Appeal from the Opinion and Order of the Commonwealth Court dated April 30, 2008 Affirming the Order of the Board of Finance and Review dated January 30, 2004 951 A.2d 1226 (Pa. Commw. 2008).
The opinion of the court was delivered by: Madame Justice Greenspan
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, GREENSPAN, JJ.
We evaluate the Tax Reform Code of 1971, 72 P.S. §§ 7101-10004 (the "Tax Code"), to determine whether delivery services and costs associated with the consumption of electricity by Appellant Spectrum Arena Limited Partnership ("Spectrum") are subject to Pennsylvania sales tax pursuant to the Tax Code. We hold that the aforementioned services and costs are subject to sales tax. We therefore affirm the order of the Commonwealth Court denying Spectrum's request for a refund of sales taxes.
Spectrum owns and operates a sports and entertainment facility known as the Wachovia Center Complex in Philadelphia, Pennsylvania (the "Wachovia Center"). From April 11, 2000 through May 1, 2003 (the "Refund Period") Spectrum used a significant amount of electricity to heat, cool, and light the Wachovia Center. During the Refund Period and until May 29, 2003, the electricity for the Wachovia Center was generated by Exelon Energy ("Exelon") and delivered by PECO Energy Company ("PECO").*fn1 During the Refund Period PECO charged Spectrum for electricity generation, transmission services, distribution services, competitive transition charges ("CT Charges"), and intangible transition charges ("IT Charges"). Spectrum was charged and paid state and local sales tax on all of the aforementioned charges.
However, Spectrum disputed its obligation to pay sales tax on the transmission services, distribution services, CT Charges, and IT Charges (collectively the "Disputed Charges"). On April 11, 2003, Spectrum filed with the Department of Revenue Board of Appeals (the "Board") a petition for a refund of sales tax paid on the Disputed Charges during the Refund Period. In its petition, Spectrum argued that non-generation costs did not constitute a taxable sale of tangible personal property or a specifically enumerated taxable service as defined by the Tax Code.
The Board denied Spectrum's petition and found that the Disputed Charges were part of the "sale of electricity" and therefore subject to sales tax. As a basis for this finding, the Board relied on a Department of Revenue Policy Statement (the "Policy Statement") contained in Section 60.23 of the Pennsylvania Administrative Code. Pursuant to the Policy Statement, sales tax is to be assessed:
upon the total purchase price charged upon each separate charge for the generation, transmission, or distribution in connection with providing nonresidential electric utility services as well as all related charges, services or costs for the generation, production, transmission, or distribution of electricity whether or not the total amount charged is billed as a single charge by one vendor or billed separately by one or more vendors.
61 Pa. Code § 60.23(d). Based in part upon the Policy Statement, the Board found that Spectrum was not entitled to a sales tax refund. Spectrum appealed to the Board of Finance and Review and was again denied relief.
Spectrum filed a timely appeal with the Commonwealth Court. On April 18, 2007, the Commonwealth Court issued an en banc Opinion and Order affirming the Board's decision. Spectrum Arena Ltd. P'ship v. Commonwealth, 921 A.2d 585 (Pa. Commw. 2007) ("Spectrum I"). After an in-depth review of both the Tax Code and the Electricity Generation Consumer Choice and Competition Act, 66 Pa.C.S. §§ 2801-2812 (the "Competition Act"), the Commonwealth Court concluded that the Disputed Charges were properly included in the taxable portion of the purchase price of electricity. Spectrum I, 921 A.2d at 590-91. The Commonwealth Court therefore held that the sales tax was appropriately assessed and that Spectrum was not entitled to a refund. Id. at 591.
Spectrum timely filed exceptions to the Commonwealth Court's April 18, 2007 Opinion and Order. In its exceptions Spectrum argued, inter alia, that an exemption in the Tax Code applied to the Disputed Charges. Specifically, Spectrum argued that Section 54.1(c) of the Pennsylvania Administrative Code exempts from taxation the delivery cost of a product delivered by a party other than the vendor supplying the product. 61 Pa. Code. § 54.1. Spectrum reasoned that because the Disputed Charges related to delivery services provided by PECO to deliver electricity generated by Exelon, the Disputed Charges therefore met the exemption set forth in Section 54.1(c).
On April 30, 2008, in a second en banc Opinion and Order, the Commonwealth Court denied Spectrum's exceptions. Spectrum Arena Ltd. P'ship v. Commonwealth, 951 A.2d 1226 (Pa. Commw. 2008) ("Spectrum II"). The Commonwealth Court declined to view PECO as the mere delivery conduit of a product created by Exelon. Instead, the Commonwealth Court noted that both generation and delivery of electricity were fundamental parts of providing electricity to the consumer. Id. at 1229. The Commonwealth Court therefore interpreted the generation and delivery of electricity as a seamless transaction accomplished by two entities working in concert. Id. Under this view of the transaction, the Commonwealth Court held that the sales tax exemption set forth in Section 54.1(c) was inapplicable to the Disputed Charges. Id. at 1229.
Spectrum timely appealed the Commonwealth Court's April 30, 2008 Opinion and Order to this Court.*fn2 On appeal, Spectrum raises the following four issues:*fn3
(1) Whether, in holding that Appellant is not entitled to a refund of sales tax it paid on electric transmission and distribution - i.e., delivery - charges, the en banc Commonwealth Court 5-2 majority erred as the dissent noted, because it "ignored" the impact of the Competition Act, which unbundled the delivery services from the sale of electricity, and improperly upheld the taxation of such charges by rebundling them with the sale of electricity as though the purchase of electricity remained the same "seamless transaction" it had been before the Competition Act.
(2) Whether the majority misapprehended the stipulated facts that Appellant's purchase of electricity complied with the only two requirements necessary to exempt "delivery charges" from sales tax under the Department of Revenue's Delivery Charge regulation, 61 Pa. Code § 54.1, and then misapplied and effectively rewrote § 54.1 to add further requirements for exemption, and thus failed to adhere to the plain language of the regulation, which provides that separate charges for delivery by a person other than the vendor are not subject to sales tax.
(3) Whether the majority erred in its sales tax ruling, which creates an indefensible anomaly, upholding the imposition of sales tax upon post-deregulation electric delivery services, while permitting the Department of Revenue's inconsistent exemption of post-deregulation natural gas delivery services from sales tax that the Dissent noted produces "disparate ...