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decided: November 25, 1980.


Appeal from the determination of the Bureau of Employment Security, Department of Labor and Industry in case of Lehigh Valley Cooperative Farmers v. Bureau of Employment Security, Department of Labor and Industry, dated May 24, 1979.


J. Jackson Eaton, III, Butz, Hudders and Tallman, for petitioner.

Mary Ellen Krober, Deputy Attorney General, with her Allen C. Warshaw, Deputy Attorney General, Chief, Civil Litigation, and Edward G. Biester, Jr., Attorney General, for respondent.

Judges Wilkinson, Jr., Rogers and MacPhail, sitting as a panel of three. Opinion by Judge MacPhail. Dissenting Opinion by Judge Wilkinson, Jr.

Author: Macphail

[ 55 Pa. Commw. Page 15]

Lehigh Valley Cooperative Farmers (Petitioner) raises only one issue for our review: whether, as an agricultural cooperative subject to the Co-operative Agricultural Association Corporate Net Income Tax Act (Tax Act), Act of May 23, 1945, P.L. 893, as amended, 72 P.S. § 3420-21 et seq., Petitioner is exempt from the payment of unemployment compensation fund contributions pursuant to Pennsylvania's Unemployment Compensation Law (Law), Act of December 5, 1936, Second Ex. Sess., P.L. [1937] 2897, as amended, 43 P.S. § 751 et seq.*fn1 The Bureau of Employment Security (Bureau) held that Petitioner was not exempt from such contributions. For the reasons which follow, we reverse the order of the Bureau and remand this case for further proceedings.

The parties have stipulated to the facts of this case. Petitioner is an agricultural cooperative consisting of approximately 700 members and was formed pursuant to the Act of April 30, 1929, P.L. 885, as amended, 15 P.S. § 12151.*fn2 In October, 1977, Petitioner filed with the Bureau a claim for refund of unemployment compensation contributions amounting to $357,733.43 paid between the third quarter of 1973 and the second quarter of 1977. The Bureau denied the claim on May 24, 1979, and Petitioner appealed to this Court.

[ 55 Pa. Commw. Page 16]

At the time of Petitioner's application for refund, Section 3 of the Tax Act, 72 P.S. § 3420-23 read:*fn3

Every association shall be subject to, and shall pay for, the privilege of doing business in this Commonwealth, or having capital or property employed or used in the Commonwealth, by, or in the name of itself, or any other person, partnership or association, a State excise tax at the rate of four per centum (4%) per annum upon each dollar of the net income, which tax shall be collected in lieu of any other excise tax including corporate net income tax or property tax. The property shall be free from any county tax excepting tax on real estate. (Emphasis added.)

[ 55 Pa. Commw. Page 17]

Statutory provisions creating tax exemptions are subject to strict interpretation and Petitioner here has the burden of proving that it is entitled to the tax exemption it claims. Fidelity-Philadelphia Trust Co. v. Hines, 337 Pa. 48, 53, 10 A.2d 553, 555 (1940); Wayne County Board of Assessment v. Federation of Page 17} Jewish Philanthropies, 43 Pa. Commonwealth Ct. 508, 510-11, 403 A.2d 613, 615 (1979).

Petitioner's argument in support of its claimed tax exemption is easily stated: unemployment compensation contributions constitute excise taxes; agricultural cooperatives are exempt from paying excise taxes;*fn4 therefore, the cooperative is exempt from making unemployment compensation contributions. The Bureau, in turn, argues that the basic premise of Petitioner's argument, i.e. that unemployment compensation contributions constitute excise taxes, is faulty and, therefore, that the entire syllogism fails.

The Courts of Pennsylvania have long held that payments made to the unemployment compensation fund are excise taxes. Commonwealth v. Sun Ray Drug Co., 360 Pa. 230, 233-34, 61 A.2d 350, 351 (1948); Department of Labor and Industry v. New Enterprise Rural Electric Cooperative, Inc., 352 Pa. 413, 415-16, 43 A.2d 90, 92 (1945); Fidelity-Philadelphia Trust Co. v. Hines at 51, 10 A.2d at 555. A similar conclusion has been reached by the United States Supreme Court*fn5 and by the courts in numerous other jurisdictions.*fn6

[ 55 Pa. Commw. Page 18]

Despite the overwhelming authority in support of that conclusion, the Bureau asserts that it is incorrect. Taxes, the Bureau argues, are levied for the purpose of generating revenue. Because unemployment compensation contributions are not collected for the purpose of generating general state revenue but rather for the purpose of providing financial assistance to those who lose their employment through no fault of their own, the contributions cannot be considered an excise tax.*fn7 The Bureau, in support of its contention, cites our Supreme Court's decision in Commonwealth v. Perkins, 342 Pa. 529, 21 A.2d 45 (1941), aff'd per curiam, 314 U.S. 586 (1942). While it is true that the opinion of the Court of Common Pleas, on which the Supreme Court based its opinion, distinguished between general appropriations and appropriations from the Pennsylvania Unemployment Compensation Fund, it clearly treated the Law as a taxing statute and did not indicate that it was not an excise tax merely because the ...

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