The opinion
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
A. Gadley Enterprises, Inc. d/b/a :
Young Environment Learning Center, :
Petitioner :
:
v. : No. 196 C.D. 2015
: Submitted: November 17, 2015
Department of Labor and Industry, :
Office of Unemployment Compensation :
Tax Services, :
Respondent :
BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, Judge
HONORABLE ROBERT SIMPSON, Judge
HONORABLE JAMES GARDNER COLINS, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION
BY JUDGE SIMPSON FILED: January 5, 2016
A. Gadley Enterprises, Inc., d/b/a Young Environment Learning
Center (Purchaser) petitions for review from an order of the Department of Labor
and Industry (Department) that denied its petition for reassessment of
unemployment compensation (UC) taxes, interest and penalties. The Department
found Purchaser liable under Section 308.3(a) of the UC Law (Law), 1 commonly
known as the bulk sales provision, for UC contributions owed by Julianne Gresh
(Predecessor), sole proprietor of Romper Room Day Care (Romper Room), from
whom Purchaser acquired business assets.
1
Act of December 5, 1936, Second Ex. Sess., P.L. (1937) 2897, as amended, 43 P.S.
§788.3(a).
Purchaser contends the bulk sales provision does not apply because it
did not purchase more than 51% of Predecessor’s assets. It asserts the Department
erred in construing “assets” to mean only business assets. Id. Rather, because
Predecessor operated as a sole proprietor, all her assets should be considered in
considering whether the transaction reached the 51% threshold for UC tax liability.
Discerning no error below, we affirm.
I. Background
Predecessor operated Romper Room, a child care center, as a sole
proprietorship for 12 years. Predecessor owed the Department substantial unpaid
UC contributions, interest and penalties. She admitted liability and entered
payment plans with the Department in 2008, and again in 2012. Pursuant to these
payment plans, she made monthly payments in the minimal amount of $50.
Predecessor was on the verge of losing her license to operate, and sought another
entity to operate the location as a child care facility.
Incorporated in 2001, Purchaser operated a child care center, Young
Environment Learning Center, in Erie, Pennsylvania. Purchaser decided to purchase
assets from Predecessor in order to open a satellite location of Young Environmental
Learning Center at the prior location of Romper Room. Purchaser and Predecessor
executed an asset purchase agreement (Agreement). Reproduced Record (R.R.) at
132a-68a.
Through the Agreement, Purchaser paid a total of $37,000 for
Predecessor’s tangible and intangible assets. This total was comprised of $10,000
2
for the use of the name “Romper Room,” $10,790 for a covenant not to compete,
and $17,210 for tangible assets listed on Exhibit A to the Agreement (Inventory
List). See R.R. at 148a-50a. The original total asset price was $39,000. However,
the parties executed an addendum to the Agreement reflecting a $2,000 reduction
in consideration for the value of tangible assets removed from the Inventory List,
from $19,210 to $17,210.
Importantly, Section 2.10(c) of the Agreement provides: “The Assets,
including without limitation, those items listed on attached Exhibit A, constitute all
of the property presently owned by [Predecessor] which is used in the Business.”
R.R. at 139a (emphasis added). The final bill of sale stated: “all and singular the
personal property set forth in [Inventory List], including but not limited to the
Equipment, Furniture, Inventory, Fixtures, Customer Records, and intangible
Assets of the business operated as [Romper Room] are sold to [Purchaser].” R.R.
at 151a. The Inventory List did not include any of Predecessor’s personal assets
other than those used in the operation of Romper Room. At the time of the
transaction, Predecessor did not possess any accounts receivable or own any real
estate used in the business.
Predecessor did not notify the Department of the sale of Romper
Room prior to executing the Agreement. Four days after executing the Agreement,
at a hearing before a magisterial district judge (MDJ) for the collection of past due
UC contributions, Predecessor notified the Department of the sale. Tax Agent
Kathy Boozel, (Tax Agent), then investigated the circumstances of the sale.
3
Based on Tax Agent’s investigation, the Department issued Purchaser
a Notice of Assessment (Notice) in the amount of $43,370.49 for UC contributions,
interest and penalties owed by Predecessor. R.R. at 1a. The Notice stated
Purchaser was liable because it purchased 51% or more of Predecessor’s assets.
In response, Purchaser filed a petition for reassessment. Purchaser
asserted Predecessor was not an “employer” under the Law because she had no
employees at the time of the sale. Purchaser also contended the total value of the
assets purchased amounted to less than 51% of Predecessor’s total assets.
A hearing examiner held a hearing on the petition. The Department
presented the testimony of Tax Agent and Julianne Gresh (Gresh),2 the former sole
proprietor of Romper Room. Purchaser presented the testimony of Anne Marie
Gadley (Gadley), its president and owner, and the testimony of Laura Hellman
(Hellman), an employee of Small Business Alternatives (SBA), Purchaser’s
accountant.
Tax Agent testified as to her communications with Gresh at the
hearing post-sale, and as to her investigation. She confirmed the Department did
not receive notice of the sale of Romper Room until the date of the hearing before
the MDJ regarding Predecessor’s UC tax liability. Tax Agent requested a copy of
the Agreement from Gresh, which Gresh supplied.
2
We use “Gresh” to refer to Julianne Gresh, the former sole proprietor of Romper Room,
as to events that transpired post-Agreement. We use “Predecessor” to refer to the former business.
4
Based on the values reflected in the Agreement, Tax Agent concluded
Purchaser purchased over 51% of Gresh’s assets. She noted the value of the
Inventory List equaled $19,210. Because Purchaser purchased $17,210 of the
listed assets, Tax Agent concluded Purchaser purchased 90% of the total assets.
She acknowledged her sole basis for determining the bulk sales provision applied
was the Agreement. She did not attempt to determine the value of any personal
assets not listed, nor did she attempt to obtain an independent appraisal of the value
of the listed assets.
Subsequently, Tax Agent contacted SBA, which processes
Purchaser’s payroll. She instructed Hellman of SBA to file a PA-100 Enterprise
Registration for Purchaser (PA-100 form).3 Tax Agent directed Hellman to reflect
that Purchaser purchased more than 51% of the assets of Romper Room.
Hellman testified she completed the PA-100 form at Tax Agent’s
direction believing it would resolve UC claims of former Romper Room
employees against Purchaser. She did not review the PA-100 form with Gadley or
any other representative of Purchaser prior to submitting it. She also did not
research the percentage of assets Purchaser acquired or review the Agreement.
Gadley testified she was not involved in preparing the PA-100 form,
which is inaccurate. Gadley did not become aware that SBA filed the PA-100 form
3
All employers operating within Pennsylvania must register with the Commonwealth for
tax purposes by submitting a PA-100 within 10 days of paying an employee for the first time. 61
Pa. Code §113.3b. Purchaser was already registered as an employer with the Department.
5
until after she received the Notice. Gadley confirmed Purchaser did not obtain a
clearance certificate from Predecessor showing the payment of all UC liability.
When Gadley learned SBA submitted the PA-100 form without her
authorization, Purchaser submitted a letter to the Department that revoked,
rescinded and withdrew the PA-100 form. R.R. at 131a. Therein, Purchaser
advised the Department the PA-100 form contained substantial errors, and SBA
prepared and submitted the form without Gadley’s knowledge or authorization.
Relevant here, Purchaser did not present any evidence to support its
assertion that Predecessor owned personal assets not set forth in the Agreement to
refute the percentage of purchased assets. Gresh did not testify as to the value of
any personal assets beyond those included in the Inventory List. She testified:
“No. I have no personal property.” Dep’t Hr’g, 8/22/14, Notes of Testimony
(N.T.), at 58; R.R. at 62a. Gresh confirmed the Inventory List represented a
complete list of Predecessor’s business assets. Gresh also confirmed she
terminated seven Romper Room employees prior to its last day of operations.
Based on the evidence presented at the hearing, the Department issued
its decision and order denying the petition for reassessment. Significantly, the
Department found Purchaser met and exceeded the threshold for bulk sales so as to
shoulder UC tax liability. The Department found the Inventory List set forth all
the assets Predecessor used in the business. Dep’t Op., 1/21/15, Finding of Fact
(F.F.) No. 8. The Department emphasized Gadley did not know whether Purchaser
6
purchased 51% or more of Predecessor’s assets. Gadley testified she “hoped” she
had not purchased more than 51%. Dep’t Op. at 8; N.T. at 88.
The Department did not credit Gadley’s testimony that Purchaser did
not purchase 51% or more of Predecessor’s assets. Also, the Department gave
greater weight to the testimony of Tax Agent than to the testimony of Gresh. It
characterized Gresh’s testimony as “vague.” Dep’t Op. at 7.
The Department construed Section 308.3(a) of the Law as limited to
the sale of an employer’s business assets, regardless of employer’s status as a sole
proprietor. It reasoned that personal assets of a sole proprietor are not included
when calculating whether a sale transferred 51% or more of an employer’s assets.
Purchaser then filed a petition to review to this Court.
II. Discussion
On appeal,4 Purchaser asserts the bulk sales provision in Section 308.3
of the Law is not triggered for two reasons: (1) substantial evidence does not
establish Purchaser acquired more than 51% of Predecessor’s assets; and, (2) when
the sale involves a sole proprietorship, the term “assets” includes personal assets.
4
Our review is limited to determining whether necessary findings were supported by
substantial evidence, whether the Department committed an error of law, or whether the
petitioner’s constitutional rights were violated. Victor v. Dep’t of Labor & Indus., 647 A.2d 289
(Pa. Cmwlth. 1994).
7
Section 308.3(a) of the Law (relating to transfer of assets; liability of
purchaser) provides (with emphasis added):
(a) Every employer subject to the provisions of this act,
who shall sell in bulk fifty-one percentum or more of his
assets, including but not limited to, any stock of goods,
wares or merchandise of any kind, fixtures, machinery,
equipment, building or real estate, shall give the
department ten (10) days’ notice of the sale prior to
completion of the transfer of the property. It shall be the
duty of such employer to file all contribution reports with
the department to the date of such proposed transfer of
property and pay all contributions, interest, penalties due
and payable thereon. The employer shall present to the
purchaser of such property, a certificate which shall be
furnished forthwith by the department showing that all
reports have been filed and contributions, interest and
penalties paid to the date of the proposed transfer. The
failure of the purchaser to require such certificate shall
render such purchaser liable to the department for the
unpaid contributions, interest and penalties owing by the
employer.
43 P.S. §788.3(a). The purpose of the bulk sale provision is to prevent an
employer owing taxes “from denuding itself of its assets without first making
payment of such taxes or without such taxes being made by the purchaser of its
assets.” Reese’s Pizzas & More v. Dep’t of Labor & Indus., Office of
Unemployment Comp. Tax Servs., 93 A.3d 914, 917 (Pa. Cmwlth. 2014)
(emphasis in original) (quoting Com., Dep’t of Justice v. Socony-Vacuum Oil Co.,
32 A.2d 631, 633 (Pa. 1943)).
Pursuant to Section 308.3(a), a purchaser of 51% or more of any
employer’s bulk assets must obtain a clearance certificate from the seller indicating
8
all UC contributions, interest and penalties were paid. Id. Where the purchaser
fails to obtain a certificate, the purchaser is liable to the Department for the seller’s
unpaid contributions, interest and penalties. 43 P.S. §788.3(a).
There is no dispute that Purchaser did not obtain a clearance
certificate reflecting Predecessor’s payment of UC liability. There is also no
dispute that Predecessor owed the Department for outstanding UC contributions,
interest and penalties in the amount of $43,370.49 at the time of the sale.
A. Substantial Evidence
Purchaser argues substantial evidence does not support the
Department’s finding that it purchased more than 51% of the assets as is required
to trigger the bulk sales provision. It asserts the only evidence establishing the
51% threshold is the PA-100 form. Purchaser claims the PA-100 form does not
constitute substantial evidence because it is inaccurate, and SBA filed it without
Purchaser’s authorization.
The Department counters that the finding regarding the apportionment
of assets is based on the Agreement and the Inventory List. Additionally, the
Department emphasizes Purchaser did not submit any evidence to rebut the
Department’s conclusion or calculation as to the 51% threshold.
Importantly, the Department found, “[t]he [Agreement] … resulted in
the sale and transfer of approximately 90% of [Gresh’s] physical business assets.”
F.F. No. 16. From our review of the record, we acknowledge that the PA-100 form
9
contains inaccuracies. Regardless, the Department’s finding is supported by the
Agreement.
The Agreement establishes that the Inventory List sets forth all
business assets of Predecessor. See Section 2.10(c) of Agreement; R.R. at 139a;
see also Bill of Sale, R.R. at 151a. Gresh confirmed the Inventory List was a
complete list of assets used in the operation of her business. R.R. at 58a. Also,
Predecessor had no accounts receivable at the time of the transaction, and it owned
no real estate. Id.
The Inventory List reflects a total value of assets equaling $19,210.
Id. at 148a-50a. Purchaser did not dispute the accuracy of that valuation during the
hearing.5 The parties reduced the purchase price by $2,000 to account for the
reduced value of the assets when Purchaser removed certain assets from the
complete Inventory List. Id. at 97a. Purchaser acquired all the assets included in
the Inventory List, other than those removed, for $17,210. Id. at 58a; 92a. The
amount constitutes approximately 90% of the value of the complete list of assets
($19,210 x .9 = $17,289).
The Agreement, supplemented by corroborating testimony, constitutes
substantial evidence to support the Department’s finding that the sale qualified as a
bulk sale of more than 51% of Predecessor’s assets.
5
Gadley testified that in addition to the items on the Inventory List, Predecessor owned a
shed related to the business. R.R. at 92a-93a. However, Purchaser offered no evidence
regarding the value of the shed or its contents.
10
To the extent Purchaser asserts the calculation is flawed because it
does not account for Gresh’s personal assets, this Court remains unpersuaded.
To that end, Purchaser bore the burden of refuting the Department’s
calculation. COAX, LLC v. Dep’t of Labor & Indus. (Pa. Cmwlth., No. 1600 C.D.
2010, filed January 7, 2011) (unreported). To alter the Department’s conclusion
that Purchaser acquired 51% or more of Predecessor’s assets, Purchaser had to
prove Gresh owned personal assets valued at approximately $35,125 ($35,125 x
.49 = $17,211.250). However, Purchaser presented no evidence as to the value of
Gresh’s personal assets. In addition, Gresh testified she had no other personal
assets. R.R. at 62a. Consequently, the record lacks any evidence that Gresh
owned sufficient personal assets to alter the percentage calculation.
Notably, Gresh was available at the hearing to offer testimony.
Nevertheless, Purchaser did not pursue the asset line of questioning. Therefore, to
the extent the record does not contain sufficient evidence as to the value of all of
Predecessor’s assets at the time of the transaction, the fault lies with Purchaser.
Based on the foregoing, the record contains substantial evidence to
support the Department’s finding that Purchaser purchased 51% or more of
Predecessor’s assets.
B. Meaning of “Assets”
Purchaser also argues the Department erred in construing the term
“assets” in the bulk sales provision to include only business assets when
11
determining whether a sale met the 51% threshold. Purchaser asserts the provision
does not differentiate between business and personal assets of an employer and
there is no legal distinction when the employer is a sole proprietor.
The Department responds that its interpretation of the bulk sales
provision as limited to business assets is consistent with statutory construction
principles. It argues the type of assets listed in the provision as examples indicates
a legislative intent to include only business assets. The Department also contends
Purchaser’s proffered interpretation leads to an absurd result, placing additional
burdens on purchasers and the Department.
At the outset, we emphasize “the interpretation given to a statute by
the agency charged with its application is entitled to great weight and should be
disregarded or overturned only if such construction is clearly erroneous.” The
Glidden Co., Inc. v. Dep’t of Labor & Indus., 700 A.2d 555, 556-57 (Pa. Cmwlth.
1997). Accordingly, the Department’s construction of the bulk sales provision is
entitled to deference. Id.
In construing a statute, we consider the provision as a whole and in
context. 1 Pa. C.S. §1903. Moreover, statutes imposing tax liability are to be
strictly construed. 1 Pa. C.S. §1928(b)(3). Also, “any doubt or uncertainty as to
the imposition of the tax must be resolved in favor of the taxpayer.” Pa. Power &
Light Co. v. Bd. of Fin. & Revenue, 717 A.2d 504, 507 (Pa. 1998). However,
“[s]trict construction does not require ... that a statute be construed as narrowly as
possible, or that it be construed so literally and without common sense that its
12
obvious intent is frustrated.” Reaman v. Allentown Power Ctr., L.P., 74 A.3d 371,
374 (Pa. Cmwlth. 2013), app. denied sub nom., Whitehall Twp. Treasurer v.
Allentown Power Ctr., L.P., 85 A.3d 485 (Pa. 2014) (quoting Peters v. Dep’t of
Forests & Waters, 350 A.2d 812, 814-15 (Pa. 1976)).
With these principles in mind, we analyze the bulk sales provision.
Fundamentally, Section 308.3 applies to an employer’s sale of 51% or more of its
assets.
In pertinent part, the Law defines “employer” as: “the Commonwealth
of Pennsylvania, its political subdivisions, and their instrumentalities and every
individual, copartnership, association, corporation (domestic or foreign) ... who or
which employed or employs any employe in employment subject to this act for
some portion of a day during the calendar year ....” Section 4(j)(l) of the Law, 43
P.S. §753(j)(1). Thus, the definition of “employer” includes a sole proprietor like
Predecessor.
The word “assets” is not defined in the Law or in the Statutory
Construction Act, 1 Pa. C.S. §1991. Thus, we consider the term in context to
discern its meaning.
The term “assets” precedes a list of examples, followed by the phrase
“including but not limited to.” 43 P.S. §788.3(a). The provision then lists “any
stock of goods, wares or merchandise of any kind, fixtures, machinery, equipment,
building or real estate” as examples. Id.
13
In construing such a list narrowly, this Court holds that “under the
principle of ejusdem generis[6] ‘it is widely accepted that general expressions such
as ‘including, but not limited to’ that precede a specific list of included items …
apply only to persons or things of the same general kind or class as those
specifically mentioned in the list of examples.’” Commonwealth v. Philip Morris,
Inc., 4 A.3d 749, 756 (Pa. Cmwlth. 2010) (quoting McClellan v. Health Maint.
Org. of Pa., 686 A.2d 801, 805 (Pa. 1996) (op. in support of affirmance)).
Generally, courts interpret an undefined term as similar to the types of examples
listed in the same provision. See Tech One Assocs. v. Bd. of Property Assessment,
Appeals & Review of Allegheny Cnty., 53 A.3d 685, 697 (Pa. 2012) (when a
general word follows a list of specific items, the general word must be construed as
similar to the specific examples).
Following these principles of construction, the examples in Section
308.3(a) (such as stock and equipment), indicate that the term “assets” refers to
business assets. This conclusion is buttressed by the context of the statute as a
whole, which pertains to employers operating businesses and paying employees as
part of their business operations.
The factual circumstances surrounding the sale also indicate the term
“assets” means “business assets.” Here, the context is the sale of a business,7 in the
6
The statutory construction principle of ejusdem generis is codified by Section 1903(b)
of the Statutory Construction Act, 1 Pa. C.S. §1903(b).
7
In the context of an equitable distribution of marital assets, when valuing assets of sole
proprietorship, courts considered only the business assets. See, e.g., Fexa v. Fexa, 578 A.2d
(Footnote continued on next page…)
14
child care industry, to another business engaged in the same industry that intends
to operate a child care facility at the location of the former business. The
Agreement reflects the intention of the parties that Purchaser would operate the
child care facility as a satellite location.
Interpreting “assets” as limited to business assets is also consistent
with the interpretation of identical terms used in Section 1403 of the Fiscal Code,8
regarding liability for bulk sales or transfers of 51% or more. Pizzutti, Inc. v. Com.,
976 A.2d 641 (Pa. Cmwlth. 2009), aff’d, 6 A.3d 1289 (Pa. 2010) (construing
purchaser of bulk assets); see also Section 240 of the Tax Reform Code of 19719
(relating to bulk and auction sales). This Court previously relied on the
interpretation of bulk sales provisions in the Fiscal Code when applying the bulk
sales provision in the Law. See, e.g., Reese’s Pizzas (relying on Dep’t of Revenue
v. Qwest Transmission, Inc., 765 A.2d 818 (Pa. Cmwlth. 2000); Dep’t of Revenue,
Bureau of Corp. Taxes v. Marros, 431 A.2d 392 (Pa. Cmwlth. 1981)).
Purchaser maintains that the absence of any distinction between
business and personal assets in the statute itself evinces an intent to apply to all of
an employer’s assets, regardless of the source. We disagree.
(continued…)
1314 (Pa. Super. 1990) (in determining value of business for distribution, court considered only
the value of the business assets).
8
Act of April 9, 1929, P.L. 343, as amended, 72 P.S. §1403.
9
Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §7240.
15
Significantly, Purchaser does not cite any legal support for its
construction of assets to include personal assets of sole proprietors. Instead, it
argues its interpretation is based on the plain meaning of the provision.
To the contrary, the provision does not treat sole proprietors
differently than other employers. The provision contains no exemption of liability
for a purchaser when an employer operates as a sole proprietorship. Nor does it
contain an exemption from liability when the former employer entered a repayment
plan with the Department.
Moreover, Purchaser’s interpretation does not consider the purpose of
the bulk sales provision. That purpose is to ensure an employer does not divest
itself of assets without satisfying outstanding liabilities, either itself or by the
purchaser. Reese’s Pizzas. This Court agrees with the Department that Gresh’s
repayment agreement in the minimal amount of $50 per month does not satisfy the
UC liability.
To the extent Purchaser raises the repayment plan as grounds for
holding Predecessor solely liable for the assessment, we reject this argument.
Although Gresh makes monthly payments to the Department, this Court recently
held that an agreement as to liability will not absolve a purchaser of UC liability
under the bulk sales provision. Reese’s Pizzas.
In Reese’s Pizzas, the purchaser asserted the bulk sales provision did
not apply based on the circumstances of the transaction. There, the purchaser
16
bought the predecessor’s assets at a “fire sale” under a tight timeframe. Id. at 917.
It argued the sale occurred quickly so predecessor had sufficient funds to pay off
its UC liability. Applying the bulk sale provision, this Court reasoned the terms
imposing liability were clear. Id. We held statutory liability could not be modified
by the terms of an agreement between the parties. Id.
Here, as in Reese’s Pizzas, Purchaser is not challenging the amount of
tax liability. Rather, Purchaser asserts it is not liable for any unpaid taxes under
these circumstances, involving a sale by a sole proprietor obligated by a repayment
agreement. Purchaser thus disregards that circumstances of a transaction do not
absolve a purchaser from compliance with the bulk sale provision. Id.
This Court repeatedly holds “a purchaser’s failure to comply with the
certificate requirement deprived [it] of an opportunity to later challenge” the
assessment. Reese’s Pizza, 93 A.3d at 918; accord Qwest Transmission; Marros.
Purchasers, “like all other Pennsylvanians, are presumed to know the law.” Marros,
431 A.2d at 394.
In sum, the Department’s construction of assets as business assets is
reasonable and consistent with the context and purpose of a bulk sales provision.
Purchaser’s failure to obtain a clearance certificate rendered it liable for
Predecessor’s unpaid UC contributions, interest and penalties, regardless of
17
Predecessor’s repayment agreement.10 Reese’s Pizzas. Therefore, this Court
upholds the Department’s interpretation of the bulk sales provision.
III. Conclusion
While the result here may seem unfair from Purchaser’s point of view,
the result is required by the Law, and the practical reasons for shifting the risk of
collection to a bulk purchaser are illustrated by these facts. Purchaser was in a
superior position to protect itself.11 For the foregoing reasons, we affirm the
Department.
ROBERT SIMPSON, Judge
10
An agreement may not alter existing statutes to which contracting parties remain
bound. Generette v. Donegal Mut. Ins. Co., 957 A.2d 1180 (Pa. 2008).
11
Because the Law is clear that UC liability follows an employer’s assets, Purchaser’s
remedy is a breach of contract action against Predecessor for misrepresenting liabilities of the
business.
18
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
A. Gadley Enterprises, Inc. d/b/a :
Young Environment Learning Center, :
Petitioner :
:
v. : No. 196 C.D. 2015
:
Department of Labor and Industry, :
Office of Unemployment Compensation :
Tax Services, :
Respondent :
ORDER
AND NOW, this 5th day of January, 2016, the order of the
Department of Labor and Industry, Office of Unemployment Compensation Tax
Services is AFFIRMED.
ROBERT SIMPSON, Judge