             THE COMMONWEALTH COURT OF PENNSYLVANIA

Victory Bank,                            :
                         Petitioner      :
                                         :
                   v.                    :   No. 236 F.R. 2014
                                         :   ARGUED: April 10, 2018
Commonwealth of Pennsylvania,            :
                     Respondent          :



BEFORE:      HONORABLE ROBERT SIMPSON, Judge
             HONORABLE PATRICIA A. McCULLOUGH, Judge
             HONORABLE BONNIE BRIGANCE LEADBETTER, Senior Judge



OPINION BY
SENIOR JUDGE LEADBETTER                                   FILED: July 17, 2018


             Victory Bank (Taxpayer) petitions for review of an order of the Board
of Finance and Revenue (Board) denying Taxpayer’s petition for refund of sales tax
paid on purchases of computer hardware, canned computer software, and services.
We affirm.
             In pertinent part, the stipulated facts are as follows. Taxpayer is a
commercial bank in Pennsylvania, with headquarters in Limerick and an additional
office in Wyomissing. (Stipulation of Facts (S.F.), Nos. 2 and 3.) It purchased the
disputed items from three sellers and used all of the hardware and software “for its
protection or convenience in conducting financial transactions.” (Id., Nos. 50, 57,
and 63.) “For each of the contested transactions, the consideration which [Taxpayer]
paid included state sales tax in the amount of [6%] of the purchase price for each
item purchased.” (Id., No. 25.) In addition, Taxpayer did not tender an exemption
certificate to any of the sellers. (Id., No. 26.)
               In November 2012, Taxpayer filed a petition with the Department of
Revenue’s Board of Appeals (BOA) seeking a refund of sales tax in the initial
estimated amount of $50,000, plus applicable interest, paid during the period of
November 26, 2009 to November 26, 2012. (Id., No. 5.) It later amended the
requested amount to $17,801.61. (Id., No. 7.) The BOA denied Taxpayer’s request
and the Board affirmed. In its petition for review to this Court, Taxpayer seeks a
refund of sales tax paid across eighty-four petitioned-transactions in the aggregate
amount of $14,775.35, plus applicable interest. (Id., No. 14.)
               The sole issue that Taxpayer raises on appeal is as follows:1

               Whether a bank’s purchases of computer hardware
               equipment and its software components, as well as
               services thereto, are excluded from sales tax pursuant to
               the [Department’s] Financial Institution Security
               Equipment Regulation [FISE regulation] . . . because the
               sellers or their designees installed the computer hardware
               and the bank used the computer hardware and software for
               its protection or convenience in conducting financial
               transactions.

Taxpayer’s Brief at 4.
               Promulgated in 1978 and amended in 1993, the FISE regulation, upon
which Taxpayer relies, provides:




    1
      With de novo review, this Court is entitled to the broadest scope of review when considering
the propriety of an order of the Board because we function essentially as a trial court, even though
we hear these cases in our appellate jurisdiction. Norris v. Commonwealth, 625 A.2d 179, 182
(Pa. Cmwlth. 1993); see generally Pa. R.A.P. 1571.


                                                 2
(a) General. This ruling pertains to the sale, installation
    and repair of security equipment utilized by financial
    institutions.
       ....

(b) Definitions. The following words and terms, when
    used in this section, have the following meanings,
    unless the context clearly indicates otherwise:
   Financial institution--A corporation or association,
    such as a bank, a bank and trust company, a trust
    company, a savings bank, a mutual banking
    association, a savings and loan association, a finance
    company, a credit union, or other similar institution,
    which maintains a place of business in this
    Commonwealth.
   Installation--An attachment or affixation of security
    equipment to real estate by means of one of the
    following:
       ....
   (iii) Wire which is integrated into an electrical system.

   Security equipment--Systems, devices and equipment,
   and their components, utilized by a financial institution
   for its protection or convenience in conducting
   financial transactions.

(c) Sales and installation. Sales and installation shall
   conform with the following:

   (1) A sale of security equipment which is also installed,
   as defined in subsection (b), by the seller or [its]
   designee is a construction contract. The seller-
   installer may not charge sales tax of the
   Commonwealth to his customer upon the contract
   price. Rather, the seller-installer, as a construction
   contractor, is considered to be the consumer of
   property transferred in connection with the
   construction contract. He shall pay the applicable sales
   or use tax upon his purchase price of the installed
   equipment . . . .


                             3
                    ....

             (d) Straight sale. A straight sale is one in which security
                 equipment of a type which does not require installation,
                 as defined in subsection (b) is transferred, or one in
                 which any type of security equipment is sold directly
                 to a customer without installation by the seller or a
                 designee. A straight sale is a taxable transfer of
                 tangible personal property, and the seller shall register
                 with the Department, to collect tax upon the total
                 purchase price paid by a customer for security
                 equipment, and to remit the tax collected to the
                 Department.

61 Pa. Code § 46.9 (emphasis added).
             It is undisputed that Taxpayer meets the definition of a financial
institution and that its computer system meets the FISE definition of “security
equipment.” The disputed issues here are first, whether plugging its computer
system into an electrical outlet amounts to installation, defined by subsection (b) as
“attachment . . . by means of . . . wire which is integrated into an electrical system”;
and second, whether the FISE regulation has been superseded by statute, as the
Department argues. We need not address the first of these arguments, because we
agree with the Department that statutory changes described below have superseded
at least the definition of “construction contract” in subsection (c)(1), upon which
Taxpayer’s argument is grounded.
             When the Department promulgated the FISE regulation, there was no
statutory definition of the term “construction contract,” so if the equipment was
“installed” within the definition of subsection (b), it amounted to a “construction
contract” and the obligation to pay sales tax fell on the contractor/installer and not
the purchasing financial institution under subsection (c)(1). Later, the General
Assembly enacted a statutory definition of “construction contract” in Act 45 of


                                           4
1998,2 thereby amending Section 201 of the Tax Reform Code of 1971 (Tax Code),
Act of March 4, 1971, P.L. 6, as amended, 72 P.S. § 7201.             The definition at that
time, however, was limited to transactions with exempt entities. It extended the
statutory definition to all entities in Act 89 of 2002.3 The Tax Code now defines
“construction contract” as: “A written or oral contract or agreement for the
construction, reconstruction, remodeling, renovation or repair of real estate or a real
estate structure.” Section 201(nn) of the Tax Code. Clearly, the statutory definition
of “construction contract” departs from the one found in the FISE regulation.
               “It is axiomatic that a statute is law and trumps an administrative
agency’s regulations.” Commonwealth v. Kerstetter, 62 A.3d 1065, 1069 (Pa.
Cmwlth. 2013), aff’d, 94 A.3d 991 (Pa. 2014). In addition, “[w]here there is a
conflict between a statute and a regulation which purports to implement the statute’s
provisions the regulation must give way.” Success Against All Odds v. Dep’t of Pub.
Welfare, 700 A.2d 1340, 1351 n.6 (Pa. Cmwlth. 1997) (citations omitted). Here,
Section (c)(1) of the FISE regulation presents such a conflict in that the statutory
definition for “construction contract” is inconsistent with the regulation’s definition.
Moreover, the fact that the FISE regulation was not amended or repealed is of no
moment. See Success Against All Odds, 700 A.2d at 1350-51 (holding that, where a
regulation relates to the interpretation of a self-executing act of assembly,4 Section
204 of the Commonwealth Documents Law5 permits an administrative agency to
omit or modify the publication requirements). Therefore, Taxpayer may not rely



    2
       Act of April 23, 1998, P.L. 239, No. 45.
    3
       Act of June 29, 2002, P.L. 559, No. 89.
     4
       “Self-executing statutes are those which are mandatory in nature and require no further
legislative action in order to become effective.” Success Against All Odds, 700 A.2d at 1351.
     5
       Act of July 31, 1968, P.L. 769, as amended, 45 P.S. § 1204.


                                              5
upon Section (c)(1) to argue that the seller of its computer system and not Taxpayer
owes the sales tax.
             As the Commonwealth asserts, in the absence of an applicable statutory
exclusion or exemption, the sales at issue, by default, warrant a 6% sales tax under
Section 202(a) of the Tax Code, 72 P.S. § 7202(a). See Plum Borough Sch. Dist. v.
Commonwealth, 860 A.2d 1155, 1159 (Pa. Cmwlth. 2004), aff’d per curiam, 891
A.2d 726 (Pa. 2006) (holding that, “[w]hen an exemption does not apply, there is no
statutory crack to fall through . . . .”). More specifically, Section 202(a) of the Tax
Code imposes a 6% tax on the “sale at retail” of “tangible personal property” and
certain enumerated services. A “sale at retail” is defined to include “[a]ny transfer
for a consideration, of the ownership, custody or possession of tangible personal
property,” as well as “[t]he rendition for a consideration of the service of repairing,
altering, . . . or cleaning tangible personal property.” Section 201(k)(1) and (4) of
the Tax Code. “Tangible personal property” is defined as “[c]orporeal personal
property including, but not limited to, goods, wares, [and] merchandise . . . .”
Section 201(m) of the Tax Code. In the present case, the computer hardware, canned
software, and related services at issue are such property and thus Taxpayer’s
purchases are “sales at retail” to which sales tax must be applied consistent with
Section 201(k) and (m) of the Tax Code. See Dechert LLP v. Commonwealth, 998
A.2d 575, 585-86 (Pa. 2010) and Graham Packaging Co., L.P. v. Commonwealth,
882 A.2d 1076, 1086-87 (Pa. Cmwlth. 2005) (holding that tangible personal property
includes canned computer software delivered electronically).          The Tax Code
requires the vendor of such property (here, the seller of computer equipment to
Taxpayer) to collect sales tax from the purchaser thereof upon each separate “sale at
retail” that the vendor makes, precisely as was done in the present case.



                                          6
               This conclusion is reinforced by longstanding judicial interpretations of
the Tax Code in cases not involving financial institutions, where the FISE regulation
had no application, such as Commonwealth v. Beck Electric Construction, Inc., 403
A.2d 553 (Pa. 1979)6 and Northeastern Pennsylvania Imaging Center v.
Commonwealth, 35 A.3d 752 (Pa. 2011). In Beck, which involved a corporation that
sold and installed electrical machinery and equipment with such sales and
installation of equipment being completed pursuant to electrical construction
contracts, the Court adopted the method-of-attachment test in ascertaining whether
a vendor was required to collect a sales tax on tangible personal property or if a
contractor was required to pay a use tax on real property constructed in a
construction contract. In holding that the transformers, rectifier, and switchgear
were not subject to use tax as they were not part of the real estate because they could
be relocated with no damage, the Court focused on the character of the object, its
ability to be installed and removed, its degree of portability, and whether it
maintained its functional integrity after installation. In Northeastern, involving
equipment far larger and less mobile than the computers involved here, the Court
held that the equipment at issue, medical facilities’ MRI and PET/CT scan systems,
remained tangible personal property after installation and, accordingly, was subject
to sales tax pursuant to Section 202(a) of the Tax Code. In so determining, it
resurrected the Beck test and observed, inter alia, that “[w]hile their size makes them
cumbersome, size does not make them part of the building.” Northeastern, 35 A.3d
at 761.



    6
      This case was partially superseded by Act 45 of 1998, to the extent that it pertained to the
application of the sales and use tax to tax-exempt entities like the Commonwealth.



                                                7
               Because Taxpayer was required to pay sales tax on its computer system
under the terms of the Tax Code, the Board properly denied its petition for refund.7
               Accordingly, we affirm.




                                             _____________________________________
                                             BONNIE BRIGANCE LEADBETTER,
                                             Senior Judge




    7
       We need not here address whether, as the Department seems to argue, that the FISE
regulation is superseded in its entirety. Certainly, the critical amendment to the Tax Code, which
superseded FISE’s preferential definition of “construction contract” and thus operated to eliminate
its shifting of the sales tax burden from financial institutions to the vendors of “security
equipment,” brought the tax treatment of such purchases more clearly in line with general law.
However, we are not prepared to state that no circumstances could arise in which FISE would have
a practical application. That issue is simply not before us.


                                                8
         IN THE COMMONWEALTH COURT OF PENNSYLVANIA


Victory Bank,                             :
                          Petitioner      :
                                          :
                   v.                     :   No. 236 F.R. 2014
                                          :
Commonwealth of Pennsylvania,             :
                     Respondent           :


                                       ORDER


             AND NOW, this 17th day of July, 2018, the order of the Board of
Finance and Revenue is AFFIRMED. Unless exceptions are filed within thirty (30)
days from entry of this Order pursuant to Pa. R.A.P. 1571(i), this Order shall become
final.



                                        _____________________________________
                                        BONNIE BRIGANCE LEADBETTER,
                                        Senior Judge
