The opinion of the court was delivered by: Judge Friedman
BEFORE: HONORABLE ROCHELLE S. FRIEDMAN, Judge*fn1, HONORABLE ROBERT SIMPSON, Judge, HONORABLE JOHNNY J. BUTLER, Judge.
EUR Systems, Inc. (EUR) petitions for review of the October 20, 2006, order of the Board of Finance and Revenue (Board) denying EUR's petition for the refund of $107,910.39 in sales and use tax paid during the period from November 23, 2002, through December 10, 2005.*fn2 We affirm.
At all relevant times, EUR was engaged as a data processing facility headquartered in Mechanicsburg, Pennsylvania.*fn3 EUR contracts with clients, such as AT & T and Working Assets, for what is termed "fulfillment services," which consist of creating and mailing customer telephone bills for EUR's clients. EUR acquires raw data from its clients in electronic or compact disc form. EUR then processes the raw data, prepares it in a particular format according to a client's specifications and uses machinery to create paper telephone bills for its clients' individual customers. The individual bills include the customer's name, address, account number, a listing of telephone calls made, the charge for each call and the amount due for that month's activity.*fn4 After creating the paper telephone bills, EUR folds, inserts, sorts, and prepares the bills for mailing. EUR then sends the bills to a mailing facility. During the period at issue, EUR would output approximately five million individual bills a month.
On January 23, 2006, EUR filed a petition with the Pennsylvania Department of Revenue's Board of Appeals (BOA), seeking a refund of sales and use taxes paid by EUR on services to printing equipment and meter reading charges. Pursuant to section 201(c)(2) of the Tax Reform Code of 1971 (Tax Code),*fn5 an entity is entitled to a tax exemption related to printing activities if it engages in printing as a business. See also 61 Pa. Code §32.36(a)(1).*fn6 The statute does not define the term "printing," but the Department's regulations state that printing means the production of multiple copies of "substantial[ly] similar printed matter." 61 Pa. Code §32.1.*fn7 If an entity's normal business is other than printing, the entity still may qualify for a tax exemption if is satisfies the criteria for inhouse printing set forth at 61 Pa. Code §32.36(a)(4).*fn8 In relevant part, this regulation states that the entity's printing operations must be separate and distinct from the entity's other business activities.
At an administrative hearing before the BOA, EUR submitted copies of invoices and photographs of its equipment. In addition, EUR offered into evidence a signed statement by its director of operations, (BOA's Decision and Order, at 2), which essentially averred that EUR's operations satisfied the five criteria for inhouse printing set forth in 61 Pa. Code 32.36(a)(4).
The BOA denied EUR's refund request, concluding that the printing of telephone bills does not fall within the definition of "printing" because every telephone bill is unique, and, therefore, EUR cannot meet the requirement of 61 Pa. Code §32.1 that it produce multiple copies of substantially similar printed matter.
EUR filed a timely appeal with the Board, which sustained the BOA's decision. The Board agreed with the BOA's determination that EUR did not satisfy the "substantially similar" requirement of 61 Pa. Code §32.1 because, although there are similarities in the layout of customers' invoices, the information on every invoice is different and unique. The Board also concluded that EUR did not satisfy the requirement of 61 Pa. Code §32.36(a)(4)(iv) because EUR's printing operation is an integral part of its business of generating invoices for its clients. EUR now petitions this court for review of the Board's decision.*fn9
EUR first argues that the imposition of tax on printing that does not meet the "substantially similar" requirement of 61 Pa. Code §32.1 violates the uniformity clause of the Pennsylvania Constitution and the Fourteenth Amendment of the United States Constitution. However, although EUR raises the constitutional issue in its petition for review, there is no indication that EUR has preserved this issue by raising it below. (See Board's op. at 1.) Pa. R.A.P. 1571(h) governs our scope of review and provides that a question will be considered on appeal "if it was raised at any stage of the proceedings below and thereafter preserved." It is true that a facial challenge to the constitutionality of an administrative agency's statute may not be addressed by the agency, and, therefore, may be raised for the first time on appeal. Lehman v. Pennsylvania State Police, 576 Pa. 365, 839 A.2d 265 (2003). However, agencies have authority to consider the validity of their regulations, id.; Tancredi v. State Board of Pharmacy, 421 A.2d 507 (Pa. Cmwlth. 1980), and, therefore, we conclude that EUR has waived this issue on appeal.
Alternatively, EUR argues that the "substantially similar" requirement set forth in 61 Pa. Code §32.1 is met where its equipment is predominantly used in the printing of individual telephone bills. Thus, we must determine whether the telephone bills, taken as a whole, are "substantially similar printed matter," or whether the inclusion of different material, such as itemized calls, in the body of each invoice precludes such a finding.
The statutory provisions related to the manufacturing exemption offer guidance on this question. The statute refers to the "publishing of books, newspapers and magazines and other periodicals and printing," 72 P.S. §7201(c)(2), and the examples given relate to multiple copies of identical items. Although some of these items can be personalized, such as by the insertion of a child's name within a book, see Commonwealth v. A.J. Wood Research Company of Pennsylvania, 431 A.2d 367 (Pa. Cmwlth. 1981), the remainder of the material is identical in all copies. In addition, the regulation defines the term "printed matter" as including, "but is not limited to books, booklets, letterheads, billheads, printed envelopes, folders, printed packages and packaging materials, advertising circulars, programs, newspapers, magazines, periodicals and similar items." 61 Pa. Code §32.1 (emphasis added). Like the statutory provision, the regulation also sets forth examples of items having identical, or very nearly identical matter in every copy.
Our court addressed this issue, albeit briefly, in A.J. Wood. When that case was decided, 61 Pa. Code §32.1 defined printing to mean the mechanical reproduction of printed matter. The issue before the court was whether the use of computerized word processing equipment to produce a large quantity of materials for direct mail advertising fell within the printing exclusion of the Tax Code. After concluding that it did, the court also determined that the "partial individualization" of the direct mail advertising letters -- by the insertion of individual names and addresses into otherwise identical correspondence -- did not change the fact that the printed materials were substantially similar.
We agree with the Commonwealth that the facts of this case are the reverse of those presented in A.J. Wood. Whereas the variation of the documents in A.J. Wood was minimal and the body of the form letters did not vary for each recipient, the documents here consist, in significant part, of individual telephone calls, dates, times, numbers and charges, which are different on every bill. Because every individual telephone bill is unique, EUR has ...