November 25, 1958
CLYDE E. SPEER COAL CORPORATION, APPELLANT,
PITTSBURGH SCHOOL DISTRICT.
Appeals, Nos. 146 and 147, March T., 1958, from judgment of County Court of Allegheny County, No. A565 of 1958, in case of Clyde E. Speer Coal Corporation v. School District of Pittsburgh et al. Judgment reversed.
James F. Callahan, for appellant.
Regis C. Nairn, Assistant City Solicitor, with him J. Frank McKenna, Jr., City Solicitor, for City of Pittsburgh, appellee.
Niles Anderson, for School District of Pittsburgh, appellee.
Before Jones, C.j., Bell, Musmanno, Jones and Cohen, JJ.
[ 394 Pa. Page 177]
OPINION BY MR. JUSTICE BENJAMIN R. JONES.
This is an appeal from the action of the court below affirming the assessment of penalties against the appellant-taxpayer on unpaid mercantile license taxes determined to be due to the City and the School District of Pittsburgh.*fn1
In 1948, after hearing, the Treasurer of the City of Pittsburgh classified the Clyde E. Speer Coal Company - an unincorporated business, wholly owned and operated individually by Clyde E. Speer - as a "wholesale dealer" for mercantile tax purposes. In 1953, after an audit of the books and records of the company, this classification was re-affirmed. In 1954, the business was incorporated as the Clyde E. Speer Coal Corporation, with all of the stock being owned by Clyde E. Speer. The operation of the company was carried on in the identical manner as it had been prior to incorporation. The corporation continued to return and pay the mercantile tax as a "wholesale dealer" until February of 1958. At that time, after an audit of the corporation's books and records, appellant was notified that it was classified as a "retail dealer". As a consequence of this classification, additional taxes
[ 394 Pa. Page 178]
as a broker, then as a wholesale vendor and, finally, as a retail vendor. Even so, the taxpayer was properly required to pay interest on the additional tax claim. But, in the circumstances there appearing, we held that it would be grossly inequitable to exact payment of penalties when the deficiency resulted from the taxpayer's reliance on its business status as determined by the taxing authority. Penalty connotes punishment for fault, neglect or wrong, but the fault in the Brown & Zortman case was not the taxpayer's."
In the present case, appellant was advised on two successive occasions by the taxing authority that its proper classification was that of a "wholesale dealer". The subsequent incorporation of the business had absolutely no effect upon the manner in which the business was conducted. The factors that determined the classification in which appellant was to be placed remained exactly the same after incorporation as they had been prior to it. To hold under these circumstances that the taxpayer has no right to rely upon his previous classification as an individual, would, in our opinion, be carrying a legal fiction to its extremity. Although we recognize the technical validity of the City's argument, we believe, as a practical matter, that the error in classification, was, as in the Brown case, that of appellees and not of the taxpayer's, and that the imposition of penalties under these circumstances is unjustified.