            IN THE COMMONWEALTH COURT OF PENNSYLVANIA


S & H Transport, Inc.                       :
                                            :
               v.                           : No. 242 C.D. 2017
                                            : Argued: September 14, 2017
City of York,                               :
                       Appellant            :


BEFORE:        HONORABLE P. KEVIN BROBSON, Judge
               HONORABLE PATRICIA A. McCULLOUGH, Judge
               HONORABLE DAN PELLEGRINI, Senior Judge


OPINION NOT REPORTED


MEMORANDUM OPINION BY
SENIOR JUDGE PELLEGRINI                             FILED: October 5, 2017


               The City of York (City) appeals an order of the Court of Common
Pleas of York County (trial court) finding that S&H Transport, Inc. (S&H) was
entitled to deduct freight and delivery charges from its gross receipts before
calculating the business privilege tax due to the City for tax years 2007 through
2011. For the reasons that follow, we reverse.


                                               I.
               Section 301.1(a.1)(1) of the Local Tax Enabling Act (LTEA)1 permits
local municipalities, including the City, to impose a business privilege tax (BPT)


      1
          Act of December 31, 1965, P.L. 1257, as amended, 53 P.S. § 6924.301.1(a.1)(1).
as it provides, in pertinent part, “[a] local taxing authority may levy a tax on the
privilege of doing business in the jurisdiction of the local taxing authority. . . .”
Article 343.02 of the Codified Ordinances of the City of York (Ordinance) imposes
such a BPT, stating “[t]here is hereby levied for the tax year beginning January 1,
1997, a tax for general revenue purposes on the privilege of doing business as
herein defined in the City.”2


              Of particular importance to this case, Section 301.1(f) of the LTEA
prohibits local authorities from collecting or levying taxes on certain types of
goods and transactions, including the following:

              (f) Such local authorities shall not have authority by
              virtue of this act:

                                           * * *

                    (12) To levy, assess and collect a mercantile or
              business privilege tax on gross receipts or part thereof
              which are

                                           * * *

                          (ii) charges advanced by a seller for freight,
              delivery or other transportation for the purchaser in
              accordance with the terms of a contract of sale. . . .




       2
          Article 343 of the Ordinance, titled “Business Privilege and Mercantile Tax,” is
available     at     http://www.yorkcity.org/wp-content/uploads/2017/04/Article-343-Business-
Privilege-Mercantile-Tax.pdf, last visited September 19, 2017.




                                             2
53 P.S. § 6924.301.1(f)(12) (emphasis added). Section 206(J)(2) of the City’s
Business Privilege and Mercantile Tax Rules and Regulations (Regulations)
contains a similar freight delivery exclusion, stating, “[e]xcluded from the
Business Privilege and Mercantile Tax are receipts which constitute . . . [f]reight
delivery or transportation charges paid by the seller for the purchaser.”3
Regulations § 206(J)(2).


             Against this backdrop, we turn to the specific facts of this case.


                                           II.
                                           A.
             S&H is a Pennsylvania corporation headquartered in the City which
provides freight brokerage services. Essentially, S&H receives a freight shipment
order from a customer, locates a common carrier to transport the freight shipment,
and negotiates a contract with the freight carrier on behalf of the customer. S&H
invoices its customer for the full balance owed, including the delivery cost charged
by the freight carrier plus S&H’s commission for providing the brokerage services.
S&H then remits payment to the freight carrier on behalf of the customer and
retains the remaining funds as its freight brokerage commission. Because S&H
collects the entire balance due from customers, its records reflect gross receipts
that include delivery charges despite the fact that S&H is not itself a freight carrier.




      3
       The Regulations are available at http://www.yatb.com/wp-content/docs/City-of-York-
MBP-Ord.pdf, last visited September 19, 2017.




                                           3
                Following an audit, the City discovered that for tax years 2007-2011,
S&H claimed the public utility services exception to the BPT found in Section
301.1(f)(2) of the LTEA, 53 P.S. § 6924.301.1(f)(2).4 The City determined that
S&H did not qualify for this exception and issued a notice of assessment in the
amount of $188,346.88, plus interest and penalties. S&H appealed and the tax
assessment appeal hearing officer affirmed the City’s assessment.                       S&H then
appealed to the trial court which held that S&H qualified for the exception, and the
City appealed to this Court.


                In an opinion issued on October 15, 2014, we held that S&H was not
entitled to the exception found in Section 301.1(f)(2) of the LTEA, 53 P.S. §
6924.301.1(f)(2), because S&H was not involved in the rendering of any public
utility services. S&H Transport, Inc. v. City of York, 102 A.3d 599 (Pa. Cmwlth.
2014). Our Supreme Court affirmed on appeal, concluding “that the rates of the
common motor carriers with whom S&H does business are not fixed and regulated


       4
           Section 301.1(f)(2) of the LTEA provides:

                (f) Such local authorities shall not have authority by virtue of this
                act:
                                                * * *

                       (2) To levy, assess or collect a tax on the gross receipts
                from utility service of any person or company whose rates and
                services are fixed and regulated by the Pennsylvania Public Utility
                Commission or on any public utility services rendered by any such
                person or company or on any privilege or transaction involving the
                rendering of any such public utility service.

53 P.S. § 6924.301.1(f)(2).




                                                 4
by the [] PUC, and thus the entire exception is inapplicable.” 140 A.3d 1, 2 (Pa.
2016). The case was then remanded to the trial court to determine the amount
S&H owes for tax years 2007-2011 pursuant to the BPT.


                                               B.
              Before the trial court on remand, S&H argued, inter alia,5 that it is
entitled to deduct freight delivery charges from its taxable gross receipts pursuant
to Section 301.1(f)(12) of the LTEA, 53 P.S. § 6924.301.1(f)(12), because it is
merely a conduit, and the freight delivery charges completely pass through S&H
from its customers to the freight companies. The City admitted that S&H is only a
“middleman” as it negotiates transportation between a buyer and seller of goods,
and S&H’s business is earning commission from these brokerage transactions.
However, the City argued that S&H should be taxed not just on its gross earnings
but on the gross receipts as reflected in its records – meaning S&H should also be
taxed on monies it receives from its customers and passes directly onto freight
carriers.


              The trial court rejected the City’s argument, holding instead that the
BPT could only reasonably be interpreted as applying to the gross commissions
earned by S&H, not its total gross receipts, because it is not fair to do so.
Moreover, because freight delivery or transportation charges paid by a seller for a


       5
          S&H also argued that it could deduct receipts derived from interstate commerce and
receipts attributable to its office located in Spring Garden Township when calculating the BPT it
owes to the City. Because these issues are not before the Court on appeal, they will not be
addressed in this opinion.




                                               5
purchaser are to be excluded from the BPT, the trial court found that it does not
matter if those charges are paid by the seller itself or, as here, by an agent of the
seller. Based on that conclusion, the trial court went on to find that S&H was
entitled to deduct freight delivery charges from its gross receipts before calculating
the BPT due to the City. The City then appealed to this Court.6


                                              III.
               The City argues that S&H does not fall within the freight delivery
exception of the LTEA or the Regulations because it is not the seller of goods and
the trial court erred in applying a fairness standard to the BPT. We agree.


               As to the fairness issue, this Court has repeatedly rejected arguments
based on “fairness” when examining issues of taxation. Specifically, in dealing
with the BPT, we have stated, “We do not deal here with a matter which may be
reconciled by reference to principles of fairness. What tax consequences should
flow in the instant case is a matter of legislative intent.” City of Pittsburgh v.
Dravo Corporation, 563 A.2d 940, 944 (Pa. Cmwlth. 1989) (quoting Kronz
Builders, Inc. v. City of Pittsburgh, 367 A.2d 1144, 1146 (Pa. Cmwlth. 1977)).
The trial court here erred by relying on a reasonableness or fairness test to carve
out an exception to the BPT, thereby converting a gross receipts tax to a tax based
on gross commissions.



       6
          “Issues of statutory interpretation present questions of law to which a plenary scope of
review and de novo standard of review apply.” S&H Transport, Inc., 102 A.3d at 601, n.4
(citation omitted).




                                                6
             To discern legislative intent, we need look no further than the plain
language of the Ordinance and Regulations. The BPT is a tax levied upon the
privilege of doing business within the City, and the term “business” is defined
within the Ordinance as:

             any activity carried on or exercised for gain or profit in
             the City, including but not limited to, the sale of
             merchandise or other tangible personalty or the
             performance of services. As to those taxpayers having a
             place of business within the City, ‘business’ includes all
             activities carried on within the City and those carried on
             outside the City attributable to the place of business
             within the City.


Ordinance Article 343.01(a).       This broad definition specifically includes the
provision of services – not merely the sale of tangible goods – and, thus, includes
S&H’s freight brokerage services.7


             The Ordinance goes on to provide the following with respect to
calculating the BPT:

             (a) Rate and Basis of Tax. The rate of tax on every dollar
             of the whole or gross volume of business transacted
             within the territorial limits of the City shall be calculated
             as follows:

                    (1) Business Privilege Tax.           On receipts
             attributable to the performance of service, including any
             labor and materials entering into or becoming component
             parts of the service performed, the rate imposed shall be

      7
          The Ordinance defines the term “service” as “any act or instance of helping or
benefitting another for consideration.” Ordinance Article 343.01(g).



                                           7
             three and one-half mills or three dollars and fifty cents
             ($3.50) per one thousand dollars ($1,000) of gross
             volume of business. . . .


Ordinance Article 343.02(a)(1). The term “gross volume of business” is defined as
“the money or money’s worth received by any vendor in, or by reason of, the sale
of goods, wares, merchandise, or services rendered.” Ordinance Article 343.01(f).
This broad language indicates that the City intended to impose the BPT on all
gross receipts attributable to corporations such as S&H conducting business within
the City, not just to gross profits as was held by the trial court. Moreover, our
Supreme Court has held that the similarly broad language of the LTEA evidences
the General Assembly’s intention to permit local governments to capture a broad
range of commercial activity and advances the underlying policy of allowing for
taxation as a quid pro quo for businesses taking advantage of local governmental
benefits such as police, fire and other services. V.L. Rendina, Inc. v. City of
Harrisburg, 938 A.2d 988, 995 (Pa. 2007) (citing Gilberti v. City of Pittsburgh,
511 A.2d 1321 (Pa. 1986)).


             In addition, the freight delivery exclusion only applies to “receipts
which constitute . . . [f]reight delivery or transportation charges paid by the seller
for the purchaser.”     Regulations § 206(J)(2).      The exclusion under Section
301.1(f)(12) of the LTEA similarly only applies to “charges advanced by a seller
for freight, delivery or other transportation for the purchaser….”         53 P.S. §
6924.301.1(f)(12). S&H’s argument that it qualifies for the exclusion because it is
in the business of selling bills of lading to its customers, while imaginative, does
not fall within this exception. S&H is neither the seller nor the purchaser in the



                                          8
transactions at issue but merely a broker of services. S&H also is not a freight
carrier, does not transport anything and does not sell anything that is transported.
It simply does not fall within the plain language of the exclusion.


             As for S&H’s agency argument, neither the Regulations nor the
LTEA contain language indicating that the freight delivery exclusion applies to a
seller’s agent. The trial court failed to provide any case law supporting such a
broad extension of the exclusion, and we are not aware of any.


             Moreover, nowhere in the Ordinance or the LTEA is there language
carving out an exclusion for funds that merely “pass through” a corporation, and
this Court rejected a similar argument in Wightman Health Center v. Office of the
Treasurer, City of Pittsburgh, 430 A.2d 717 (Pa. Cmwlth. 1981). In that case, a
for-profit nursing home argued that Medicare, Medicaid and other third party
payments should be excluded from its taxable gross receipts for purposes of the
BPT because it realized no profit from those payments, and it was merely a conduit
for those payments to flow to independent contractors.           We held that such
contentions were irrelevant because the ordinance imposed the BPT “on gross
receipts without regard to related expenses or the ultimate profitability of the
taxpayer’s enterprise.”     Id. at 718 (citing Shelburne Sportswear, Inc. v.
Philadelphia, 220 A.2d 798 (Pa. 1966)).


                   Accordingly, the decision of the trial court is reversed.


                                       ______________________________
                                       DAN PELLEGRINI, Senior Judge


                                          9
         IN THE COMMONWEALTH COURT OF PENNSYLVANIA


S & H Transport, Inc.                  :
                                       :
            v.                         : No. 242 C.D. 2017
                                       :
City of York,                          :
                    Appellant          :




                                    ORDER


                 AND NOW, this 5th day of October, 2017, the order of the Court of
Common Pleas of York County in the above-captioned case is reversed.



                                       ______________________________
                                       DAN PELLEGRINI, Senior Judge
