decided: October 20, 1986.
COMMONWEALTH OF PENNSYLVANIA
CHERRY RIDGE FLYING SERVICE, INC., APPELLANT
Appeal from the Order of the Board of Finance and Revenue in the case of In Re: Cherry Ridge Flying Service, Inc., Docket No. RST-462.
Joseph J. Musto, Griffith, Aponick & Musto, for appellant.
Robert P. Coyne, Deputy Attorney General, with him, LeRoy S. Zimmerman, Attorney General, for appellee.
Judges Craig and Barry, and Senior Judge Kalish, sitting as a panel of three. Opinion by Judge Craig.
[ 101 Pa. Commw. Page 316]
The Cherry Ridge Flying Service, Inc. (Cherry Ridge) appeals from an order of the Board of Finance and Revenue sustaining a sales and use tax assessment. We affirm in part and reverse in part.
Cherry Ridge is a Pennsylvania corporation which sells and leases new and used aircraft, operates airport facilities, and offers flight instruction and charter flight services. The Department of Revenue audited Cherry Ridge for the period of June 30, 1970 to March 31, 1973
[ 101 Pa. Commw. Page 317]
and assessed sales and use taxes. The sales tax assessment is based on Cherry Ridge's purchase and resale of three used airplanes. The use tax assessment is based on Cherry Ridge's use of three other airplanes and one helicopter which it purchased for resale but had put to taxable use before resale.
Cherry Ridge raises two contentions: (1) that the department erred in its sales tax assessment on the sale of three used aircraft because it had acted as a broker rather than a vendor and is therefore not responsible for collecting the sales tax; and (2) that the use tax assessment on the four other aircraft is invalid because of an absence of statutory authority to assess aircraft transactions as the department has done.
Section 202(a) of the Tax Reform Code of 1971, 72 P.S. § 7202(a), imposes a 6% sales tax to be "collected by the vendor from the purchaser," and paid over to the Commonwealth.
Section 201(p) of the Code, 72 P.S. § 7201(p), defines a "vendor" as:
Any person maintaining a place of business in this Commonwealth, selling or leasing tangible personal property, or rendering services, the sale or use of which is subject to the tax imposed by this article . . .
Cherry Ridge contends that the department improperly assessed a sales tax on the sale of three used aircraft because Cherry Ridge acted as a broker and not as a vendor of the aircraft as defined in section 201(p).
The record states that Cherry Ridge purchased each of the aircraft with its own funds for particular buyers. It sold each of the planes at a markup. However, it did not register or insure the planes.
In Williams & Co. v. Pittsburgh School District, 430 Pa. 509, 244 A.2d 37 (1968), a metal distributor claimed
[ 101 Pa. Commw. Page 318]
an exemption from a mercantile tax because the allegedly taxable sales were "brokerage transactions." The court stated that "[a] broker is one whose business it is to bring buyer and seller together. Keys v. Johnson, 68 Pa. 42 (1871). He is a person who negotiates a contract of sale between merchants who are parties to the transaction. . . ." (emphasis in original). Williams & Co., 430 Pa. at 511-12, 244 A.2d at 38. The court concluded that the metal distributor was a vendor in the transaction in question because it had purchased goods on its own account and sold them to customers on its own terms. As such, the distributor became more than a negotiator between two merchants; it was a vendee with regard to the supplier and a vendor with regard to the customers. Id. at 512, 244 A.2d at 38. Williams & Co., supplies analogous guidance here, with respect to the meaning of "broker" and "vendor."
Cherry Ridge, like Williams & Co., played a greater role than that of a mere negotiator between buyers and sellers of aircraft. It purchased the aircraft on its own account and sold the planes to customers at a markup. We conclude that Cherry Ridge acted as a vendor as defined by section 201(p) of the Code in the three aircraft sales.
Cherry Ridge's further contention -- that the sales in question are exempt under section 204(1) of the Code*fn1
[ 101 Pa. Commw. Page 319]
which exempts isolated transactions -- is without merit because that section specifically excludes sales of aircraft from its scope.
Because Cherry Ridge acted as a vendor with regard to the sales of the three aircraft and the exemption claimed does not apply to this case, we affirm the board's order sustaining the sales tax assessment.
Section 202(b) of the Code, 72 P.S. § 7202(b), imposes a use tax on the "use" of tangible personal property, including aircraft.*fn2 "Use" is defined as:
The exercise of any right or power incidental to the ownership, custody or possession of tangible personal property and shall include, but not be limited to transportation, storage or consumption.
72 P.S. § 7201(o)(1).
The department assessed Cherry Ridge for use tax based on the use of three airplanes and one helicopter. The aircraft were exempt from sales tax when purchased because Cherry Ridge purchased them for resale. Once purchased, however, Cherry Ridge put each of the aircraft to taxable uses.*fn3 The department assessed a 6% use tax on the purchase price of the airplanes under regulation 100, 61 Pa. Code §§ 31.1-31.3, and also assessed a 6% use tax on 50% of the fair rental value of the helicopter for the periods in which it was put to taxable use, pursuant to revenue ruling 207,*fn4 as revised September 9, 1972.
Cherry Ridge argues that the use tax assessment lacks statutory authority because the assessments were made under section 205 of the Code, 72 P.S. § 7205(a),*fn5
[ 101 Pa. Commw. Page 321]
which concerns new and used motor vehicle sales. After the contested assessment, the legislature amended section 205 to create section 205(b),*fn6 which directly addresses commercial aircraft operators. Cherry Ridge argues that the legislature's explicit addition of a subsection embracing commercial aircraft operators in 1978 provides evidence that the earlier version of the section, applicable here, applied only to the expressly named motor vehicle sales and not to aircraft sales. See Masland v. Bachman, 473 Pa. 280, 289, 374 A.2d 517, 521-22 (1977).
Cherry Ridge's statutory argument as to the three airplanes is without merit because the basis for that assessment was not section 205. The department's determination of Cherry Ridge's use tax liability, by taking 6% of the purchase price of the three airplanes, necessarily rested upon section 202(b) of the Code, which imposes use tax generally on all tangible personal property purchased at retail, subject to the exceptions in section 202(a) and 204. When Cherry Ridge retained the three airplanes for taxable uses, instead of reselling them, its purchase of the aircraft became a sale at retail as defined
[ 101 Pa. Commw. Page 322]
by section 201(k).*fn7 Because Cherry Ridge did not pay a sales tax on the aircraft, it became liable for the use tax imposed under section 202(b).
On the other hand, section 205 offers a limited alternative to the use tax otherwise imposed under section 202(b) in the special case of motor vehicles. It taxes according to the fair rental value of a motor vehicle purchased for resale and subsequently put to taxable use by the dealer if such use does not exceed one year. Cherry Ridge is correct in its argument that the 1978 amendment to section 205 indicated that commercial aircraft operators had not been included in the scope of the original statute. This argument is relevant to the use tax assessment on the helicopter. The department assessed against Cherry Ridge a use tax based on 6% of 50% of the rental value of the helicopter pursuant to revenue ruling 207.*fn8
Because ruling 207 is based on the alternate tax imposition offered by section 205, that ruling, as applied to the taxpayer in the 1973 assessment, is without statutory authority. Consequently, the court must reverse the department's use tax assessment on the helicopter. We do not conclude, however, that Cherry Ridge could not have been found liable for use taxes assessed on some other statutory authority.
[ 101 Pa. Commw. Page 323]
The board's order is affirmed as to the sales tax assessment and the use tax assessment on Cherry Ridge's three airplanes. The board's order is reversed as to the use tax assessed on the helicopter.
Now, October 20, 1986, the order of the Board of Finance and Revenue, Docket No. RST-462, dated December 18, 1974, is affirmed as to the sales tax assessment and as to the use tax assessment on the use of three fixed wing aircraft. The order is reversed as to the use tax assessment on the use of the helicopter.
If no exceptions are filed within 30 days of the filing of this order, the Chief Clerk of the Commonwealth Court is directed to enter judgment in the above-captioned matter.
Affirmed in part and reversed in part.