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Inc. v. Commonwealth

Commonwealth Court of Pennsylvania

November 9, 2017

Jerry's Bar, Inc., Petitioner
v.
Commonwealth of Pennsylvania, Respondent

          Submitted: October 17, 2017

          BEFORE: HONORABLE P. KEVIN BROBSON, Judge, HONORABLE MICHAEL H. WOJCIK, Judge HONORABLE DAN PELLEGRINI, Senior Judge

          OPINION

          P. KEVIN BROBSON, JUDGE

         Petitioner Jerry's Bar, Inc. (Taxpayer) petitions for review of an order of the Board of Finance and Revenue, sustaining a decision of the Department of Revenue's (Department) Board of Appeals. The Board of Appeals denied Taxpayer's request for refund of tax payments attributable to the City of Philadelphia sales tax paid on malt beverage (beer) transactions conducted during the period of September 1, 2010, through August 28, 2013. We now affirm.

         Taxpayer operates a bar/restaurant in Delaware County. During the time period at issue, Taxpayer purchased beer for resale to its customers through beer distributors located in the City of Philadelphia. When ordering the subject beer, Taxpayer placed orders with beer distributors, and the beer distributors delivered the beer to Taxpayer in Delaware County. In addition to state sales tax, the beer distributors charged and collected City of Philadelphia sales tax from Taxpayer and remitted the tax to the Department. In order to obtain certain manufacturers' beers, Taxpayer, under the Liquor Code, [1] was required to purchase the beer from a beer distributor that has distribution rights for the area where Taxpayer's establishment is situated. With regard to the transactions at issue, the beer distributors were located in the City of Philadelphia. Had the Liquor Code not required Taxpayer to purchase from permitted beer distributors, Taxpayer would have purchased the beer from beer distributors located outside of the City of Philadelphia, thereby avoiding the 2% City of Philadelphia sales tax.

         On September 3, 2013, Taxpayer filed a petition for refund with the Board of Appeals, seeking a refund of $1, 778.42 for the City of Philadelphia sales tax. In the course of the proceedings, Taxpayer established proof of payment of the taxes. Taxpayer contended that it purchased the beer for resale. More specifically, Taxpayer asserted that it operates as a retailer in selling beer to its bar customers in Delaware County after purchasing the products from beer distributors located in the City of Philadelphia, and Taxpayer is not the end user or ultimate consumer of the goods purchased. Furthermore, Taxpayer maintained that the beer distributors did not deliver the beer within the City of Philadelphia, and customers consumed the beer outside of the City of Philadelphia. By decision and order mailed November 15, 2013, the Board of Appeals denied relief to Taxpayer.

         Taxpayer petitioned the Board of Finance and Revenue for review, again requesting a refund of the City of Philadelphia sales tax and advancing the same arguments as it did before the Board of Appeals. By decision and order mailed June 27, 2014, the Board of Finance and Revenue denied Taxpayer's petition. Taxpayer then petitioned this Court for review.

         On appeal, [2] Taxpayer essentially argues that it is entitled to a refund of the City of Philadelphia sales tax, because Taxpayer purchased the beer outside of the City of Philadelphia for resale to its customers in Delaware County as required by the Liquor Code.[3]

         Under Sections 431(b) and 441(e) of the Liquor Code, as amended, 47 P.S. §§ 4-431(b), [4] 4-441(e), Taxpayer can only purchase a manufacturer's beer from the "distributor" or "importing distributor" (generally referred to herein as beer distributors) licensed to sell that particular beer in Taxpayer's geographic region. As a result of these statutory provisions, Taxpayer maintains that it is required to purchase beer from a beer distributor located in the City of Philadelphia, and, in turn, the City of Philadelphia beer distributor is required to charge local sales tax.[5]

         In 1991, the General Assembly enacted the Pennsylvania Intergovernmental Cooperation Authority Act for Cities of the First Class (PICA), Act of June 5, 1991, P.L. 9, as amended, 53 P.S. §§ 12720.101-.709, so as "to provide a mechanism for cooperation between the Commonwealth and financially distressed cities of the first class"-i.e., the City of Philadelphia-for the purpose, in part, of fostering fiscal integrity for the City of Philadelphia. City of Philadelphia v. Cmwlth., 838 A.2d 566, 571 n.1 (Pa. 2003) (citing Section 102 of PICA, 53 P.S. § 12720.102). Chapter 5 of PICA[6] authorizes the City of Philadelphia to impose sales, use, and hotel taxes at a rate of 0.5% or 1% and makes clear that the imposition of such taxes under PICA is in addition to any tax imposed by the Commonwealth pursuant to Article II of the Tax Reform Code of 1971 (Tax Reform Code), Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§ 7201-7282. The City of Philadelphia imposes a sales tax under Chapter 5 of PICA at a rate of 1%.[7] See 61 Pa. Code § 60.16(12). "Except for differing situs provisions under [S]ection 504" of PICA, 53 P.S. § 12720.504, the provisions of Article II of the Tax Reform Code apply to taxes imposed under Chapter 5 of PICA.

         With regard to the imposition of sales tax on retail sales, Section 504(a) of PICA, [8] 53 P.S. § 12720.504, provides:

For purposes of this chapter and except as otherwise provided in this subsection, a sale at retail shall be deemed to be consummated at the place of business of the retailer unless the tangible personal property sold is delivered by the retailer or his agent to an out-of-State destination or to a common carrier for delivery to an out-of-State destination or the United States mails for delivery to an out-of-State destination. In the event a retailer has more than one place of business in this Commonwealth which participates in the sale, the sale shall be deemed to be consummated at the place of business of the retailer where the initial order for the tangible personal property is taken, even though the order must be forwarded elsewhere for acceptance, approval of credit, shipment or billing. A sale by a retailer's employee shall be deemed to be consummated at the place of business from which that employee works.

(Emphasis added.) The Department's regulation pertaining to local sales, use, and hotel occupancy tax, which the Department promulgated to administer the provisions of Chapter 5 of PICA, provides:

Point of sale. Local sales tax is imposed at the point of sale. A sale of property or a service delivered to a location within this Commonwealth is deemed to occur at the place of business of the retailer. A sale of property or a service delivered by the retailer or its agent to an out-of-State destination is subject to neither the State nor the local tax. The local tax is in addition to the State tax if a sale is deemed to have ...

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