Appeal from the Order of the Commonwealth Court at No. 769 CD 2009 dated 12/31/09 affirming the order of the Bucks County Court of Common Pleas, Civil Division, at No. MD 77-2009 dated 4/20/09
The opinion of the court was delivered by: Mr. Justice SAYLOR*fn1
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, ORIE MELVIN, JJ.
ARGUED: November 30, 2010
The issue presented is whether an ordinance imposing a fixed tax on businesses with gross receipts over a certain threshold violates a statute prohibiting business privilege taxes "on gross receipts or parts thereof."
Pursuant to the Local Tax Enabling Act of 1965 (the "LTEA"), in 2009 the Warrington Township Board of Supervisors (the "Board") enacted Ordinance 09-0-1, entitled "Mercantile and Business Privilege Tax," which imposes a $2,600 annual business privilege tax on all businesses in the township with gross receipts over $1,000,000, and exempts from liability all businesses with gross receipts of $1,000,000 or less.*fn2 Appellants, twenty-seven businesses located within the township, challenged the validity of the ordinance in the common pleas court, arguing, inter alia, that it violates Section 533(a) of the Local Tax Reform Act,*fn3 which states in relevant part:
After November 30, 1988, . . . no political subdivision may levy, assess or collect or provide for the levying, assessment or collection of a mercantile or business privilege tax on gross receipts or part thereof. 72 P.S. §4750.533(a).
At a hearing before the trial court, the parties agreed that the case could be decided on the briefs and the notes of testimony of the public hearings before the Board.*fn4 That testimony reveals that: (1) the Ordinance was enacted to generate enough revenue to close a $400,000 budget shortfall; and (2) in considering the nature of the tax, the Board took into account the number of businesses that would be subject to the tax, the flat amount that each would have to pay to generate the revenue needed to cover the shortfall, the number of businesses that would be exempt from the tax at different levels of gross receipts, and the fact that businesses that generate more than one million dollars in gross receipts tend to be larger and require more municipal resources than those with lower gross receipts. Appellants argued that, because the ordinance imposes a flat tax for businesses earning over $1,000,000, while exempting businesses with gross receipts below that amount, it constitutes a tax "on gross receipts or part thereof," namely, the part of gross receipts over $1,000,000.
The common pleas court upheld the ordinance, explaining that it imposes a flat tax, albeit with an exemption for any business earning no more than $1,000,000 in a particular year. Thus, because the tax is not levied as a percentage of a business's gross receipts, the court reasoned that it does not constitute an improper tax "on" gross receipts for purposes of Section 533(a) of the LTRA.
The Commonwealth Court affirmed in an unpublished disposition, rejecting Appellants' contention that the ordinance levies a tax on that part of a taxpayer's annual gross receipts in excess of $1,000,000. The court explained that, on its face, the ordinance does not tax any portion of gross receipts, but rather, imposes a flat tax. In this regard, the court observed that flat taxes were deemed permissible in Smith and McMaster, P.C. v. Newtown Borough, 669 A.2d 452 (Pa.Cmwlth. 1995) (en banc) (upholding a flat $100 business privilege tax levied on all for-profit business within the municipality). See Shelly Funeral Home, Inc. v. Warrington Twp., No. 769 C.D. 2009, slip op. at 4-5 (Pa. Cmwlth. Dec. 31, 2009) (unpublished memorandum).*fn5
This Court granted further review, limited to the question of whether the Ordinance violates Section 533 of the LTRA. Because the overarching issue is one of law, and as the facts as reflected in the Ordinance and as related in the transcripts of the Board's hearings in December 2008 and February 2009 are not in dispute, we exercise plenary review.*fn6
Appellants acknowledge that an ordinance imposing a flat tax on all businesses in a township is lawful under the holding of Smith and McMaster. They note, however, that the challengers' argument in that matter was that the tax was invalid because it was inevitably paid out of each business's gross receipts -- a position that was rejected since the amount of the tax was in no way dependent on the amount of gross receipts, and the source of the payments was deemed immaterial for Section 533(a) purposes. See Smith & McMaster, 669 A.2d at 455. Appellants maintain that the situation here is different because the present Ordinance only imposes a tax on a business when its annual gross revenue exceeds $1,000,000. Therefore, Appellants reason, the tax depends on, and is calculated with respect to, a business's gross receipts, making it a tax "on gross receipts or part thereof" -- in particular, that part of gross receipts that exceeds the $1,000,000 threshold. Appellants claim that, in reaching a contrary conclusion, the Commonwealth Court failed to recognize the difference between a tax that is imposed on all businesses in a municipality and one that is imposed on only those meeting a certain annual threshold of gross receipts. They also assert that the common pleas court erred by limiting the scope of the Section 533(a) proscription to taxes calculated as a percentage of gross receipts.
Appellants continue that this conclusion -- that the tax depends on, and is calculated with respect to, gross receipts -- is confirmed by the manner in which the Board arrived at the tax. During its meetings, Appellants contend, the Board did not consider a flat tax on all business, but instead debated the amount of the tax that would have to be imposed at each exemption level in order to generate the funds required to alleviate the $400,000 budget shortfall. As such, Appellants argue that the tax imposed under the Ordinance ultimately depends (and was designed to depend) on the gross receipts of each business in the township.
Appellees, the Board and Warrington Township, argue that, in Smith and McMaster, the Commonwealth Court concluded that a flat business privilege tax paid from gross receipts is permissible under Section 533(a), and that it logically follows that only taxes based on a percentage of gross receipts are prohibited by that provision. Since the flat levy of $2,600 per non-exempt business is set by ordinance and not calculated based on the taxpayer's ...