Appeal from the Order of the Board of Finance and Revenue, in case of The Frankford Trust Company v. The Commonwealth of Pennsylvania, Docket No. R. 23346. Transferred from the Court of Common Pleas of Dauphin County to the Commonwealth Court of Pennsylvania, September 1, 1970.
Frank A. Sinon, with him Sherill T. Moyer, Thomas L. Wenger and Rhoads, Sinon & Reader, for appellant.
Edward T. Baker, Deputy Attorney General, for appellee.
President Judge Bowman, and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Opinion by President Judge Bowman.
[6 Pa. Commw. 110 Page 112]
By this appeal Frankford Trust Company (appellant) challenges the constitutional validity of the imposition of sales and use tax liability upon state-chartered banking institutions when such liability could not be imposed upon national banks in competition with such state banks during the fiscal period in question. The appeal is before us on a stipulation of facts which we adopt as the findings of fact of the Court.
Following passage of the "Tax Act of 1963 for Education," Act of March 6, 1956, P.L. (1955) 1228, as amended by the Act of May 29, 1963, P.L. 49, 72 P.S. § 3403-1 et seq., all banks irrespective of their charter origins were subjected to sales and use tax on all retail purchases of tangible personal property and services as defined by the Act. The Department of Revenue, implementing the statute, issued regulations concerning the obligation of such financial institutions to pay such taxes.
"Reg. 156. Application of Tax to Financial Institutions.
"1. Purchases by Financial Institutions
"A financial institution must pay the tax at the time of purchase of all tangible personal property to be used by it in the conduct of its business. This includes all tangible personal property furnished by the financial institution to its customers, such as passbooks, checkbooks, deposit slips, or similar items. . . ."
Appellant duly paid all sales and use taxes pursuant to Regulation 156 from July 1, 1963 to December 31, 1967 in the amount of $43,563.81. On July 9, 1968, appellant petitioned the Department of Revenue for a refund of these tax payments which petition was denied by the Sales Tax Board. Thereafter, a timely petition for review of the refund denial was filed with the Board of Finance and Revenue which subsequently entered an order refusing the requested relief. Appellant appealed
[6 Pa. Commw. 110 Page 113]
the Board's ruling to the Court of Common Pleas of Dauphin County, which transferred the appeal here following the creation of the Commonwealth Court.
Appellant based its refund claim upon the fact that, in 1968, the Department of Revenue recognized that national banks were not lawfully subject to the tax or to Regulation 156 and provided for refunds to such banks of any taxes paid since 1963. This action by the department was mandated by the decision of the United State Supreme Court in First Agricultural National Bank of Berkshire County v. State Tax Commission, 392 U.S. 339, 20 L. Ed. 2d 1138 (1968), which concluded that states are without power to tax federally-created or national banks absent a specific grant of such taxing power from Congress. The decision effectively stripped Pennsylvania of the power to impose a sales and use tax on national banks because such taxes were not in 1968 among the class of taxes permitted to be levied by states under then-existing federal law. See 12 U.S.C.A. 548.
Appellant does not question the authority of the federal government to regulate national banks or to limit, under the powers conferred on it by the United States Constitution, the relationship of states to such national banks. Appellant does take issue with Pennsylvania's imposition of sales and use taxes on state-created banks when the state is without power to impose the same tax on national banks. The core of appellant's argument is that under considerations of equal protection in the United States Constitution and uniformity of taxation in the Pennsylvania Constitution, the ...