Appeal from judgment of Court of Common Pleas of Dauphin County, No. 696 Commonwealth Docket 1965, in case of Commonwealth v. Erie Excavating & Grading Co.
Vincent Yakowicz, Deputy Attorney General, with him William C. Sennett, Attorney General, for Commonwealth, appellant.
Richard C. Fox, with him John M. Wolford, and Dunn & Wolford, and McNees, Wallace & Nurick, for appellee.
Bell, C. J., Musmanno, Jones, Cohen, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice Eagen. Mr. Justice Musmanno did not participate in the decision of this case. Dissenting Opinion by Mr. Justice O'Brien. Mr. Justice Cohen joins in this dissenting opinion.
This matter comes before us on appeal from the judgment of the Court of Common Pleas of Dauphin County excluding Erie Excavating & Grading Company (hereinafter Erie) from the payment of a use tax previously assessed by the Commonwealth. The case involves interpretation of the public utility exclusion contained in The Tax Act of 1963 for Education.*fn1
The germane facts are as follows: The United States Army Corps of Engineers decided to increase the size of a Pennsylvania reservoir. This increase, as plotted, would inundate certain portions of the right of way of the Erie Railroad Company. Pursuant to the Flood Control Act of 1938, the Engineers contracted with the Railroad to arrange replacement on higher ground of the track sections destined for flooding. Upon completion of the new right of way and approval by the Railroad, the new roadbed would become the property of the Railroad.
The Engineers invited bids on the project. Erie was chosen to construct a certain segment. On May 7, 1962, some two years subsequent to the contract between the Engineers and the Railroad, Erie entered into a contract with the United States of America for the necessary work. The job was done and the Railroad took possession and presently operates on the Erie-constructed roadbed.
The Commonwealth assessed use tax liability against Erie for the tangible personal property utilized in constructing the new roadbed. Erie countered with
the exclusion mentioned above and outlined, infra. The court below, on stipulated facts, found in taxpayer's favor.
The operative language of the exclusion provides: ". . . the term 'use' shall not include . . . (c) The use or consumption of tangible personal property . . . directly in any of the operations of . . . (iii) The producing, delivering or rendering of a public utility service, or in constructing, reconstructing, remodeling, repairing or maintaining the facilities used in such service . . . ."
Because neither of the two entities which were the immediate parties to the construction contract were public utilities, the Commonwealth asserts that the exclusion does not apply. We do not agree, and, ...