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decided: January 7, 1971.


Appeal from decree of Court of Common Pleas of Philadelphia, June T., 1970, No. 3609, in case of John Wanamaker, Philadelphia, John A. Capuzzi, The Budd Company et al. v. The School District of Philadelphia (and The Board of Education of the School District of Philadelphia) and Thomas W. Rogers.


Frederic L. Ballard, with him Tyson W. Coughlin, and Ballard, Spahr, Andrews & Ingersoll, for appellants.

Park B. Dilks, Jr., with him Natalie I. Salkind, and Morgan, Lewis & Bockius, for appellees.

Samuel D. Slade, Fred L. Rosenbloom and Schnader, Harrison, Segal & Lewis, for amicus curiae.

Bell, C. J., Jones, Cohen, Eagen, O'Brien, Roberts and Pomeroy, JJ. Opinion by Mr. Justice Eagen. Mr. Justice Cohen took no part in the decision of this case. Concurring Opinion by Mr. Chief Justice Bell. Dissenting Opinion by Mr. Justice Roberts. Mr. Justice O'Brien joins in this dissent.

Author: Eagen

[ 441 Pa. Page 569]

The sole question presented by this appeal is whether the Business Use and Occupancy Tax of Philadelphia, imposed on the use or occupancy of real estate for commercial or industrial activity, is an unequal tax on real estate and thus violates the Uniformity Clause of the Pennsylvania Constitution.*fn1 We hold today that the tax in question is a valid privilege tax on the use of such real estate and, hence, is in no sense violative of the uniformity provision.

The facts and history of the case may be summarized as follows:

On June 4, 1970, the Council of the City of Philadelphia enacted Bill No. 1860 authorizing the Board of Education of the School District of Philadelphia to impose a tax ". . . on the use or occupancy of real estate . . ." within the School District for the purpose of carrying on any commercial or industrial activity.*fn2 The ordinance was to become effective on July 1, 1970.

[ 441 Pa. Page 570]

On June 8, 1970, the Board of Education passed a resolution imposing the tax authorized by Bill No. 1860.

[ 441 Pa. Page 571]

On June 17, 1970, the appellees, various owners-occupiers of real estate in Philadelphia used for business purposes, instituted this suit challenging the tax and requesting this Court to take original jurisdiction. The School District filed preliminary objections, and appellees filed an amended complaint. This Court refused to take original jurisdiction on June 30, 1970.

The case was then argued before the Honorable Edmund B. Spaeth, Jr., on July 21, 1970, after the parties had filed stipulations of facts in lieu of testimony. On August 24, 1970, Judge Spaeth filed an opinion holding the tax unconstitutional. The parties then stipulated that Judge Spaeth 's decree nisi be considered as a final decree. A timely appeal was filed with the Court, and our jurisdiction was properly invoked under the Act of June 24, 1895, P. L. 212, as amended, Act of August 14, 1963, P. L. 819, § 2, 17 P.S. § 191.4.*fn3 The Philadelphia Industrial Development Corporation and the Philadelphia Port Corporation filed a brief as amicus curiae on behalf of the appellees, indicating the detrimental economic effects the proposed tax would have, in their view, on Philadelphia's ability to attract new industry.

We start with the proposition that the challengers of the constitutionality of state or local taxation bear a very heavy burden in their efforts to overturn such legislation. Campbell v. Coatesville Area School District, 440 Pa. 496, 270 A.2d 385 (1970) ("clear, palpable

[ 441 Pa. Page 572]

    and plain violation" standard applied to local municipal taxation); L. J. W. Realty Corp. v. Philadelphia, 390 Pa. 197, 134 A.2d 878 (1957) ("clearly, palpably, plainly" leaving "no doubt or hesitation in our minds"). The court below held that the appellees carried that burden inasmuch as the method of computation caused the tax to be levied on real property. We conclude the lower court erred for the reasons that follow.

The use and ownership of property are distinct and separate. The right to use property is just one of the several rights incident to ownership, Henneford v. Silas Mason Co., 300 U.S. 577, 57 S. Ct. 524 (1937); Billings v. United States, 232 U.S. 261, 34 S. Ct. 421 (1913); Ampco Printing v. City of New York, 14 N.Y. 2d 11, 197 N.E. 2d 285 (1964). As stated by Mr. Justice Cardozo in Henneford, supra, "The privilege of use is only one attribute, among many, of the bundle of privileges that make up property or ownership". 300 U.S. 582, 57 S. Ct. 526-27. And in several cases the United States Supreme Court has upheld taxes on the use of personal property as a form of excise tax. See Henneford v. Silas Mason Co., 300 U.S. 577, 57 S. Ct. 524 (1937); Burnet v. Wells, 289 U.S. 670, 53 S. Ct. 761 (1933); Nashville C. & St. L. Ry. v. Wallace, 288 U.S. 249, 53 S. Ct. 345 (1933); Billings v. United States, 232 U.S. 261, 34 S. Ct. 421 (1913); and Hylton v. United States, 3 Dall. 171, 1 L. ed. 556 (1796). While the foregoing cases involved personal rather than real property, as in the case here, this, to us, is of no legal significance. Is there any difference or legal significance between that bundle of rights which we call ownership of real property and that termed ownership of personal property? Can it be fairly said that active use is consciously calculated into the ad valorem property tax when, for example, the measure of the property tax of a building suitable to use as a department store,

[ 441 Pa. Page 573]

    but which is empty and not so used, is the same as that of the thriving Wanamaker's, namely, the fair market value?

The lower court attempted to distinguish certain of the use tax cases cited hereinbefore, especially Henneford v. Silas Mason Co., by noting that an equalizing, non-recurring tax was there being imposed on personal property, i.e., that the use tax was imposed not for the privilege of doing business but to compensate the sales tax by permitting taxation of property brought into and used within the limits of the taxing authority under circumstances that prevented collection of the sales tax.

But, we believe the case of Billings v. United States, 232 U.S. 261, 34 S. Ct. 421 (1913), cannot be distinguished in this fashion. Billings involved the construction and constitutionally of § 37 of the Tariff Act of 1909, imposing an annual tax on the use of foreign-built yachts.

The plaintiff argued, inter alia, that the tax was repugnant to the due process clause of the Fifth Amendment because there were many domestic yachts whose use was identical to his which escaped taxation. Important for our purposes is what Chief Justice White had to say in upholding the tax about "use" as the basis for taxation: "[I]t is not ownership but the election during the taxing period of the owner to take advantage of one of the elements which are involved in ownership, the right to use which is the subject upon which the statute places the excise duty. In this view the fact of use, not its extent or its frequency, becomes the test, as distinguished from mere ownership, for that in the statutory sense could exist without use having taken place. . . . Let it be conceded that the ownership of property includes the right to use, plainly we think, as use and ownership are distinguished one from the other in the provision, the word 'use' as there employed

[ 441 Pa. Page 574]

    means more than the mere privilege of using which the owner enjoys, and relates to its primary signification, as defined by Webster; 'The act of employing anything or of applying it to one's service; the state of being so employed or applied'. If the use which arises from the fact of ownership without more was what the statute proposed, then it is inconceivable why the difference between use and ownership was marked in the provision and made the basis of the tax which it imposed. While this construction in this case leads to the same conclusion as does that which the court below affixed to the statute, that is, that it taxed the privilege of use, or, in other words the potentiality of using involved in ownership, inherently there is this fundamental difference between the interpretation we give and that which the lower court adopted, since the privilege of use is purely passive (or subjective), a right which necessarily pertains to ownership and must exist where there is ownership, as one may not obtain ownership without acquiring the privileges of use which ownership gives. The other, on the contrary, that is, use in the statutory sense, although it arises from ownership, is active (objective), that is, it is the outward and distinct exercise of a right which ownership confers but which would not necessarily be exerted by the mere fact of ownership." 232 U.S. at 280-81.

The Court's analysis of the concept of use in the Billings case, supra, points the way to an understanding of the tax under consideration here. In Billings, what was levied upon was the " outward and distinct exercise of a right which ownership confers but which would not necessarily be exerted by the mere fact of ownership ". (Emphasis supplied.) 232 U.S. at 281. This active, ongoing exercise of the use of property for commercial purposes is the precise incident which the School Board's tax falls upon, and with constitutional sanction.

[ 441 Pa. Page 575]

It can be conceded without fatality to the appellants' case that the ad valorem property tax is bottomed on factors which include the intrinsic element of use. "'We have defined market value as the price which a purchaser willing but not obliged to buy, would pay an owner, willing but not obliged to sell, taking into consideration all uses to which the property is adapted and might in reason be applied'." Flamingo Apartments, Inc. v. Board of Revision of Taxes, 383 Pa. 223, 225, 118 A.2d 197, 198 (1955). But, it is submitted, this latter element of use is what the Billings court termed "purely passive". There still remained that active exercise of the right, "that state of being so employed or applied", which was held taxable to Mr. Billings. In this case, the Philadelphia School Board has gone and done likewise. While economically the incidence of the tax is on the property itself, its legal incidence is on the privilege of using, making it a true excise tax.

It has been said in the past that real estate only has taxable value because of its actual or potential use. Flamingo Apartments, Inc. v. Board of Revision of Taxes, 383 Pa. 223, 118 A.2d 197 (1955); Hudson Coal Company's Appeal, 327 Pa. 247, 193 Atl. 8 (1937). While surfacely this statement appears to be unimpeachable, we are persuaded that other cases show that it should not be taken as the all-inclusive and final test. The taxable value of property is not solely derived from its actual use or the uses to which it may be adapted; it is not deemed valueless because it is not able to be put to any use. Marine Coal Co. v. Pgh. M. & Y. R. R. Co., 246 Pa. 478, 92 Atl. 688 (1914). "The particular use [of the land] . . . is a mere collateral consideration. In estimating the market value of the land everything which gives it intrinsic value is a proper element for consideration." Shenango and Allegheny Railroad Co. v. Braham, 79 Pa. 447, 453 (1875).

[ 441 Pa. Page 576]

Having persuasively demonstrated, we hope, that the imposition of a tax on the use of real estate is constitutionally permissible, we now address ourselves to the reasons why the lower court ruled that the levy ...

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