequal burdens at the retail price and distributor levels; creates an unreasonable class of distributor taxpayers and imposes an unequal burden across the class; is non-uniform and creates an unequal burden across a class of retailers; and is non-uniform and creates unequal burdens across the class of consumers.¹²

The City filed preliminary objections to the complaint, alleging that: (1) the Sterling Act expressly authorizes and does not preempt the PBT; (2) the PBT does not conflict with the Tax Code regarding retail sales; (3) the PBT does not conflict with the prohibition on collecting tax on purchases made with federal supplemental nutrition assistance program (SNAP) benefits; (4) the trial court was without jurisdiction to consider the SNAP benefits claim because it was a question for the Secretary of the Department of Agriculture (USDA); and (5) Objectors fail to state a claim that the PBT violates the Uniformity Clause.

In December 2016, the trial court issued an order and opinion disposing of the City's preliminary objections. The trial court first sustained the preliminary objections to Counts I and II of the complaint and dismissed those counts, holding that the PBT is expressly authorized by the Sterling Act and is not duplicative of the Sales Tax so it is not expressly or...