Appeals from the orders of the Pennsylvania Board of Finance and Revenue, in the cases of In Re: Fleet Pizza, Inc., Docket No. RST-9311, dated May 2, 1986; In Re: Fleet Pizza t/a Domino's Pizza, Docket No. RST-9856, dated August 29, 1986 and In Re: S&M Pizza, Ltd. t/a Domino's Pizza, Docket No. RST-10,157, dated October 31, 1986.
Francis Mazzola, Dechert, Price & Rhoads, with him, P. J. DiQuinzio, for petitioners.
Kathleen Krise Shaulis, Assistant Counsel, with her, James W. Bruce, Assistant Chief Counsel, for respondent.
Judges MacPhail and Palladino, and Senior Judge Kalish, sitting as a panel of three. Opinion by Senior Judge Kalish.
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These are consolidated appeals. Petitioners, Fleet Pizza, Inc. (Fleet), t/a Domino's Pizza, and S&M Pizza Ltd. (S&M), t/a Domino's Pizza, are franchisees of Domino's Pizza, Inc. Petitioners seek review of decisions of the Board of Finance and Revenue (Board) which sustained a sales and use tax assessment against the petitioners and denied a sales and use tax refund to them. We reverse.
On March 2, 1984, the Pennsylvania Department of Revenue's (Department) auditors began a sales and use tax audit of Fleet covering the period January 1, 1981 through September 30, 1984. During the audit, the question was raised as to Fleet's obligation to collect sales tax on its delivered pizza sales. The auditors did not question that pick-up pizza sales were exempt from
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sales tax. To avoid the risk of litigation, the Department, Domino's Pizza, Inc., Fleet, and the other existing Pennsylvania franchisees entered into an agreement that was effective as of July 1, 1984. Under that agreement, Domino's Pizza, Inc., Fleet, and each of Domino's Pizza, Inc.'s franchisee signatories to the agreement agreed to begin collecting sales tax on delivered pizza as of July 1, 1984, and the Department agreed not to assess sales tax against any signatory to the agreement on pizza sales delivered prior to July 1, 1984. They also agreed not to assess sales or use tax on purchases of tangible personal property and utility services used directly in the process of manufacturing pizza prior to July 1, 1984. S&M was not a party to this agreement.
Following the execution of the agreement, the Department auditors issued an assessment against Fleet in the amount of $5,187.79 plus interest and penalties. Fleet filed a petition for reassessment with the Board of Appeals requesting that the use tax assessed on equipment, including walk-in coolers, refrigerated make-lines, workstations including sinks, scales, ovens, hoods and exhaust fans, predominantly used directly in manufacturing pizza be stricken from the assessment and that penalties be abated.
The Board of Appeals determined that Fleet's refrigerated make-lines and workstations were predominantly used directly in the baking of pizza and thus excluded from use tax under the manufacturing/baking equipment exception pursuant to section 201 of the Tax Reform Code of 1971 (Act), Act of March 4, 1971, P.L. 6, as amended, P.S. § 7201, and the bakery exclusion contained in 61 Pa. Code §§ 32.32, 41.1. Although the Board of Appeals determined that the refrigerated make-line and scale were directly used in baking pizza and therefore qualified as manufacturing equipment, it did not strike the use tax from the assessment on these
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two items because there was a lack of documentation as to the original cost of those items and therefore the Board could not compute the tax. The Board of Appeals determined that the walk-in coolers, hoods and exhaust fans were not used directly in baking the pizza. ...