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October 26, 1984


NO. 1001 C.D. 1976

Before Honorable James Crumlish, Jr., President Judge Honorable Theodore O. Rogers, Judge Honorable Robert W. Williams, Jr., Judge Honorable David W. Craig, Judge Honorable John A. MacPHAIL, Judge Honorable Francis A. Barry, Judge Honorable James Gardner Colins, Judge

Author: Macphail


Equitable Gas Company (Equitable) appeals here from an order of the Board of Finance and Revenue dated May 5, 1976, which affirmed the reassessment of a use tax deficiency against Equitable. The Board of Review determined that such taxes were due on the basis that the materials in question were not directly involved in the producing, rendering or delivering of the public utility service and, were not, therefore, excluded from taxation by Section 201(o)(4)(B)(iii) of the Tax Reform Code of 1971 (1971) Code), Act of March 4, 1971, P.L. 6, as amended, 72 P.S. 7201(o)(4)(B)(iii).*fn1

Equitable contested a use tax assessment imposed by the Bureau of Sales and Use Tax of the Commonwealth, Department of Revenue (Commonwealth) for the period January 1, 1969, through May 31, 1973. Relief from that portion of the original assessment period prior to March 4, 1971,*fn2 was granted at the administrative level. The dispute in the instant case, therefore, involves the period beginning March 4, 1971, through May 31, 1973.

The parties have entered into a written stipulation of facts which we have accepted for the purposes of this appeal. They have stipulated, inter alia, that the use tax assessment which is the subject of the instant appeal involves Equitable's purchases and use of materials*fn3 used and consumed "in the construction, maintenance, repair and installation of gas pipelines and mains beneath the surface of roadways and in the repairing of the portions of the roadway surfaces as necessary incident to such work." Stipulation of Fact 4.

Additionally, the parties have stipulated that the gas pipelines and mains "constitute an integral part of the delivery and transmission system of Equitable and the pipelines and mains are use directly in Equitable's public utility operations of providing gas service to the public." Stipulation of Fact 6. Finally, the roads under which the gas pipelines and mains pass and which are repaved by Equitable are public ways.

The basis for the administrative grant of relief for that portion of the original assessment prior to March 4, 1971, was this Court's decision in Eqauitable Gas Co. v. Commonwealth, 18 Pa. Commonwealth Ct. 418, 335 A.2d 892, aff'd per curiam, 464 Pa. 541, 347 A.2d 674 (1975), which determined that paving materials used and consumed by Equitable in repaving public roads pursuant to maintaining its gas pipelines and mains were excluded from the use tax levied by the 1963 Tax Act.*fn4

The central issue in Equitable was whether the materials in question were directly used in producing, delivering or rendering a public utility service so that they would qualify to be excluded from the use tax. This Court held "that the completion of an excavation for the installation or repair of a gas pipeline, used to serve the public, including the resurfacing of a public road, is an essential and integral part of the pipeline operation necessary for the rendering of Equitable's public utility service." 18 Pa. Commonwealth Ct. at 423, 335 A.2d at 895. The Court further stated, "we must conclude that under the approach used by our Supreme Court in these [earlier] cases, the materials used in the instant case were directly used in the rendition of the public utility service." Id. at 424, 335 A.2d at 895.

The amendments to the 1963 Tax Act made by the 1971 Code obviously were not in response to this Court's decision in Equitable, several years later. Nor do we find that the amendments to the 1971 Code made by the Act of December 9, 1980, P.L. 1136, were as a response to the 1975 Equitable decision.

The Courts had an opportunity to consider the 1971 Code in Commonwealth v. Ragnar Benson, Inc., 27 Pa. Commonwealth Ct. 226, 366 A.2d 596 (1976), aff'd, 482 Pa. 224, 393 A.2d 634 (1978). This Court summed up the pertinent amendments provided by the 1971 Code, stating

The descriptive phrase 'which are directly' was added by the 1971 Code to further modify the phrase 'used in such service.' Also, the term 'real estate' in the public utility exemption was further narrowed in the 1971 Code to exclude not only buildings but also 'roads, foundations, or similar facilities.'

27 Pa. Commonwealth Ct. at 231, 366 A.2d at 599.

This straightforward analysis of what the legislature did, is an analysis and nothing more. This Court's language does not construe the statute as exempting "roads, foundations, or similar facilities" from the exclusion and thereby rendering them subject to the use tax. In fact, the Court makes no attempt whatsoever to construe or interpret the amended definition of real estate. Indeed, the reason that Regnar Benson, Inc., an engineering and construction firm, was required to pay use taxes was that "[t]he involved items consist of materials . . . used in the construction of real estate. They are subject to tax because they were not affixed ...

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