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decided: May 8, 1987.


Appeal from the Order of the Pennsylvania Board of Finance and Revenue in the case of Max L. Williamson and Phyllis C. Williamson, Board Docket No. CPIT 4217-A.


Stewart R. Snodgrass, with him, Thomas L. Stevenson, Kabala & Geeseman, for petitioners.

Robert P. Coyne, Deputy Attorney General, for respondent.

Judges Barry, Colins (p.) and Palladino, sitting as a panel of three. Opinion by Judge Barry.

Author: Barry

[ 106 Pa. Commw. Page 53]

This is an appeal by petitioners and taxpayers (taxpayers), Max L. and Phyllis C. Williamson, from an order of the Pennsylvania Board of Finance and Revenue (Board) denying their petition for a refund of a portion of their state personal income tax payment. We affirm.

Max L. Williamson is employed as a patent attorney by Alcoa Corporation. He was transferred from St. Louis, Missouri, to Pittsburgh, Pennsylvania, and reimbursed for his expenses including those incurred in the purchase of a new residence: title insurance premium, notary fee, mechanics' lien premium, 1% mortgage service charge, appraisal fee, credit report cost, recording fees, county and state transfer tax, costs for replacement of taxpayers' licenses and motor vehicle registrations, state automobile inspection fee, license plate costs and income taxes paid on moving expense reimbursement. Taxpayers failed to include this reimbursement as income in their joint Pennsylvania personal income tax return for 1979. The Department of Revenue (Department), as a result, levied the appropriate tax with penalty and interest for $114.86. Taxpayers paid the assessed tax and filed for a refund with the Board. On August 24, 1982, the Board, treating the reimbursement of these expenses as compensation, denied the taxpayers' request.*fn1 On appeal, taxpayers argue that Section 7301(d) of the Tax Reform Code of 1971, 72 Pa. C.S. § 7301(d) limits taxable compensation to payments received for services rendered while specifically excluding "payments to reimburse actual expenses" and that the Department's regulations at 61 Pa. Code § 101.6(c)(5)(ii)*fn2

[ 106 Pa. Commw. Page 54]

    also exclude such payments from taxable compensation. The issue then is whether these reimbursed expenses are taxable as compensation under the Tax Reform Code. We believe so and affirm the Board.

[ 106 Pa. Commw. Page 55]

The relevant portion of the Code reads:

(d) 'Compensation' means and shall include salaries, wages, commissions, bonuses and incentive payments whether based on profits or otherwise, fees, tips and similar remuneration received for services rendered, whether directly or through an agent, and whether in cash or in property.

The term 'compensation' shall not mean or include: (i) periodic payments for sickness and disability other than regular wages received during a period of sickness or disability; or (ii) disability, retirement or other payments arising under workmen's compensation acts, occupational disease acts and similar legislation by any government; or (iii) payments commonly recognized as old age or retirement benefits paid to persons retired from service after reaching a specific age or after a stated period of employment; or (iv) payments commonly known as public assistance, or unemployment compensation payments by any governmental agency; or (v) payments to reimburse actual expenses ; or (vi) payments made by employers or labor unions for programs covering hospitalization, sickness, disability or

[ 106 Pa. Commw. Page 56]

    death, supplemental unemployment benefits, strike benefits, social security and retirement; or (vii) any compensation received by United States servicemen serving in a combat zone. (Emphasis added.)

72 Pa. C.S. § 7301(d).

Although the term "actual expenses" has never been defined, our Supreme Court has limited these expenses to business expenses. See Commonwealth v. Staley, 476 Pa. 171, 381 A.2d 1280 (1978) and Ritz v. Commonwealth, 495 Pa. 1, 432 A.2d 169 (1981). In Staley, the Pennsylvania Supreme Court ruled that a lump sum commission payment made to a salesman which was intended to include both remuneration for services rendered and reimbursement for expenses to be incurred pursuant to an employer imposed requirement that the taxpayer pay all business-incurred expenses was taxable as compensation only to the extent it represented payment for services rendered and not taxable to the extent it represented reimbursement for expenses. In Ritz, the court again ruled that the portion of the taxpayer's salary which he used to subsidize his in-home office work and union membership was excludable because it was not compensation. The court reasoned that, since the employer most likely recognized that the taxpayer would incur these expenses, that portion of his salary attributable to the expenses could not be considered "payment for services rendered". Clearly, in both Staley and Ritz, the Supreme Court interpreted "actual expenses" to mean business expenses as opposed to living expenses. Thus, we reject taxpayers' request that we treat actual expenses as "any" expenses. Taxpayers' interpretation would feasibly permit the employer to reimburse an employee for unlimited daily living expenses the reimbursement for which would be excludable from income. To accept an interpretation of Section

[ 106 Pa. Commw. Page 577301]

(d) would create a result that is absurd, impossible of execution or unreasonable. See 1 Pa. C.S.A. § 1922. Therefore, the Department's interpretation of the term "actual expenses" is consistent with both the intention of the legislature and the previous rulings by the Pennsylvania Supreme Court. It follows then that the aforementioned regulations are consistent with this interpretation.

Accordingly, we enter an order affirming the Board.


Now, May 8, 1987, the order dated August 24, 1982, issued by the Board of Finance and Revenue denying the petition filed by the taxpayers is affirmed. This order will become final unless exceptions are filed within thirty (30) days. See Pa. R.A.P. 1571(i).



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