decided: May 13, 1975.
THE AMERICAN TELEPHONE AND TELEGRAPH COMPANY, APPELLANT,
BOARD OF PROPERTY ASSESSMENT, APPEALS AND REVIEW OF ALLEGHENY COUNTY, PENNSYLVANIA. BOARD OF PROPERTY ASSESSMENT, APPEALS AND REVIEW OF ALLEGHENY COUNTY, PENNSYLVANIA, AND COUNTY OF ALLEGHENY V. THE AMERICAN TELEPHONE AND TELEGRAPH COMPANY, APPELLANT
Albert J. Tomalis, Jr., Metzger, Hafer, Keefer, Thomas & Wood, Harrisburg, for appellant; James H. Peters, Chief Tax Atty., Robert L. Nathanson, Tax Atty., New York City, of counsel.
Thomas M. Rutter, Jr., Acting County Sol., John G. Arch, Asst. County Sol., Stephen A. Zappala, County Sol., Pittsburgh, for appellee.
Samuel C. Harry, Harrisburg, for amici curiae, the Pennsylvania Members of the Nat. Ass'n of Water Companies; Morgan, Lewis & Bockius, Harrisburg, of counsel.
Frank A. Sinon, Walter K. Swartzkoph, Jr., Rhoads, Sinon & Reader, Harrisburg, for amicus curiae, Columbia Gas Transmission Corp.; Thomas E. Morgan, Larry L. Roller, Charleston, W. Virginia, of counsel.
Gilbert Nurick, Harrisburg, Robert R. Batt, Louis W. Ricker, Philadelphia, for amici curiae, Cleveland Elec. Illuminating Co., Ohio Edison Co., and Toledo Edison Co.; McHees, Wallace & Nurick, Harrisburg, Ballard, Spahr, Andrews & Ingersoll, Philadelphia, of counsel.
Robert R. Batt, Louis W. Ricker, Philadelphia, Harry J. Rubin, Harrisburg, for amici curiae, Atlantic City Elec. Co., Baltimore Gas & Elec. Co., Delmarva Power & Light Co., Jersey Cent. Power & Light Co., Potomac Elec. Power Co., and Public Serv. Elec. & Gas Co.; Ballard, Spahr, Andrews & Ingersoll, Philadelphia, Krekstein, Rubin & Lasday, Harrisburg, of counsel.
Gordon W. Gerber, William A. Kelley, Jr., Alfred A. Gollatz, Dechert, Price & Rhoads, Philadelphia, amici curiae for Western Pennsylvania Water Co., Keystone Water Co. and Riverton Consolidated Water Co.
Jones, C. J., and Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ.
[ 461 Pa. Page 719]
OPINION OF THE COURT
This is an appeal from an order of the Commonwealth Court*fn1 holding that a public utility's payment of the tax
[ 461 Pa. Page 720]
imposed by the Public Utility Realty Tax Act*fn2 (PURTA) was not in lieu of local real estate taxes pursuant to article VIII, section 4 of the Pennsylvania Constitution, P.S.*fn3 We conclude that the Commonwealth Court erroneously construed article VIII, section 4 and reverse.
This case requires analysis of the interaction of article VIII, section 4 and PURTA. A clearer understanding of the issues presented will be facilitated by a review of the history of these two provisions. This then is the beginning of our consideration.
From 1826, when this Court decided Schuylkill Bridge Co. v. Frailey, 13 S. & R. 422 (Pa.1826), until 1968, when article VIII, section 4 was added to the Pennsylvania
[ 461 Pa. Page 721]
Constitution, the imposition of local real estate taxes upon the property of public utilities essential to the utilities' operation*fn4 was prohibited unless an act of the General Assembly permitted local taxation.*fn5 During the 142 years between Schuylkill Bridge Co. and the convening of the Pennsylvania Constitutional Convention of 1967-68, the Legislature enacted no law generally permitting local taxation of public utilities' real estate.
The inability of local taxing authorities to tax the real estate of public utilities within their geographical area was a cause of great concern to local authorities and their taxpayers. The exemption was considered a means by which a potential source of revenue escaped local taxation. Furthermore, local authorities asserted that the presence of a major utility in their territory tended to reduce the base upon which property taxes could be assessed.*fn6
This concern was manifested at the Constitutional Convention. When the Convention convened, the question of local taxation of the real estate of public utilities was submitted by the Preparatory Committee to the Committee on State Taxation and Finance with the following official guidance:
"If the continuation of the exemption for property of public utilities is desired, it may be advised to strengthen the Constitutional basis for this exemption by adding a provision to Section 1 of Article IX*fn7 authorizing
[ 461 Pa. Page 722]
the Legislature to exempt such property. If on the other hand, the abolishment [sic] of the exemption for property of public utilities is desired, consideration should be given to adding to the Constitution (perhaps to Section 2) a clause providing that such property shall not be exempt from taxation."
Preparatory Committee, Taxation & State Finance, Reference Manual No. 7, at 12 (1967). See Comment, Public Utility Taxation in Pennsylvania: Article VIII, Section 4 of the Constitution of Pennsylvania 1968, 74 Dick.L.Rev. 274 (1970).
When the Committee on Taxation and State Finance presented its proposal to the Convention, the Committee had already resolved that local taxing authorities should be entitled to receive some revenue from public utilities. However, the Committee viewed the imposition of real property taxes directly by the local authorities as undesirable. In its view, local taxation would permit those governmental units in which public utilities were located to reap windfall benefits while other communities would obtain little or no benefit from local taxation. The increased taxation, however, would become part of the utilities' rate bases and accordingly would be reflected in every consumer's rates regardless of whether he lived in a community benefiting from the tax.*fn8 It therefore included in its proposal to eliminate the exemption a plan whereby all local taxing authorities could share in the revenue derived from the utilities. As finally adopted by the Convention, this plan provides that if the Legislature imposes upon utilities "gross receipts taxes or other special tax in replacement of gross receipts taxes" producing revenue equal to the sum that all local taxing authorities would collect if they imposed the local real estate taxes upon the utilities, and if the Commonwealth proportionately
[ 461 Pa. Page 723]
redistributed the revenues thus obtained to the local taxing authorities, payment of the state tax would be in lieu of payment of the local property taxes.*fn9 This proposal was approved by the Convention and ratified by the voters.
At the time of the adoption of article VIII, section 4, a gross receipts tax on the "wholly" intrastate activities of public utilities already existed.*fn10 However, certain utilities, most notably water companies, were not subject to the tax, and other utilities such as American Telephone and Telegraph Co. were exempt in whole or in part because they conducted interstate activities.*fn11 Moreover, the revenues derived from the tax were inadequate to meet the requirements of article VIII, section 4 and existing law made no provision for distribution of such revenues to the local authorities. For these reasons, additional legislation was required to implement the terms of the new constitutional provision.
Rather than attempt to expand the existing gross receipts tax,*fn12 the Legislature decided to enact a different type of tax to implement the amendment. On March 10, 1970,*fn13 the Legislature enacted PURTA, which imposed a
[ 461 Pa. Page 724]
state-wide property tax upon the "depreciated value"*fn14 of the real estate of public utilities. By enacting the tax, the General Assembly intended to implement the Constitutional provision. Section 4 of the Act*fn15 provides in part:
"(a) Payment of the tax imposed by section 3, and the distribution to local taxing authorities prescribed by section 7 [of PURTA], shall be in lieu of local taxes upon utility realty, as contemplated by article VIII, section 4, of the Constitution of Pennsylvania."
Following the adoption of article VIII, section 4 and the enactment of PURTA, American Telephone and Telegraph Co. paid the tax imposed by PURTA for 1970 and 1971. Nevertheless, the Board of Property Assessment of Allegheny County assessed AT&T's local real estate essential to its operation*fn16 as taxable property. AT&T appealed the decision of the Board to the court of common pleas.*fn17 That court decided that AT&T was subject to the local tax for the six month period from July 1, 1970, to December 31, 1970, because the Commonwealth had failed to provide for the distribution of revenues collected by it for that period as required by the Constitution. However, the court also held that AT&T was relieved from liability for local real estate taxes for 1971 and succeeding years in which the Commonwealth made distribution of revenues to local taxing authorities as provided by article VIII, section 4 and PURTA.
[ 461 Pa. Page 725]
All parties appealed to the Commonwealth Court.*fn18 That court, relying on its decision in Heller v. Depuy, 2 Pa. Commw. 196, 277 A.2d 849 (1971), concluded that AT&T's payment of the tax imposed by PURTA was not sufficient to discharge liability for local taxation.*fn19
The Commonwealth Court's decision was based on its interpretation of the language of the Constitutional provision and PURTA. Article VIII, section 4 provides that "[p]ayment to the Commonwealth of gross receipts taxes or other special taxes in replacement of gross receipts taxes by a public utility" (emphasis added) is in lieu of payment of local property taxes. Section 8 of PURTA*fn20 provides that "It is the legislative intent that the tax imposed by this act . . . shall not be construed in any manner as to constitute a replacement for or a repealer of the [gross receipts tax]." (Emphasis added.) The Commonwealth Court concluded that because by PURTA's terms, the tax imposed did not "replace" the gross receipts tax and, apparently, because the Legislature had subsequently reenacted the gross receipts tax,*fn21 payment of the PURTA tax was not payment of "special taxes in
[ 461 Pa. Page 726]
replacement of gross receipt taxes." Therefore that court held that the Legislature's declaration in section 4 of PURTA that payment of the PURTA tax should be considered "in lieu of local [property] taxes"*fn22 was "unconstitutional" as inconsistent with article VIII, section 4. Our review of the history and purposes of this constitutional provision persuades us that the Commonwealth Court erroneously construed the phrase "other special taxes in replacement of gross receipts taxes" in the constitutional provision.
As we indicated in Part I, the purpose of article VIII, section 4 was to obtain some tax revenues for local taxing authorities from taxes imposed upon public utilities. The Convention, believing local taxation would create certain inequities, agreed that the taxation, collection, and distribution of such revenues should be assigned to the Commonwealth. The manner in which the Commonwealth chose to impose the tax and collect the revenue was apparently a matter of relatively little significance to the Convention and was left to the Legislature.
The proceedings of the Convention support the conclusion that the Convention was in no sense enamored of the gross receipts tax. The initial proposal submitted by the Taxation Subcommittee to the Committee on State Taxation and Finance provided for the imposition of a state-wide real estate tax on public utilities as the source of the revenues to be distributed to the local taxing authorities.*fn23 However, upon further consideration by the Committee, the proposal was altered to provide for the collection of the revenue by means of the gross receipts tax. Thus, when the proposal was submitted to
[ 461 Pa. Page 727]
the Convention, it provided that "gross receipts taxes . . . shall be in lieu of local taxes. . . ."*fn24 The Committee's reasons for this change were strictly administrative: because the gross receipts tax already existed, implementation of the amendment would not require the creation of new machinery to collect the tax.*fn25
On second consideration of the proposal by the Convention as a whole, the proposal was amended to read "payment of gross receipts or any other special tax."*fn26 This amendment was made in recognition that at some time in the future, the Legislature might decide that a different tax would be preferable to the gross receipts tax.*fn27 The purpose of this amendment was obviously to
[ 461 Pa. Page 728]
give the General Assembly more flexibility in choosing the manner in which the Commonwealth would obtain the revenue to be distributed to the local taxing authorities. The Convention did, however, insist that any alternative tax be a "special" one, that is a tax specifically designed to implement article VIII, section 4 so as not to adversely affect the Commonwealth's general revenues.*fn28
The final draft of this part of the amendment substituted the words "gross receipts taxes or other special taxes replacing gross receipts taxes" for "gross receipts or other special taxes." This change was apparently made by the Committee on Style and Drafting.*fn29 That this revision reflected no substantive change is indicated by the subsequent debates which clearly indicate that the Convention still intended by the provision to preserve in the Legislature the power to utilize a tax other than the gross receipts tax for the purpose of this amendment.*fn30
The utilization of such an alternative tax is exactly what the Legislature accomplished by the enactment of PURTA. Clearly, the Legislature intended that the
[ 461 Pa. Page 729]
PURTA tax should "replace" the gross receipts tax as the source of revenue under article VIII, section 4. The tax imposed by PURTA is the sole source of revenue for distribution to local taxing authorities pursuant to article VIII, section 4 and PURTA.*fn31 Furthermore, because the new tax is designed exclusively for this purpose and therefore will not affect the Commonwealth's general revenues, it is a "special tax" as contemplated in the Constitution.*fn32 Thus by the enactment of PURTA the Legislature was merely doing what the Convention foresaw it might -- replacing the gross receipts tax with another special tax to provide revenue for article VIII, section 4 distribution. The imposition of the PURTA tax fully conforms with the constitutional provision.
That the Legislature decided to retain the gross receipts tax as a source of general revenue for the Commonwealth does not affect this conclusion. The Constitution's use of "replacement" in the new provision does not mean that so long as a gross receipts tax exists no other tax may be employed for article VIII, section 4 purposes. Any other construction of "other special taxes in replacement of gross receipts taxes" would assign a magical significance to the gross receipts tax not mandated by the Constitution. The objective of the constitutional
[ 461 Pa. Page 730]
amendment is accomplished if these words are construed to mean any special tax the Legislature imposes for article VII, section 4 purposes.
We therefore conclude that the Legislature's expression in section 8 of PURTA*fn33 that the tax not be interpreted to "replace" the gross receipts tax and its subsequent reenactment of the gross receipts tax*fn34 do not render PURTA in any sense irreconcilable with article VIII, section 4. Section 8 was included in PURTA to assure that it would not be interpreted as impliedly repealing the gross receipts tax and thereby adversely affecting this source of general Commonwealth revenues. Thus the PURTA tax is a special tax imposed specially for purposes of article VIII, section 4. Payment of that tax by a utility and distribution by the Commonwealth to local taxing authorities is in lieu of local real estate taxation.
The American Telephone and Telegraph Co. is subject to the tax imposed by PURTA and, having paid that tax, is not also subject to local taxation of its operating realty. Accordingly, the order of the Commonwealth Court is reversed.