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decided: March 16, 1979.


No. 107 January Term, 1977, Appeal from Order of the Commonwealth Court of Pennsylvania dated September 28, 1976, Docket Nos. 1384 & 1385 Commonwealth Docket 1975


Frederick C. Sturm, III, Philadelphia, McNees, Wallace & Nurick, John S. Oyler, Harrisburg, for appellant.

R. Scott Shearer, Robert P. Coyne, 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 the case. Larsen, J., filed a dissenting opinion in which Eagen, C. J., joined.

Author: Nix

[ 484 Pa. Page 168]


This is an appeal*fn1 from the Commonwealth Court's affirmance of the Board of Finance and Revenue's order denying appellant's petitions for refund of an alleged Gross Receipts Tax*fn2 overpayment. Hams Express, Inc. v. Commonwealth Board of Finance and Revenue, 26 Pa. Commw. 448, 363 A.2d 1340 (1976). The controlling issue is whether Hams Express, Inc., appellant, is entitled to claim as a credit against the Gross Receipts Tax the license and registration fees for a number of motor vehicles*fn3 leased by appellant from a leasing corporation. The Commonwealth Court held that appellant was not so entitled. Id. For the reasons discussed herein, we disagree and reverse the order of the Commonwealth Court.

The pertinent facts, as stipulated by the parties, are as follows: Hams Express is a company engaged in the intrastate

[ 484 Pa. Page 169]

    and interstate business of carrying property for hire via motor vehicles. As such, Hams is subject to the Gross Receipts Tax, 72 P.S. §§ 2183-2191 (1949 & Supp.1978-79), the rate of which is levied upon that portion of Ham's gross receipts as is represented by the ratio that the mileage on routes operated by the company within the Commonwealth bears to the total mileage on all routes, during the relevant period. Id. § 2185 (Supp.1978-79). For the taxable periods ending December 31, 1971 and December 31, 1972, Hams paid gross receipts taxes of six thousand sixty-five dollars sixty-four cents ($6,065.64) and six thousand six hundred forty-five dollars twenty-nine cents ($6,645.29), respectively. During each taxable period, appellant sub-leased motor vehicles from a company which in turn had leased the same vehicles from a corporate lessor.*fn4 Although a different corporate lessor was a party to the lease agreements in effect for each of the two taxable periods in question, the relevant lease terms are essentially identical. Therefore, for purposes of brevity, we will set forth the pertinent terms of the lease agreements in effect during the taxable period ending December 31, 1971. On May 8, 1968, Berman Leasing Co. (Berman) leased twenty-seven motor vehicles to Blue Bird Food Products Co. (Blue Bird). On April 24, 1971, Blue Bird sub-leased the same vehicles to appellant Hams. The lease agreement between Berman and Blue Bird states:

Berman hereby agrees to furnish, supply and do the following, at its sole cost and expense, except as hereinafter modified, for the purpose of maintaining the equipment units in good working order and for proper operation: (Emphasis added)

(e) License Tags: to pay all license tag fees for the State of Pennsylvania for each equipment unit.

The sub-lease agreement between Blue Bird and Hams has essentially the same provision:

[ 484 Pa. Page 170]

Blue Bird hereby agrees to cause to be furnished, supplied and have done the following, at no cost and expense to Hams except as hereinafter modified, for the purpose of maintaining the equipment units in good working order and for proper operation: (Emphasis added).

(d) License Tags: To pay all license tag fees for the State of Pennsylvania, for each equipment unit.

The "modifications" provide that if there is an increase in license tag fees above those in effect at time of agreement, then the lessee (either Blue Bird or Hams) shall pay the amount of the increase; if the fees decrease, then the lessee (either Blue Bird or Hams) shall receive a credit against the rental charge for the amount of the decrease.*fn5

It is stipulated that Berman remitted license and registration fees to the Commonwealth in the amount of fourteen thousand four hundred fifty-five dollars ($14,455.00). It is further stipulated that this cost to Berman was included in the rental charge paid to Berman by Blue Bird; under the terms of the sub-lease between Blue Bird and Hams, Hams reimbursed Blue Bird for the rental charge that Blue Bird paid to Berman.*fn6

The dispute in the instant case centers upon the interpretation and application of the following section of the Gross Receipts Tax Act, which allows a tax credit to subject companies for amounts paid to the Commonwealth for motor vehicle registration fees:

[W]here any such company has paid to the Department of Revenue a registration fee or fees, as provided for by the laws of this Commonwealth, upon any motor vehicle

[ 484 Pa. Page 171]

    or motor vehicles used in the business of carrying passengers or property for hire over the highways of this Commonwealth, it shall receive a credit in each settlement for gross receipts tax made hereunder to the extent of the total amount of the registration fee or fees paid for the calendar year of which the period covered by the settlement was a part. 72 P.S. § 2185 (Supp.1978-79) (Emphasis added).

In essence, the Commonwealth argues that the statute requires companies seeking the benefit of the tax credit to pay directly to the Commonwealth the motor vehicle registration fees. From this proposition, the Commonwealth concludes that because the corporate lessors, Berman and Luby (see note 6 supra), not Hams, actually remitted the fees to the Commonwealth for the periods in question, Hams was not entitled to the credit and, therefore, is not now entitled to a refund for overpayment of taxes.*fn7 The Commonwealth Court accepted this analysis. See Hams Express, Inc. v. Commonwealth Bd. of Finance and Revenue, supra 26 Pa. Commw. at 450, 363 A.2d at 1341.

In response, appellant argues that under the lease and sublease agreements it is clear that the cost of vehicle registration is passed along to and ultimately borne by appellant. Primarily for that reason, appellant concludes that it should be deemed to have "paid" the registration fees within the meaning of the statute and, accordingly, should be given the benefit of the tax credit. We agree.

We note initially that under the leasing arrangements in the instant case, there is no doubt that appellant does pay indirectly the cost of registration fees.*fn8 The lease

[ 484 Pa. Page 172]

    provisions governing increases or decreases in the fees subsequent to the execution dates of the agreements indicate that the prevailing registration fees represented a portion of the rental charge paid by appellant. See text accompanying note 5 supra. In pressing its argument that the statute requires actual direct payment of the fees by the taxpayer who seeks the tax credit, the Commonwealth asserts that because in this case the grant of the credit will negate appellant's tax liability, the tax credit is in the nature of an exemption and that therefore the statutory language creating the credit must be strictly construed. Although it is true that statutes exempting persons and property from taxation are to be strictly construed, 1 Pa.C.S.A. § 1928(b)(5) (Supp.1978-79), a section of a tax statute providing for a tax credit is not transformed into an exemption provision simply because in a given case the effect of the tax credit is to negate tax liability.

Such an argument inverts the normal analytical process, whereby a rule of construction is applied to the tax statute in question in order to determine the extent of tax liability, if any. As often as this Court has had occasion to state that taxing statutes are to be strictly construed, see, e. g., Alan Wood Steel Co. v. Phila. Sch. Dist., 425 Pa. 455, 463, 229 A.2d 881, 885 (1967), it has just as often noted that reasonable doubts as to a taxing statute's interpretation should be resolved in favor of the taxpayer. See, e. g., id.; Dan Allen Chevrolet Co. v. Pittsburgh, 414 Pa. 429, 200 A.2d 388 (1964). It would be particularly inappropriate to strain to justify a rule of strict construction where its application would result in a wooden interpretation of the language that completely ignores the statutory scheme sought to be advanced.

This Court has stated that "taxes traditionally have been aimed at the realities of given transactions". Miller Chevrolet Co. v. Pittsburgh, 400 Pa. 648, 653, 162 A.2d 351, 354 (1960). Therefore, it is appropriate that in construing a tax statute we look to the realities of the transactions from

[ 484 Pa. Page 173]

    which the construction problem arises. In so viewing the instant case, we note that neither of the corporate lessors who actually remitted the fees engage in the business of carrying passengers or property for hire. Therefore, neither lessor is subject to the Gross Receipts Tax, nor is either one entitled to the tax credit for the amount of the remittances. See 72 P.S. §§ 2183, 2185 (Supp.1978-79). Thus, the dispute is not over which of two or more taxpayers can claim the tax credit. The dispute is whether a tax credit should be allowed at all for fees which unquestionably were paid to the Commonwealth. As appellant correctly notes, to deny it the tax credit results in a total loss of the credit.*fn9

To construe the statute as urged by the Commonwealth, we would need to ignore what we find to be the implied purpose of the tax credit provision in Section 2185.

The Gross Receipts Tax is levied based upon a company's use of the Commonwealth highways, id. § 2184, and revenue generated by the tax paid by appellant must be credited to the Motor License Fund. Id. § 2191. Similarly, the revenue created by the vehicle registration fees indirectly paid by the appellant must be deposited in the same fund. 75 Pa.C.S.A. § 1904 (1977). The purpose of these fees and the Motor License Fund is to provide for the construction, maintenance, repair and safety of the Commonwealth's highways. Pa.Const. art. 8, § 11; 71 P.S. § 511.2 (Supp.1978-79); 72 P.S. § 3562(a) (1968) (Repealed 1970). Since the vehicle registration fees and the Gross Receipts Tax are ultimately used for the same purpose, it is logical to infer that the legislature viewed payment of registration fees as being in the nature of a partial pre-payment of Gross Receipts Tax and, for that reason, allowed a tax credit for those fees. Under this analysis, the rationale for the Section 2185 tax

[ 484 Pa. Page 174]

    credit was the prevention of double or over-taxation. Because appellant clearly bore the burden of the registration fees, to deny appellant the credit would frustrate the purpose for which the tax credit was established. Therefore, we hold that in the instant case appellant has "paid" the fees within the meaning of Section 2185.*fn10

Accordingly, we reverse the Order of the Commonwealth Court and remand to the Board of Finance and Revenue with the direction that appellant be given the credit for the fees remitted by the lessors.

LARSEN, Justice, dissenting.

I dissent and adopt the reasoning of the Commonwealth Court's Opinion as authored by the Honorable Judge Roy Wilkinson, Jr. That case may be found at Hams Express, Inc. v. Commonwealth Board of Finance and Revenue, 26 Pa. Commw. 448, 363 A.2d 1340 (1976).

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