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decided: March 21, 1988.


Original Jurisdiction from the order of the Commonwealth Court of Pennsylvania in the case of CRH Catering Co., Inc., a Pennsylvania Corporation v. Commonwealth of Pennsylvania, dated February 18, 1987.


Murray I. Horewitz, with him, Thomas A. Bowlen, for petitioner.

Robert P. Coyne, Deputy Attorney General, with him, LeRoy S. Zimmerman, Attorney General, for respondent.

Judges Colins and Palladino, and Senior Judge Kalish, sitting as a panel of three. Opinion by Judge Colins. Concurring and Dissenting Opinion by Senior Judge Kalish.

Author: Colins

[ 114 Pa. Commw. Page 516]

CRH Catering Co., Inc. (taxpayer), owner/operator of coin-operated automatic vending machines, has filed exceptions to a decision of this Court which affirmed an order of the Board of Finance and Revenue (Board), itself sustaining, upon administrative appeal, an assessment of sales tax issued by the Commonwealth of Pennsylvania, Department of Revenue (Commonwealth). See CRH Catering Co., Inc. v. Commonwealth, 104 Pa. Commonwealth Ct. 91, 521 A.2d 497 (1987). (CRH Catering I). We there rejected taxpayer's contention that the assessment of sales tax upon certain prepackaged food items dispensed by vending machine pursuant to Sections 202 and 204 of the Tax Reform Code of 1971 (Code), Act of March 4, 1971, P.L. 6, as amended, 72 P.S. ยงยง 7202(d), 7204(29),*fn1 was unconstitutional because

[ 114 Pa. Commw. Page 517]

    identical items were not subject to sales tax when purchased in a convenience store. Secondly, we upheld the Commonwealth's methodology of computing sales tax on taxpayer's reported gross receipts.

We will not repeat the facts of the instant matter, amply set forth in our prior decision. Suffice it to now say that taxpayer characteristically operates a bank of vending machines in various locations, not limited to industrial plants, universities and sports centers. In certain locations, it provides tables and chairs, microwave ovens, plasticware, napkins and cups for the convenience of its customers; it may even provide attendants to assist customers. We found such services and locations permitted the categorization of taxpayer's vending machines as an "other eating place" within the meaning of Section 204 of the Code and thus affirmed the Commonwealth's assessment of tax upon its retail sales.

In so doing, we cited with approval the test formulated by the Supreme Court of Minnesota in Associated Food Services, Inc. v. Commissioner of Taxation, 298 Minn. 277, 216 N.W. 2d 253 (1974). In analyzing the propriety of assessing tax on vending machine sales, the Supreme Court considered whether a vending machine, in its method of merchandising and its consumer market, bears greater resemblance to a grocery store or a restaurant. Applying such analysis, we found taxpayer's locations and services suggested that its "machines are situated so as to supply consumers with immediate refreshment in places of employment, educational institutions or the like. [Taxpayer's] competitors are more likely to be restaurants, coffee shops or snack bars, than grocery stores." Id. at 100, 521 A.2d at 502.

[ 114 Pa. Commw. Page 518]

Taxpayer again challenges the constitutionality of the Commonwealth's assessment of sales tax on the disputed products and suggests that the Code's disparate tax treatment of similar or identical prepackaged food items depending upon purchase from a vending machine or a convenience store constitutes an arbitrary classification. Having reconsidered taxpayer's argument, we reiterate that absolute equality and uniformity in taxation are not required to withstand constitutional challenge. Leonard v. Thornburgh, 507 Pa. 317, 489 A.2d 1349 (1985). As we previously noted, "lines must be drawn in making tax classifications." CRH Catering I at 101, 521 A.2d at 502. We will not vary our original conclusion. In its method of merchandising and consumer base, taxpayer's sales are distinguishable from those in a convenience store so as to justify a distinctive tax burden.

We will, however, now clarify a point perhaps unclear in CRH Catering I. We do envision circumstances where services are so limited as to render our method of merchandising analysis inapplicable to vending machine sales. For example, we would not define a vending machine standing alone and without tables and chairs, a microwave, cups, plasticware and napkins, as an "other eating place" within the meaning of the Code. Taxpayer's representative testified that it operates thousands of vending machines without providing tables and chairs. Indeed, it proffered photographs of certain locations having solely a bank of machines in an area of apparent personnel transit. We do not find such evidence sufficient to carry taxpayer's burden of demonstrating an unreasonable tax classification. See Leonard. Even ...

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