        IN THE COMMONWEALTH COURT OF PENNSYLVANIA


Strongstown B&K Enterprises, Inc.,       :
                      Petitioner         :
                                         :
                   v.                    :   No. 400 F.R. 2013
                                         :   Argued: March 7, 2016
Commonwealth of Pennsylvania,            :
                     Respondent          :


BEFORE:     HONORABLE RENÉE COHN JUBELIRER, Judge
            HONORABLE MICHAEL H. WOJCIK, Judge
            HONORABLE BONNIE BRIGANCE LEADBETTER, Senior Judge




OPINION NOT REPORTED

MEMORANDUM OPINION
BY JUDGE COHN JUBELIRER                      FILED: May 20, 2016



      Strongstown B&K Enterprises, Inc. (Strongstown) petitions for review of the
Order of the Board of Finance and Revenue (BF&R) dated May 1, 2013 that
granted in part and denied in part Strongstown’s Petition for Reassessment of sales
and use tax. For purposes of this appeal, Strongstown seeks review only of that
portion of the BF&R’s determination that denied Strongstown any relief regarding
use tax assessed on road signs. For the following reasons, we affirm.
      The parties have stipulated to the relevant facts before this Court.
Strongstown sold fabricated aluminum road signs, posts, and accompanying
miscellaneous hardware (collectively “Road Signs”) to the Pennsylvania
Department of Transportation (PennDOT) and to municipalities through
construction contracts. (Stip. ¶¶ 7, 13, 20.) The Road Signs were installed on
Pennsylvania roads, including the Pennsylvania Turnpike.               (Stip. ¶ 20.)
Strongstown paid tax on concrete sign foundations and related components such as
sleeves or brackets inserted into the foundations.       (Stip. ¶ 14.)      The parties
stipulated that Strongstown is a construction contractor and that all of the Road
Signs installed during the period covered by the audit were installed for the
Commonwealth through either PennDOT or Pennsylvania municipalities. (Stip. ¶¶
30, 31.)
      The Department of Revenue (Department) performed a sales and use tax
audit on Strongstown covering the period from January 1, 2008 through January
31, 2011. (Stip. ¶ 4.) Based on the audit, the Department issued an assessment to
Strongstown totaling $2,056,339.26, of which $321,653.86 was unpaid sales tax
and $1,734,685.40 was unpaid use tax. (Stip. ¶ 5, Ex. A.) The assessment also
included $803,118.26 in penalties and interest.         Id.   The total amount due
according to the audit was $2,859,457.52. Id.
      Strongstown filed a Petition for Reassessment of sales and use tax with the
Department’s Board of Appeals. (Stip. ¶ 6, Ex. B.) Relevant to our inquiry,
Strongstown requested relief from $625,809.21 of the use tax assessed on Road
Signs furnished and installed under contracts with PennDOT and with
municipalities. (Stip. ¶ 7, Ex. B.) After hearing, the Board of Appeals abated the
penalties by $616,901.71, but denied Strongstown any tax relief. (Stip. ¶ 9, Ex. C.)
      Strongstown appealed to the BF&R and requested that the use tax assessed
on Road Signs be set aside. (Stip. ¶ 10, Ex. D.) After hearing, the BF&R denied
relief as to the use tax assessed on the Road Signs. (Stip. ¶ 11, Ex. E.)




                                          2
       Strongstown petitioned for review to this Court.1 The parties stipulated that
the sole question at issue here is whether Pennsylvania’s use tax was properly
assessed on the Road Signs installed and/or replaced by Strongstown. (Stip. ¶ 13.)
The parties have stipulated further that if we find that the use tax was imposed
improperly on the Road Signs, Strongstown should be reassessed at $192,349.86,
plus applicable interest, and if we find that the use tax was properly imposed, then
Strongstown should be reassessed at $818,159.07, plus applicable interest. (Stip.
¶¶ 32, 33.)
       Before we address the parties’ arguments, we begin by reviewing the
relevant provisions of the Tax Reform Code of 19712 (Code). Section 202(b) of
the Code,3 72 P.S. § 7202(b), imposes a six percent tax on the use within the

       1
          Our review of a BF&R determination is governed by Rule 1571 of the Pennsylvania
Rules of Appellate Procedure, Pa.R.A.P. 1571, which authorizes this Court to rule on the record
made before it or on the stipulation of facts made by the parties. In this circumstance we
exercise the broadest scope of review, Eastern Diversified Metals Corp. v. Commonwealth, 297
A.2d 167 (Pa. Cmwlth. 1972), because, “[a]lthough this Court hears such cases in its appellate
jurisdiction, 42 Pa. C.S. § 763, this Court functions essentially as a trial court.” PICPA
Foundation for Education and Research v. Commonwealth, 598 A.2d 1078, 1080 n. 6 (Pa.
Cmwlth. 1991) (citations omitted). The stipulation of facts is binding and conclusive upon this
Court, but we may draw our own legal conclusions from those facts. Kelleher v.
Commonwealth, 704 A.2d 729, 731 (Pa. Cmwlth. 1997). The issue presented in this case poses a
question of statutory construction, for which our review is plenary. Malt Beverages Distributors
Association v. Pennsylvania Liquor Control Board, 918 A.2d 171, 175 (Pa. Cmwlth. 2007),
affirmed, 974 A.2d 1144 (Pa. 2009).
       2
           Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§ 7101-8297.
       3
           Section 202 of the Code provides in pertinent part:

       Imposition of tax

       (a) There is hereby imposed upon each separate sale at retail of tangible personal
       property or services, as defined herein, within this Commonwealth a tax of six per
       cent of the purchase price, which tax shall be collected by the vendor from the
       purchaser, and shall be paid over to the Commonwealth as herein provided.
                                                  3
Commonwealth of tangible personal property purchased at retail. The tax is paid
by the user unless sales tax has been paid under Section 202(a) of the Code, 72 P.S.
§ 7202(a). The Code defines “Use,” in pertinent part, as:

             (1) The exercise of any right or power incidental to the
       ownership, custody or possession of tangible personal property and
       shall include, but not be limited to transportation, storage or
       consumption.
                                       ***
             (17) The obtaining by a construction contractor of tangible
       personal property or services provided to tangible personal
       property which will be used pursuant to a construction contract
       whether or not the tangible personal property or services are
       transferred.

Sections 201(o)(1) and (17) of the Code, 72 P.S. § 7201(o)(1) and (17) (emphasis
added).4
       The parties stipulated that Strongstown purchased the Road Signs from
various vendors but did not pay sales tax to those vendors, and that Strongstown



       (b) There is hereby imposed upon the use, on and after the effective date of this
       article, within this Commonwealth of tangible personal property purchased at
       retail on or after the effective date of this article, and on those services described
       herein purchased at retail on and after the effective date of this article, a tax of six
       per cent of the purchase price, which tax shall be paid to the Commonwealth by
       the person who makes such use as herein provided, except that such tax shall not
       be paid to the Commonwealth by such person where he has paid the tax imposed
       by subsection (a) of this section or has paid the tax imposed by this subsection (b)
       to the vendor with respect to such use. The tax at the rate of six per cent imposed
       by this subsection shall not be deemed applicable where the tax has been incurred
       under the provisions of the “Tax Act of 1963 for Education.”

72 P.S. § 7202(a), (b).
       4
         Subsection (o)(17) was added by Section 1 of the Act of April 23, 1998, P.L. 239, No.
45 (“Act 45”).

                                                  4
used the Road Signs by installing them along Pennsylvania roads in order to satisfy
its obligations under various construction contracts. (Stip. ¶¶ 20, 23.) By virtue of
the Stipulation and by the plain language of the Code, there is no dispute that
Strongstown is a construction contractor that purchased tangible personal property
to use in Pennsylvania in satisfaction of its obligations under various construction
contracts. Therefore, unless the Road Signs fall within an exemption to the use
tax, the Department properly assessed use tax on the Road Signs pursuant to
Section 202(b) of the Code, 72 P.S. § 7202(b).
      Strongstown first argues that the Road Signs are exempt as “Building
Machinery and Equipment” (BME), which is defined in Section 201(pp) of the
Code as follows:

             (pp) BUILDING MACHINERY AND EQUIPMENT.

      Generation equipment, storage equipment, conditioning equipment,
      distribution equipment and termination equipment, which shall be
      limited to the following:

            (1) air conditioning limited to heating, cooling, purification,
      humidification, dehumidification and ventilation;
            (2) electrical;
            (3) plumbing;
            (4) communications limited to voice, video, data, sound,
      master clock and noise abatement;
            (5) alarms limited to fire, security and detection;
            (6) control system limited to energy management, traffic
      and parking lot and building access;
            (7) medical system limited to diagnosis and treatment
      equipment, medical gas, nurse call and doctor paging;
            (8) laboratory system;
            (9) cathodic protection system; or
            (10) furniture, cabinetry and kitchen equipment.

           The term shall include boilers, chillers, air cleaners,
      humidifiers, fans, switchgear, pumps, telephones, speakers, horns,
                                         5
       motion detectors, dampers, actuators, grills, registers, traffic signals,
       sensors, card access devices, guardrails, medial devices, floor
       troughs and grates and laundry equipment, together with integral
       coverings and enclosures, whether or not the item constitutes a fixture
       or is otherwise affixed to the real estate, whether or not damage would
       be done to the item or its surroundings upon removal or whether or
       not the item is physically located within a real estate structure. The
       term “building machinery and equipment” shall not include
       guardrail posts, pipes, fittings, pipe supports and hangers, valves,
       underground tanks, wire, conduit, receptacle and junction boxes,
       insulation, ductwork and coverings thereof.

72 P.S. § 7201(pp) (emphasis added).
       This definition lists five general equipment types but then limits the
definition to such equipment as is listed in the ten specific subsections that follow
(“which shall be limited to the following”). Comparing the stipulated “definition”
of Road Signs (“fabricated aluminum road signs, posts, and accompanying
miscellaneous hardware”), with the language in Section 201(pp) of the Code, the
Road Signs do not appear to fall within one of the five general types of equipment
listed in the definition of BME, which are generation, storage, conditioning,
distribution, or termination. In addition, Road Signs are not specifically listed as
included within the definition in the last paragraph as are, for example, traffic
signals.
       Strongstown argues that the Road Signs fall within subsection 6 of Section
201(pp), 72 P.S. § 7201(pp)(6), which defines BME in relevant part as a “control
system limited to energy management, traffic and parking lot and building access.”
Strongstown posits that since the Road Signs work together to control traffic, they
are a “control system” for traffic, and thus exempt from the use tax as they are
BME.



                                          6
       In order to evaluate this assertion we look to the Stipulation, as that contains
all of the facts of record on appeal, for factual support. Based upon the paragraphs
in the Stipulation that contain a description of the Road Signs and their
characteristics, we can conclude that the Road Signs: are “fabricated aluminum
road signs, posts, and accompanying miscellaneous hardware” that are “often
damaged and/or subject to wear and are therefore often replaced.” (Stip. ¶¶ 7, 22.)
Beyond these statements, the only other evidence in the Stipulation regarding the
Road Signs and their characteristics are copies of photographs depicting directional
signs, a speed limit sign, a “no turn on red” sign and a “stop here on red” sign, a
“no left turn” sign and a stop sign. (Stip. Ex. H) There is no evidence or stipulated
facts regarding where specifically these Road Signs were placed and how, beyond
Strongstown’s general suggestion in its brief, these Road Signs work together to
control traffic.
       Section 201(pp)(6) of the Code describes BME as including “a control
system limited to . . . traffic . . . .” The term “system” is defined as “a group of
devices or artificial objects forming a network or used for a common purpose.”
Webster’s Third New International Dictionary 2322 (2002). There is no evidence
in the record to support a finding that the Road Signs at issue are a control system.
There is no evidence that they work together, are in a network either with each
other or with other traffic devices, or, are electrically networked with other traffic
devices to control traffic. We thus agree with the Board that these Road Signs do
not fit within the statutory term “control system” as required.
       Alternatively Strongstown points out that the Road Signs are installed and
often are damaged and/or subject to wear and are replaced.              (Stip. ¶ 22.)
Strongstown asserts that it provides concrete foundations and bases and fitted


                                           7
sleeves into which the Road Signs are installed. As the Road Signs are easily
removed from these foundations, Strongstown argues that the Road Signs should
be considered tangible personal property even after they are installed. Strongstown
relies on Commonwealth v. Beck Electric Construction, Inc., 403 A.2d 553 (Pa.
1979) (tangible personal property, as opposed to real property, is not subject to
sales or use tax), and Section 204(12) of the Code, 72 P.S. § 7204(12),5 which
Strongstown contends together stand for the proposition that items of tangible
personal property sold to a tax-exempt entity such as the Commonwealth are not
subject to sales or use tax. Strongstown thus suggests that the Road Signs should
not be subject to tax as Strongstown is the vendor of those signs.
       Strongstown further argues that it purchased the Road Signs from its vendors
for purposes of resale to the Commonwealth. As such, Strongstown contends that
those purchases were not taxable sales but were instead “purchases for resale.”
Under Section 201(k) of the Code, 72 P.S. § 7201(k),6 only “sales at retail” are
       5
           Exclusions from tax

       The tax imposed by section 202 shall not be imposed upon any of the following:

                                 ***

       (12) The sale at retail to, or use by the United States, this Commonwealth or its
       instrumentalities or political subdivisions of tangible personal property or
       services.

72 P.S. § 7204(12).
       6
           Definitions

       The following words, terms and phrases when used in this Article II shall have the
       meaning ascribed to them in this section, except where the context clearly
       indicates a different meaning:
                                      ***
        (k) “SALE AT RETAIL.”
                                               8
subject to sales or use tax, and purchases for resale are always excluded from sales
and/or use tax. Thus, only the final sale to the end user is subject to sales or use
tax.
       We have addressed previously, and have not been persuaded by these
alternative arguments. In Plum Borough School District v. Commonwealth, 860
A.2d 1155, 1159 (Pa. Cmwlth. 2004), aff’d per curiam, 891 A.2d 726 (Pa. 2006),
we held that a construction contractor that contracts with an exempt entity is liable



          (1) Any transfer, for a consideration, of the ownership, custody or possession
       of tangible personal property, including the grant of a license to use or consume
       whether such transfer be absolute or conditional and by whatsoever means the
       same shall have been effected.
          (2) The rendition of the service of printing or imprinting of tangible personal
       property for a consideration for persons who furnish, either directly or indirectly
       the materials used in the printing or imprinting.
          (3) The rendition for a consideration of the service of--
              (i) Washing, cleaning, waxing, polishing or lubricating of motor vehicles
          of another, whether or not any tangible personal property is transferred in
          conjunction therewith; and
              (ii) Inspecting motor vehicles pursuant to the mandatory requirements of
          “The Vehicle Code.”
          (4) The rendition for a consideration of the service of repairing, altering,
       mending, pressing, fitting, dyeing, laundering, drycleaning or cleaning tangible
       personal property other than wearing apparel or shoes, or applying or installing
       tangible personal property as a repair or replacement part of other tangible
       personal property except wearing apparel or shoes for a consideration, whether or
       not the services are performed directly or by any means other than by coin-
       operated self-service laundry equipment for wearing apparel or household goods
       and whether or not any tangible personal property is transferred in conjunction
       therewith, except such services as are rendered in the construction, reconstruction,
       remodeling, repair or maintenance of real estate: Provided, however, That this
       subclause shall not be deemed to impose tax upon such services in the preparation
       for sale of new items which are excluded from the tax under clause (26) of section
       204, or upon diaper service.

72 P.S. § 7201(k).

                                                9
for tax on all property it purchases unless the property constitutes BME under
Section 204(57) of the Code, 72 P.S § 7204(57).7 In Kinsley Construction, Inc. v.
Commonwealth, 894 A.2d 832 (Pa. Cmwlth. 2006), we subsequently held that:

              In both Crawford Central School District v. Commonwealth,
       839 A.2d 1213 (Pa. Cmwlth. 2004) and Plum Borough, this Court
       recognized that the sales and use tax exclusion for construction
       contractors is now limited to building machinery and equipment as set
       forth in Section 204(57) of the Code and, further, that the Section
       204(12) exemption is no longer available to construction contractors
       like Petitioner.
Kinsley, 894 A.2d at 835. The Plum Borough Court also addressed Strongstown’s
argument that the Road Signs were not taxable under Beck Electric as follows:

             The definition of “use” found in Section 201(o)(17) of the
       Code, 72 P.S. § 7201(o)(17), which was added by Act 45 in 1998,
       provides that the term “use” includes obtaining by construction
       contractors tangible personal property or services which would be
       used pursuant to a construction contract, whether or not the tangible
       personal property is transferred. Accordingly, because under Section

       7
           The tax imposed by section 202 shall not be imposed upon any of the following:

                                             ***

       (57) The sale at retail to or use by a construction contractor of building
       machinery    and    equipment     and   services    thereto    that    are:

             (i) transferred pursuant to a construction contract for any charitable
       organization, volunteer firemen’s organization, volunteer firefighters’ relief
       association, nonprofit educational institution or religious organization for
       religious purposes, provided that the building machinery and equipment and
       services thereto are not used in any unrelated trade or business; or

             (ii) transferred to the United States or the Commonwealth or its
       instrumentalities or political subdivisions.

72 P.S. § 7204(57).
                                                10
      202(a) of the Code the tax is imposed on “use” of the property, a
      construction contractor who contracts with an exempt entity such as
      the School District is now liable for tax on all property the contractor
      purchases unless the property constitutes building machinery and
      equipment.


Plum Borough, 860 A.2d. at 1159-60. Given the holdings in Plum Borough and in
Kinsley, and our conclusion that these Road Signs are not BME, we cannot accept
Strongstown’s arguments that it is exempt from use tax because the Road Signs are
tangible personal property and sales for resale.
      Finally, Strongstown argues that sound public policy requires that items sold
to the Commonwealth to be used on or near highways should not be subject to
sales or use tax. Strongstown contends that where highway contracts are being
paid for by the taxpayers, it makes no sense to impose a tax that would increase the
cost of contracts between the Commonwealth and construction companies that do
the work on the Commonwealth’s highways. However, we are bound by the plain
language of the Code and by our previous decisions interpreting the Code.
Strongstown’s policy argument thus should be directed to the General Assembly.
      For these reasons we hold that the Department properly assessed the use tax
on the Road Signs. The BF&R’s Order dated May 1, 2013 is affirmed.




                                          ________________________________
                                          RENÉE COHN JUBELIRER, Judge




                                         11
          IN THE COMMONWEALTH COURT OF PENNSYLVANIA


Strongstown B&K Enterprises, Inc.,        :
                      Petitioner          :
                                          :
                    v.                    :   No. 400 F.R. 2013
                                          :
Commonwealth of Pennsylvania,             :
                     Respondent           :


                                     ORDER


         NOW, this 20th day of May, 2016, the Order of the Board of Finance and
Revenue dated May 1, 2013 is AFFIRMED. Unless exceptions are filed within
thirty (30) days in accordance with the provisions of Pa.R.A.P. 1571(i), this matter
is remanded to the Board of Finance and Revenue to reassess Strongstown B&K
Enterprises, Inc.’s use tax in accordance with the parties’ Stipulation filed with this
Court.




                                          ________________________________
                                          RENÉE COHN JUBELIRER, Judge
