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decided: March 14, 1979.


No. 74 January Term, 1977, On Appeal from the Order of the Commonwealth Court, dated August 13, 1976, 1974 Term, Nos. 857, 871, 872, 873, 1086, affirming the Order of the Board of Finance and Review, dated May 30, 1974 Nos. M-607, M-608, M-609, and M-816.


Obermayer, Rebmann, Maxwell & Hippel, William G. O'Neill, Barry J. Hart, Philadelphia, for appellant.

Vincent J. Dopko, Eugene J. Anastasio, Deputy Attys. Gen., Harrisburg, for appellee.

Eagen, C. J., and Roberts, Nix, Manderino and Larsen, JJ. O'Brien, J., did not participate in the consideration or decision of this case. Manderino, J., filed a concurring and dissenting opinion.

Author: Roberts

[ 484 Pa. Page 62]


The City of Philadelphia owns a collection of real and personal property, known as the Philadelphia Gas Works (PGW). In 1961, pursuant to a City ordinance, the City contracted for the managerial services of United Gas Improvement Company. United Gas Improvement managed use of the City-owned property to furnish gas to residential, commercial and industrial users within the City. The parties captioned their contract an agreement "for the operation and management of the PHILADELPHIA GAS WORKS."*fn1 The parties agreed that the City, through PGW, would pay United Gas Improvement a fixed managerial fee for its services and that PGW's net revenues would inure to the City of Philadelphia.

Pursuant to another ordinance, the City on January 1, 1973 turned over management of PGW to the Philadelphia Facilities Management Corporation. The 1973 contract between the City and Philadelphia Facilities is substantially the same as the 1961 contract between the City and United Gas Improvement.

[ 484 Pa. Page 63]

Section 4 of the Liquid Fuels Tax Act, as amended,*fn2 imposes a State tax upon all liquid fuels used or sold and delivered by distributors within the Commonwealth, "excepting liquid fuels delivered to the Commonwealth, every political subdivision." PGW petitioned the Board of Finance and Revenue for refunds of taxes paid beginning April 1,

[ 484 Pa. Page 641970]

, the effective date of amended Section 4,*fn3 on its purchases of fuel for City-owned motor vehicles used in the PGW operation. The Board denied PGW refunds of taxes paid from April 1, 1970 to December 31, 1972, but granted refunds beginning January 1, 1973, the date Philadelphia Facilities Management Corporation assumed operation of PGW.*fn4 The Board also denied PGW's petition for interest on the taxes paid. PGW appealed to the Commonwealth Court. A majority of the Commonwealth Court agreed with the Board that PGW is not a "political subdivision" and therefore not entitled to refunds of taxes paid from April, 1970 to December, 1972.*fn5 The Commonwealth Court unanimously rejected PGW's claim that the Board should have awarded interest on the taxes refunded.

PGW now appeals to this Court.*fn6 We conclude that PGW is entitled to a refund of taxes paid from April, 1970 to December, 1972. We agree, however, that the Board properly denied PGW interest on the taxes refunded. Accordingly, we reverse the order refusing a refund and affirm the denial of interest.

[ 484 Pa. Page 65]

The Statutory Construction Act of 1972 defines "political subdivision" as "[a]ny county, city, borough, incorporated town, township, school district, vocational school district and county institution district." 1 Pa.C.S.A. § 1991 (Supp.1978). In Commonwealth v. Erie Metropolitan Transit Authority, 444 Pa. 345, 281 A.2d 882 (1971), a municipal authority seeking exemption from liquid fuels tax claimed it was a "political subdivision" and alternatively argued that it fell within an exemption from taxation accorded "the Commonwealth."*fn7 This Court concluded that the municipal authority was entitled to the relevant statutory exemption as part of "the Commonwealth," but also expressed the view that a "municipal authority" was not included in the above statutory definition,*fn8 and hence not entitled to a "political subdivision" exemption. The Commonwealth Court applied Erie Metropolitan Transit Authority's discussion of the "political subdivision" exemption and concluded that PGW, "which consists only of a collection of real and personal property,"*fn9 is not a "political subdivision."

In Erie Metropolitan Transit Authority this Court concluded that the Legislature, "in exempting the Commonwealth itself from the tax, likewise exempted authorities formed under enabling legislation such as the Authorities Act."*fn10 Id., 444 Pa. at 348, 281 A.2d at 884. Here, too, it must be concluded that, in exempting "political subdivisions" from the Liquid Fuels Tax Act, the Legislature intended to exempt an integral part of a political subdivision. PGW is owned by the City of Philadelphia. As Judge Crumlish

[ 484 Pa. Page 66]

    observed, "the creation and operation of PGW is outlined in the Philadelphia Home Rule Charter . . . which interweaves PGW within the fabric of city government."*fn11 The Commonwealth stipulates that the City is a political subdivision, and nothing in the Liquid Fuels Tax Act suggests that the tax exemption is not applicable where, as here, the fuels subject to tax are used by City-owned vehicles in a utility operation designed to service its citizens and municipal interests as well as to provide revenue for the City.

The Commonwealth urges that the agreement between the City and United Gas Improvement Company, in effect during the period the Board refused to refund taxes, creates a landlord and tenant relationship, under which United Gas Improvement "as lessee obtained possession and control of all of the Philadelphia Gas Works property with the City as lessor retaining a reversion at the termination of the lease."*fn12 It is true that the writing setting forth the parties' agreement contains a section headed "Lease Agreement to Operate Gas Works; Delivery of Possession and Control." But the parties agreed not that United Gas Improvement would pay the City rents, but rather the City would pay United Gas Improvement a fixed managerial fee for its services, with the City receiving net revenues. The agreement of the parties provided for the operation and management of PGW, and the "lease agreement" section merely authorized use of necessary City-owned property. Cf. e. g., Bowman v. Bradley, 151 Pa. 351, 24 A. 1062 (1892) (where possession of property is dependent upon performing employment contract, possession is not pursuant to a lease, but part of employment contract).

The Commonwealth argues that PGW may not claim the political subdivision exemption because neither the City nor United Gas Improvement is a captioned party to these proceedings, and PGW lacks capacity to sue. The

[ 484 Pa. Page 67]

    alleged technical defect could easily have been corrected in the proceedings before the Board. It would appear, however, that the Commonwealth did not raise this contention. PGW filed its appeal from the Board to the Commonwealth Court on July 1, 1974. Under then-applicable Rules of Commonwealth Court, "[t]he parties shall be stated in the caption as they stood upon the record of the court or administrative agency below at the time the appeal was taken . . . ." Commonwealth Court Rule 20B, abrogated, Pa.R.A.P. 5103 (effective July 1, 1976), replaced, Pa.R.A.P. 904(a). An appellate court will view a caption as amended where no new cause of action will be introduced. See e. g., Minkin v. Minkin, 336 Pa. 49, 7 A.2d 461 (1939); 9 Standard Pennsylvania Practice Ch. 39 § 154 (rev. ed. 1962); see also 3 Standard Pennsylvania Practice Ch. 12 § 7 (1952). And our Rules of Civil Procedure provide that a challenge to a party's capacity to sue is waived unless raised in a timely fashion. Erie Indemnity Co. v. Coal Operators Casualty Co., 441 Pa. 261, 272 A.2d 465 (1971); see Pa.R.Civ.Proc. 1017(b)(5) & 1032; 2 Goodrich-Amram 2d § 1032:3. We decline to view the alleged, but not previously raised, technical defect as a basis for denying the refunds.

The Commonwealth further argues that Section 17 of the Liquid Fuels Tax Act, 72 P.S. § 2611q (as amended Supp.1978), bars PGW's refund claim. Section 17 now provides:

"The Board of Finance and Revenue may refund to distributors taxes, penalties, and interest paid by them on liquid fuels delivered to the United States government, or paid as the result of an error of law or of fact or of both law and fact. Claims for such refunds shall be made under the procedure prescribed by the Fiscal Code."

The Commonwealth contends that, under a strict interpretation of this refund provision, see e. g., Land Holding Corporation v. Board of Finance and Revenue, 388 Pa. 61, 130 A.2d 700 (1957), only "distributors," and not political subdivisions, may obtain a refund of the tax. (The Commonwealth suggests that PGW could have contracted with its "distributors" to bring the refund suit and, if successful, to turn over

[ 484 Pa. Page 68]

    the refunds.) Alternatively, the Commonwealth would impose upon refunds the condition that the fuels be delivered to the "United States government."

Were we to accept the Commonwealth's view that only "distributors" may petition for refunds of liquid fuels taxes erroneously paid, or that fuels must first be delivered to the United States government, we would impute to the Legislature the principal intent to accord "political subdivisions" an exemption from taxation and, at the same time, restrain these subdivisions in any effort to recover taxes erroneously paid. Moreover, it is possible that in doubtful cases political subdivisions would be reluctant to pay liquid fuels taxes. We must, of course, assume that the "General Assembly does not intend a result that is absurd, impossible of execution or unreasonable." Statutory Construction Act of 1972, 1 Pa.C.S.A. § 1922(1) (Supp.1978). It must be concluded that the Legislature intended to permit a subdivision directly to petition for a refund of taxes where the subdivision claims the burden of taxation was erroneously imposed. See Fiscal Code, Act of April 9, 1929, P.L. 343, § 503(a), 72 P.S. § 503(a) (as amended Supp.1978).*fn13

Though the Board improperly denied refunds of taxes paid from April 1, 1970 to December 31, 1972, we hold

[ 484 Pa. Page 69]

    that it properly denied interest. In Purdy Estate, 447 Pa. 439, 291 A.2d 93 (1972), the executors of an estate overpaid inheritance taxes. After a life tenant's death, the executors claimed credit both for overpayment and interest. The Commonwealth allowed credit for the overpayment, but disallowed interest. The estate protested, and the court of common pleas held the Commonwealth liable for interest. This Court reversed. Here, PGW voluntarily, albeit erroneously, paid taxes and the Commonwealth did not solicit such overpayment. It must be concluded, as in Purdy Estate, that interest was equitably denied.

Order of the Commonwealth Court denying PGW's petitions for refunds of liquid fuels taxes paid from April 1, 1970 to December 31, 1972 is reversed; order denying interest affirmed.

MANDERINO, Justice, concurring and dissenting.

I join in the majority opinion as to the granting of Philadelphia Gas Works' petitions for refunds of liquid fuel taxes paid for the years involved, but I disagree with the denial of interest. The government has used the taxpayer's money, and it is only fair and equitable that the government not merely return the money, but do so with interest.

The majority justifies a denial of interest payment on the basis that Philadelphia Gas Works voluntarily paid the taxes. This is irrelevant. The fact remains that the government has had the use of the taxpayer's money since 1970. The result of paying interest is especially required in light of our abolishment of sovereign immunity. Mayle v. Pennsylvania Dept. of Highways, 479 Pa. 384, 388 A.2d 709 (1978). Since we have held that the government enjoys no special immunities from negligence, there is no further reason to hold the government immune from paying interest in this case.

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