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FRANK E. HELLER v. WARNER M. DEPUTY (05/19/71)

decided: May 19, 1971.

FRANK E. HELLER, WILLIAMSPORT MUNICIPAL WATER AUTHORITY, WILLIAMSPORT SANITARY AUTHORITY
v.
WARNER M. DEPUTY, SECRETARY OF REVENUE OF THE COMMONWEALTH OF PENNSYLVANIA, ROBERT P. CASEY, AUDITOR GENERAL OF THE COMMONWEALTH OF PENNSYLVANIA, WILLIAM SENNETT, ATTORNEY GENERAL OF THE COMMONWEALTH OF PENNSYLVANIA, GRACE SLOAN, STATE TREASURER OF THE COMMONWEALTH OF PENNSYLVANIA



Complaint in Equity filed in the Court of Common Pleas of Dauphin County -- No. 3088 in Equity -- Commonwealth Docket 189 C.D. 1970, in case of Frank E. Heller, Williamsport Municipal Water Authority, Williamsport Sanitary Authority v. Warner M. Depuy, Secretary of Revenue of the Commonwealth of Pennsylvania, Robert P. Casey, Auditor General of the Commonwealth of Pennsylvania, William Sennett, Attorney General of the Commonwealth of Pennsylvania, Grace Sloan, State Treasurer of the Commonwealth of Pennsylvania. Case transferred September 1, 1970, to the Commonwealth Court of Pennsylvania.

COUNSEL

Robert C. Riethmuller, with him William H. Markus, Victor Lynch and Clyde Williamson, for plaintiffs.

Eugene J. Anastasio, Deputy Attorney General, with him J. Shane Creamer, Attorney General, for defendants.

President Judge Bowman and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Manderino, Mencer and Rogers. Opinion by Judge Kramer. Judge Manderino concurs in the result only.

Author: Kramer

[ 2 Pa. Commw. Page 198]

This case is within the original jurisdiction of the Commonwealth Court. It was instituted by the filing of a Complaint in Equity on May 8, 1970, in the Court of Common Pleas of Dauphin County -- Commonwealth Docket, and after this Court became officially organized by the Proclamation of the Governor, the matter was transferred to this Court for disposition.

The complaint seeks to restrain the taxing and revenue officials of the Commonwealth of Pennsylvania from enforcing the provisions of the "Public Utility Realty Tax Act", Act of March 10, 1970, P.L. , Act No. 66, 72 P.S. 3271 (hereinafter referred to as Act No. 66). This Act imposes a state tax of 30 mills (adjustable) on certain real estate owned by public utilities, the revenues from which are to be paid into the State Treasury; and, under a formula set forth in the Act, thereafter to be distributed back to reporting local taxing authorities. Act No. 66 specifically states that the legislative intent is that the tax imposed ". . . shall be in addition to any tax now or hereafter imposed upon the gross receipts of public utilities . . .", that it should not be construed to constitute a ". . . replacement for or a repealer of . . ." the Gross Receipts Tax Act*fn1 (Act of June 1, 1889, P.L. 420, as amended).

[ 2 Pa. Commw. Page 199]

In its definitions, Act No. 66 sets forth in Section 2: "(b) 'Public Utility' means any person, partnership, association, corporation or other entity furnishing public utility service under the jurisdiction of the Pennsylvania Public Utility Commission or the corresponding regulatory agency of any other state or of the United States; and any electric cooperative corporation, municipality or municipality authority*fn2 furnishing public utility service. . . ." By the Act of December 2, 1970, P.L. , (Act No. 273), the Legislature added the following words to the above definition: ". . . but shall not mean any public utility furnishing public utility sewage services."

Because of the amendatory language last mentioned, one of the plaintiffs in this law suit, viz., Williamsport Sanitary Authority, became exempt from the tax under Act No. 66, and therefore the issues presented by the Sanitary Authority are rendered moot and will not be considered in this opinion.

This is the first law suit brought to test the constitutionality of Act No. 66, which was enacted as a result of the 1968 Pennsylvania Constitutional amendment found in Article VIII, Section 4, which reads as follows: "Section 4. The real property of public utilities is subject to real estate tax imposed by local taxing authorities. Payment to the Commonwealth of gross receipts taxes or other special taxes in replacement of gross receipts taxes by a public utility and the distribution by the Commonwealth to the local taxing authorities of the amount as herein provided shall, however, be in lieu of local taxes upon its real property which is used or useful in furnishing its public utility service.

[ 2 Pa. Commw. Page 200]

The amount raised annually by such gross receipts or other special taxes shall not be less than the gross amount of real estate taxes which the local taxing authorities could have imposed upon such real property but for the exemption herein provided. This gross amount shall be determined in the manner provided by law. An amount equivalent to such real estate taxes shall be distributed annually among all local taxing authorities in the proportion which the total tax receipts of each local taxing authority bear to the total tax receipts of all local taxing authorities, or in such other equitable proportions as may be provided by law. Notwithstanding the provisions of this section, any law which presently subjects real property of public utilities to local real estate taxation by local taxing authorities shall remain in full force and effect."

On November 23, 1970, all of the parties to this action entered into a stipulation of facts and agreement to dispense with a trial by jury (in accordance with the Act of April 22, 1874, P.L. 109); and the case was submitted to the Court for determination on the merits.

Finding of Facts

From the record and the stipulation of facts, the Court finds: (1) Frank E. Heller, the individual-plaintiff, is a holder of bonds issued by the Williamsport Municipal Water Authority (corporate-plaintiff).

(2) The Williamsport Municipal Water Authority was incorporated June 6, 1946, and exists under and by virtue of the "Municipality Authorities Act", Act of May 2, 1945, P.L. 382, 53 P.S.

(3) The City Council of the City of Williamsport appoints the members of the board of the corporate-plaintiff.

(4) The corporate-plaintiff supplies water to customers in and about the city of Williamsport together with certain surrounding areas.

[ 2 Pa. Commw. Page 201]

(5) The corporate-plaintiff has issued bonds pursuant to two indentures: (a) the first indenture, dated July 1, 1947, covering $5,750,000 worth of bonds and (b) an indenture dated April 1, 1950 covering bonds in the amount of $500,000. Both of these issues are subject to a second supplemental indenture dated September 1, 1966. All of the bonds (a portion of which are still outstanding) were incurred for the purpose of financing construction and operation of the water system.

(6) The amount of water revenue bonds issued by the corporate-plaintiff outstanding and unpaid as of June 30, 1969, was $3,587,732.50, and as of June 30, 1970, was $3,397,000.00.

(7) Each of the four defendants herein is charged under the laws of the Commonwealth of Pennsylvania with certain obligations and duties with regard to the collection, auditing and handling of tax revenues of the Commonwealth and are necessary parties to the instant suit.

(8) All municipal authorities incorporated under the Act of May 2, 1945, P.L. 382, operating water systems, have been advised by the Department of Revenue that they are liable to and subject to the terms of the Public Utility Realty Tax Act, Act No. 66, supra, and that they were ordered to file a return on or before June 1, 1970, together with payment of the tax imposed.

(9) The corporate-plaintiff timely filed with the Department of Revenue the required forms, and later filed an amended return showing the tax due, but not paid, under the Public Utility Realty Tax Act in the amount of $55,583.00.

(10) The corporate-plaintiff does not carry a depreciation account in its books and records, and the assets of it are carried on its books at cost until discharged at retirement.

[ 2 Pa. Commw. Page 202]

(11) On September 22, 1970, the Bureau of Corporation Taxes of the Department of Revenue notified transportation authorities existing under the Municipality Authorities Act of 1945, supra, and transportation authorities formed pursuant to the Metropolitan Transportation Authorities Act, Act of August 14, 1963, P.L. 984, that they also were subject to the tax imposed by the Public Utility Realty Tax Act, Act No. 66, supra.

(12) On September 22, 1970, the Bureau of Corporation Taxes of the Department of Revenue notified various water cooperatives that they were likewise subject to the Public Utility Realty Tax Act, Act No. 66, supra.

(13) As of June 30, 1970, the corporate-plaintiff had approximately 17,000 customers, paying revenues of $696,000 and, statistically, in order to raise the $55,583 in taxes imposed by the Public Utility Realty Tax Act, supra, on the average, each residential consumer of the corporate-plaintiff would incur an additional charge of about $2.16 per year.

Discussion

The plaintiffs in their broad attack on Act No. 66, supra, charged that the Act violates:

(1) The public utility real estate tax and exemption clause of Article VIII, Section 4 of the ...


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