Argued: May 15, 2013
BEFORE: HONORABLE DAN PELLEGRINI, President Judge, HONORABLE BERNARD L. McGINLEY, Judge, HONORABLE RENÉE COHN JUBELIRER, Judge, HONORABLE ROBERT SIMPSON, Judge, HONORABLE MARY HANNAH LEAVITT, Judge, HONORABLE P. KEVIN BROBSON, Judge, HONORABLE PATRICIA A. McCULLOUGH, Judge
PATRICIA A. McCULLOUGH, Judge
Verizon Pennsylvania, Inc. (Verizon) petitions for review of the February 26, 2008 order of the Board of Finance and Revenue (Board) denying Verizon's tax resettlement petition to reduce the amount of taxable gross receipts for the 2004 tax year under section 1101(a)(2) of the Tax Reform Code of 1971.
Background and Procedural History
Verizon timely filed its Tax Report for the tax year ending December 31, 2004, reporting taxable intrastate gross receipts of $1, 474, 524, 745 and a paid tax of $73, 726, 237. The Department of Revenue issued a settlement against Verizon, with the approval of the Department of the Auditor General, that increased Verizon's taxable gross receipts by $953, 151, 788, raising the total to $2, 427, 676, 533,  and asserted a tax deficiency of $47, 657, 580. Verizon filed a resettlement petition with the Board of Appeals (BOA). The BOA reduced Verizon's taxable gross receipts by $754, 451, 363, lowering the total to $1, 673, 225, 170,  and reduced the asserted tax deficiency to $9, 935, 021. (Stipulation of Facts I, Nos. 6-11).
Verizon filed a petition for review of the BOA resettlement with the Board. The Board denied Verizon's petition for review in its entirety. (Stipulation of Facts I, Nos. 13, 14). In its order, the Board explained that Verizon, doing business within the Commonwealth as a provider of mobile telecommunications services, had an obligation to pay tax on all receipts from telephone messages transmitted. The Board determined that Verizon failed to provide proof of the amounts claimed as allowable deductions to compute taxable gross receipts, as well as total gross receipts for the 2004 tax year. In the absence of sufficient evidence to determine the amounts of the claimed deductions, the Board concluded that Verizon was not entitled to an adjustment of the settled tax. (Board's order at 2, 3.)
On appeal,  Verizon argues that receipts from the provision of (1) private telephone lines; (2) directory assistance services; and (3) non-recurring service charges, including telephone line installation, moves of or changes to telephone lines and service, and repairs of telephone lines, are not taxable. We affirm with regard to the private telephone lines and directory assistance services and reverse with respect to the non-recurring service charges.
The Legislature first applied the gross receipts tax to telephone companies in section 23 of the Act of June 1, 1889, P.L. 420 (the 1889 Act), 72 P.S. §2181. Section 23 of the 1889 Act applied to gross receipts "received . . . from telegraph, telephone or express business done wholly within this State . . . ." Id.
The Dauphin County Court of Common Pleas analyzed the scope of the 1889 Act in Commonwealth v. Bell Telephone Company, 12 Pa. D. & C. 617 (1929) (Bell I). In Bell I, The Bell Telephone Company of Philadelphia (Bell) challenged the inclusion of gross receipts received from directory advertising and charges for materials furnished and work done by Bell's employees, including charges from: (i) installing standard telephone materials in excess of the materials needed for standard installations; (ii) the time and expense of Bell's employees installing the excess materials; and (iii) repairing and rearranging equipment owned by Bell and others such as wires, cables, poles, brackets, insulators, and batteries, in calculating the gross receipts tax. The court in Bell I concluded that the receipts from all of the sources challenged by Bell were taxable under the broad scope of the "telephone business" language in the 1889 Act. In this regard, the court stated that "[t]he statute does not restrict the taxation to receipts from the transmission of telephone messages, but expressly taxes telephone business derived from the complete business of the corporation." 12 Pa. D. & C. at 623-24.
The 1889 Act was amended by the Legislature with the Act of May 14, 1925, P.L. 706, as amended, 72 P.S. §2181. This amendment modified the language of section 23 of the 1889 Act to apply the gross receipts tax to gross receipts "received . . . from telegraph or telephone, traffic or express business done wholly within this State . . . ." Id. (emphasis added). Here, the ...