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S & H Transp., Inc. v. City of York

Commonwealth Court of Pennsylvania

October 15, 2014

S & H Transport, Inc.
v.
City of York, Appellant

Argued September 8, 2014

Appealed from No. 2012-SU-4143-54. Common Pleas Court of the County of York. Thompson, Jr., J.

Jason R. Sabol, Assistant Solicitor, York, for appellant.

Rees Griffiths, York, for appellee.

BEFORE: HONORABLE DAN PELLEGRINI, President Judge, HONORABLE BONNIE BRIGANCE LEADBETTER, Judge, HONORABLE ROBERT SIMPSON, Judge.

OPINION

Page 600

DAN PELLEGRINI, President Judge

The City of York (City) appeals from an order of the Court of Common Pleas of York County (trial court) finding that S & H Transport, Inc. (S & H) was exempt from the City's business-privilege and mercantile tax (BPT) under Section 301.1 of the Local Tax Enabling Act (Act), Act of December 31, 1965, P.L. 1257, as amended, 53 P.S. § 6924.301.1.[1] For the following reasons, we reverse the trial court's order and remand the case for further proceedings.

S & H is a Pennsylvania corporation headquartered in the City which renders freight-brokerage services by receiving freight-shipment orders from customers -- generally manufacturers -- and negotiating contracts for delivery with carriers. S & H invoices each customer for the full balance owed, including both the cost of shipment and S & H's brokerage commission, and then remits payment to the carrier. Because S & H collects the entire balance, its records include the gross receipts from freight-shipment transactions before payment is made to the carriers, meaning that the gross receipts do not include deductions for the shipment costs.

After auditing S & H's BPT returns, the City found that S & H claimed an exemption from the tax for tax years 2007-2011, and the City issued a notice of assessment imposing the BPT on those transactions. S & H appealed that notice, and following an administrative hearing, the tax-assessment appeal hearing officer upheld the City's assessment. S & H appealed to the trial court, contending that it was exempt from the City's BPT because its gross receipts were derived from transactions involving the rendering of " public utility services." [2]

Before the trial court, S & H presented the testimony of its controller, David Ruiz (Controller Ruiz), who stated that S & H " is a transportation brokerage company," meaning that it is " the middleman between the customer and the carriers." (Reproduced Record [R.R.] at 40a.) He further explained S & H's business procedure as follows: S & H receives calls from customers that place orders to transport goods and S & H provides a quote. S & H then selects a carrier and negotiates shipment costs based on " whatever the market will bear" seeking to earn a profit. ( Id. at 65a.) The customer pays S & H for the entire service, including the cost of delivery, and S & H remits payment to the

Page 601

carrier. The difference between S & H's quote and the cost of delivery represents S & H's brokerage commission.

Controller Ruiz asserted that to be registered in the transportation industry as a broker, a company must be registered with the Unified Carrier Registration (UCR) and that S & H was registered with both the UCR and the Federal Motor Carrier Safety Administration. He stated that all notifications regarding annual registration and fees for the UCR are communicated to S & H by the Pennsylvania Public Utility Commission (PUC). Controller Ruiz further testified that all freight carriers engaged by S & H are licensed and subject to regulation as public utilities and are regulated by the PUC. He explained that on its 2007-2011 tax returns, S & H claimed an exemption based upon the ...


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