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July 7, 1997


Appealed From No. 1996-1545. Common Pleas Court of the County of Mercer. Judge SMITH, Senior Judge.

Before: Honorable Doris A. Smith, Judge, Honorable Rochelle S. Friedman, Judge, Honorable Emil E. Narick, Senior Judge. Judge Leadbetter did not participate in the decision in this case. Opinion BY Senior Judge Narick.

The opinion of the court was delivered by: Narick


FILED: July 7, 1997

The issue before us in this appeal is whether the Court of Common Pleas of Mercer County (trial court) properly determined that a class action is not the proper means of securing individual tax refunds and that statutory refund procedures *fn1 must be followed.

John and James Stranahan (the Stranahans) appeal from the order of the trial court that sustained the preliminary objections of the County of Mercer (County) and dismissed the Stranahans' complaint. We affirm.

On May 2, 1996, the Stranahans filed a class action in equity on behalf of themselves and all other similarly situated taxpayers of Mercer County. This class action challenged the constitutionality of the four mill personal property tax assessed by Mercer County on specified categories of personal property pursuant to the Act of June 17, 1913, P.L. 507, as amended, 72 P.S. §§ 4821-4902, commonly known as the County Personal Property Tax Act (Act). *fn2 Specifically, the Stranahans requested a declaration that the personal property tax violates the Commerce Clause of the United States Constitution, U.S. Const. art. I, § 8, cl. 3, because it unlawfully discriminates against corporations not located in or doing business in Pennsylvania. *fn3 The Stranahans' claim relies solely on the decision of the United States Supreme Court in Fulton Corp. v. Faulkner, 516 U.S. 325, 116 S. Ct. 848, 133 L. Ed. 2d 796 (1996), where an allegedly similar personal property tax in North Carolina was declared unconstitutional. In addition, the Stranahans sought an injunction against the imposition, levy and collection of the tax and a refund of the taxes already paid for the years 1989 through 1995, along with interest and attorney's fees.

The class action was initially filed against the county commissioners and the county treasurer as representatives of Mercer County. Preliminary objections were filed and the Stranahans were forced to amend their complaint to name the County as the proper party defendant pursuant to Pa.R.C.P. No. 2102(2)(b). The County again filed preliminary objections in the nature of a motion to strike and a demurrer to the amended complaint. After hearing argument on the preliminary objections, the trial court sustained the County's preliminary objections, struck the complaint and dismissed the action. *fn4 In a memorandum opinion, the trial court concluded that a class action complaint cannot be used to secure individual tax refunds under Smolow v. Commonwealth, 131 Pa. Commw. 276, 570 A.2d 112 (Pa. Commw. 1990) and Aronson v. City of Pittsburgh, 98 Pa. Commw. 1, 510 A.2d 871 (Pa. Commw. 1986) and that Sections 1 and 2 of the applicable tax refund statute, 72 P.S. §§ 5566b and 5566c, must be followed. The trial court also ruled that the class action was "procedurally flawed." No further reasoning was set forth in support of the trial court's decision. The class action was dismissed without a certification hearing. The Stranahans appealed. *fn5

The Stranahans argue that their class action should not have been dismissed without holding a class certification hearing as required by Pa.R.C.P. No. 1707. Moreover, they contend that it is improper to dismiss a properly pleaded class action on preliminary objections because a plaintiff cannot even move for class certification until an answer is filed and the pleadings are closed.

County argues that the Stranahans' procedural arguments are irrelevant to the substantive issue of whether Pennsylvania law permits a class action to recover individual tax refunds. We agree. Although the Stranahans are correct in their reading of the procedural rules on class actions, their arguments are unavailing if Pennsylvania law bars their class action in this instance. We made similar observations in Aronson where a class action certification hearing was held but no transcript was available for our review. We determined that a transcript of the certification hearing was unnecessary because the issue of whether a class action could be maintained to secure individual refunds was a purely legal issue. Aronson, 510 A.2d at 872 n.2. We also noted in Smolow that the underlying substantive cause of action must first be examined when considering whether there is authority to employ the procedural device of a class action certification hearing. Smolow, 570 A.2d at 120. Without a substantive cause of action, the Stranahans' procedural objections are irrelevant. Thus, we are faced with the purely legal issue of whether a class action is permitted to secure individual refunds.

In Aronson v. City of Pittsburgh, 86 Pa. Commw. 591, 485 A.2d 890 (Pa. Commw. 1985) (Aronson I), this Court affirmed an order of the common pleas court which vacated and set aside an assessment of the Business Privilege Tax of the City of Pittsburgh against Aronson for fees he received as a director of various corporations. We determined that the tax at issue could not be applied to corporate directors because such positions were not a "business" under the applicable ordinance. Aronson I, 485 A.2d at 895. Prior to our affirmance but after the common pleas court set aside the assessment, Aronson filed a separate class action complaint in assumpsit seeking a refund of the business privilege taxes paid to the City for the year 1980. The suit was filed on behalf of himself and all other similarly situated individuals. After a certification hearing was held, the common pleas court denied certification and Aronson appealed.

In Aronson v. City of Pittsburgh, 98 Pa. Commw. 1, 510 A.2d 871 (Pa. Commw. 1986) (Aronson II), we held that a class action may not be used to obtain a refund of taxes where the legislature has already provided the aggrieved individual with a specific statutory remedy. In so holding we noted that "at common law a voluntary payment of taxes, erroneously made, could not, in the absence of a statute, be recovered." 510 A.2d at 873. We stated that the right to recover erroneously paid taxes "exists only by the grace of the Legislature." Id. We also stated that where the legislature has seen fit to give only the aggrieved individual the right to sue for a refund, the "modes, terms and conditions of the [refund] statute ... must be strictly construed and followed." Id. (citations omitted). Therefore, we determined in Aronson II that a taxpayer must first request a refund pursuant to Section 1 of the Act of May 21, 1943, 72 P.S. § 5566b, in order to be entitled to a refund. Section 1 provides that:

(a) Whenever any person or corporation of this Commonwealth has paid or caused to be paid, or hereafter pays or causes to be paid, into the treasury of any political subdivision, directly or indirectly, voluntarily or under protest, any taxes of any sort ... to which the political subdivision is not legally entitled; then, in such cases, the proper authorities of the political subdivision, upon the filing with them of a written and verified claim for the refund of the payment, are hereby directed to make ... refund of such taxes ... to which the political subdivision is not legally entitled. Refunds ...

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