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July 1, 1964


Appeals, Nos. 7 and 8, May T., 1964, from judgments of Court of Common Pleas of Dauphin County, Nos. 517 and 582, Commonwealth Docket, 1960, in cases of Commonwealth of Pennsylvania v. Equitable Gas Company; and Same v. The United Gas Improvement Company. Judgments reversed.


Ronald M. Katzman, for appellant.

Albert J. Tomalis, with him Charles W. Hull, and Hull, Leiby and Metzger, for appellant.

John J. Gain, Assistant Attorney General, with him Walter E. Alessandroni, Attorney General, for Commonwealth, appellee.

Howell C. Mette, Frank A. Sinon, and Rhoads, Sinon & Reader, for amici curiae.

Before Bell, C.j., Jones, Cohen, Eagen, O'brien and Roberts, JJ.

Author: Roberts

[ 415 Pa. Page 114]


We are called upon in these two appeals to decide whether appellant-public utility companies are subject, under the Selective Sales and Use Tax Act,*fn1 to tax on their purchases and use of gas and electric meters placed on customers' premises. The Department of Revenue, by assessment in one case and by denial of refund in the other, concluded that use of the meters is taxable under the Act.*fn2 The Board of Finance and Revenue, by unanimous order, reversed the determinations of the Department of Revenue. On appeal, the Commonwealth Court held that appellants' use of meters on customers' premises was subject to the use tax provisions of the Act.*fn3 These appeals followed.

Both appellants are Pennsylvania public utilities engaged in the production, distribution and sale of natural gas to Pennsylvania customers, and one (UGI) also produces, distributes and sells electricity. Both taxpayers operate under the provisions of the Pennsylvania

[ 415 Pa. Page 115]

Public Utility Law,*fn4 subject to the jurisdiction of the Public Utility Commission and in accordance with tariffs filed with the Commission.

"In connection with these activities they install what are known as 'meters' or 'customers' meters,' either inside the home of the consumer or on the outside and physically attached thereto, and for the purposes of this case the gas and electric meters may be treated as identical. These are the meters with which every homeowner and, indeed, every user of gas or electricity is familiar."*fn5

The Act imposes a tax on "... the use, ... within this Commonwealth of tangible personal property purchased at retail. ..."*fn6 It also defines "use" and then states: "... provided further, That the term 'use' shall not include ... The use or consumption of tangible personal property including, but not limited to machinery and equipment and parts ... directly in any of the operations of ... The producing, delivering or rendering of a public utility service. ... The exclusions ... shall not apply to tangible personal property or services to be used or consumed in managerial sales or other non-operational activities."*fn7

Appellants contend that meters are an essential part, physically, functionally and legally, of the system of providing gas and electric service to customers. They urge that such customer meters are used directly in the operation of "delivering or rendering of a public utility service" and are, therefore, exempt under the above utility exclusion provision. The Commonwealth

[ 415 Pa. Page 116]

    vigorously replies that meters are not used in delivering or rendering of public utility service but argues that their function is to measure and record customer utilization. The argument continues that meters are used "in managerial sales or other non-operational activities," a use made specifically taxable.

We are not here presented with statutory language which requires either a search for legislative intention or the application of rules of statutory construction. The public utility service language is clear and unmistakable. The Legislature has classified not only the public utility property uses excluded from taxation, but also the property upon which the tax is imposed. The determinative inquiry here is whether meters are used in the direct operational function of rendering a public utility service or whether the property is utilized in the non-operational ("managerial sales") activities.

Although "public utility service" is not defined in the Act (and there appears no reason why the Legislature should engage in repetitive definition of an already well understood term), there is no uncertainty as to what it embraces. The Legislature, in the Public Utility Law, defines "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 utilities ... in the performance of their duties under this act to their patrons ... and the public. ..." Act of May 28, 1937, P.L. 1053, § 2(20), as amended, 66 P.S. § 1102(20).

The absence of a definition of "public utility service" in the Sales and Use Tax Act is a positive indication that the Legislature did not wish to disturb the categorization of service already established by statutory enactments, the Public Utility Commission and

[ 415 Pa. Page 117]

    decisional authorities. The character of such service remains precisely as it was prior to this Act.

The Public Utility Commission, by appropriate regulation,*fn8 requires appellants to render measured or metered service to its customers. Appellants also are required to provide, install, maintain and operate "all equipment necessary for the regulation and measurement of gas furnished to its customers."*fn9 Similarly, the tariffs filed with and approved by the Commission, as required by law, authorize the sale of metered service and commit the utilities to furnish and install the meters on the premises of the customer in order to deliver that type of service.*fn10 Thus, appellants

[ 415 Pa. Page 118]

    are legally required to render to their customers not merely gas and electric service but metered gas and electricity. The delivery and performance of such service, under the regulations imposed upon appellants, necessarily entails the use of meters. So employed, they function in the distribution line to the consumer and are used directly and operationally in the rendering of a metered utility service.

The Commonwealth concedes that property used in delivering gas or electricity up to the point of entry into the meter is used directly in the operation of a public utility service and is not taxable. However, the Commonwealth argues that equipment used beyond that point, including the meter itself, is not part of the operation of the service and that use of the meter is part of the managerial activities of the public utility. Such a result, in effect, places meters in the same category as office furniture, equipment, supplies and the like. To the contrary, the difference between the use of meters and of office items and their respective direct relationships to furnishing energy to a customer is apparent.

The position of the Commonwealth is unrealistic and unsupportable. Its weakness is that it fails to give adequate consideration to the physical and practical circumstance that only by transmission of the energy to and through the meter is the gas or electricity actually made available for the customer's use in the only legally permitted way. It is only in metered form that appellants may furnish and the customer may utilize this service.*fn11

[ 415 Pa. Page 119]

We are satisfied that the Board of Finance and Revenue correctly determined that appellants' use of meters is within the public utility exclusionary provision as an exempt use under the Act. Cf. Independence Township School District Appeal, 412 Pa. 302, 194 A.2d 437 (1963).


The judgments of the court below are reversed.

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