The opinion
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Quality Driven Copack, Inc., :
Petitioner :
: Nos. 862 and 879 F.R. 2013
v. :
: Submitted: October 12, 2022
Commonwealth of Pennsylvania, :
Respondent :
BEFORE: HONORABLE RENÉE COHN JUBELIRER, President Judge
HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE ANNE E. COVEY, Judge
HONORABLE CHRISTINE FIZZANO CANNON, Judge
HONORABLE ELLEN CEISLER, Judge
HONORABLE LORI A. DUMAS, Judge
HONORABLE STACY WALLACE, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION
BY JUDGE McCULLOUGH FILED: November 29, 2022
Before the Court are the exceptions (Exceptions) filed by Petitioner
Quality Driven Copack, Inc. (Taxpayer) and Respondent Commonwealth of
Pennsylvania (Commonwealth) to this Court’s December 29, 2021 Memorandum
Opinion and Order, which affirmed in part and reversed in part the September 24, 2013
orders of the Board of Finance and Revenue (BFR). See Quality Driven Copack Inc.
v. Commonwealth of Pennsylvania (Pa. Cmwlth. Nos. 862 and 879 F.R. 2013, filed
December 29, 2021), slip op. at 23 (QDC I), 271 A.3d 549 (Pa. Cmwlth. 2021) (Table).
The BFR’s orders (1) denied Taxpayer’s appeals from the determinations of the
Pennsylvania Department of Revenue’s Board of Appeals (Appeals Board) regarding
Taxpayer’s sales and use tax assessment, and (2) denied Taxpayer’s request for a refund
of alleged sales and use tax overpayments.1
After review, we overrule the Exceptions in their entirety.
I. FACTS AND PROCEDURAL HISTORY
In QDC I, we summarized as follows the pertinent facts and procedural
history of this case:
Taxpayer is a Pennsylvania corporation engaged in the business
of assembling, and then selling at the wholesale level, pre-
cooked frozen ingredients into frozen sandwiches, entrees, and
bowl/bag type meals.
....
Taxpayer was the subject of a Pennsylvania sales and use tax
audit for the period January 1, 2007 to June 30, 2010. Pursuant
to that audit, Taxpayer was issued the following assessment:
Pennsylvania Use Tax $1,219,541.68, Allegheny County Use
Tax $2,560.91, Philadelphia County Use Tax $156,090.50,
Penalty $413,457.72, and Interest $175,212.04, for a total
assessment of $1,966,862.85. The Appeals Board sustained the
1
The BFR issued two separate decisions, both of which Taxpayer appealed. Taxpayer’s
petition for review of the BFR’s decision denying a refund is docketed at 862 F.R. 2013. Taxpayer’s
petition for review of the BFR’s sales and use tax assessment is docketed at 879 F.R. 2013. We
ordered consolidation of both appeals on November 4, 2020, and the parties stipulated as follows with
regard to the issues and tax assessments involved in both cases:
In No. 879 F.R. 2013, the Taxpayer appealed the audit assessment. In No.
862 F.R., the Taxpayer appealed the refund for which the Taxpayer has
requested a refund on the exact same transactions that were assessed.
Because the Taxpayer has not established that tax was paid on those
transactions, the [p]arties stipulate and agree that to the extent this Court
determines the Taxpayer is entitled to a relief, these matters will be
remanded to the [BFR] for confirmation of proof of payment in the refund
appeal and for a calculation of the amount of the refund owed to the
Taxpayer and tax reduction in the assessment.
(Stipulation of Fact, 10/29/20, ¶ 19). Our order in QDC I remanding the matter to the BFR is
consistent with and was predicated on this stipulation.
2
tax portion of the assessment, with interest, in its entirety. All
assessed penalties were abated . . . .
To create its product, Taxpayer purchases the food components
and packaging materials, blends the components into meals,
packages them into various types of containers, and then freezes
them to complete the process . . . .
Taxpayer claims that it is engaged in manufacturing and
processing for sales and use tax purposes in Pennsylvania as
defined in 72 P.S. [§] 7201(c) and (d)[2] and 61 Pa. Code § 32.1.[]
Therefore, Taxpayer contends that it should not have been
assessed use tax on machinery and equipment, and repair parts
and services to such machinery and equipment, which is directly
used in manufacturing/processing operations pursuant to 61 Pa.
Code §32.32(a)(1).[ ] In addition to its manufacturing arguments,
Taxpayer further claims that the auditor erroneously assessed use
tax on a variety of expense transactions, including certain
services that it claims were erroneously characterized as help
supply[3] services. . . .
QDC I, slip op at 2-5 (quoting BFR Dec. and Order, BFR Docket No. 1201689,
9/24/13, at 2) (footnotes omitted). We further explained:
Taxpayer appealed the above-referenced Appeals Board
decision, along with the Appeals Board decision denying
Taxpayer’s request for relief for taxes that were allegedly
overpaid, to the BFR, asserting it was entitled to relief under the
manufacturing exemption of the Tax Code. Taxpayer also
asserted that the Commonwealth was in violation of various
clauses of the Pennsylvania and United States Constitutions, as
well as the Pennsylvania [Local] Taxpayers[ ] Bill of Rights
2
Subsections 201(c) and (d) of the Tax Reform Code of 1971 (Tax Code), Act of March 4,
1971, P.L. 6, as amended, 72 P.S. §§ 7201(c) and (d).
3
Pursuant to Section 202 of the Tax Code, 72 P.S. § 7202, and 61 Pa. Code § 60.4(b), the use
of help supply services is subject to sales and use taxation. “Help supply” is defined in 72 P.S. §
7201(cc) and 61 Pa. Code § 60.4(a)(ii).
3
[Act],[4] and thus, Taxpayer was entitled to attorney’s fees. In its
[d]ecisions, the BFR noted that Taxpayer stated it would provide
the BFR with “descriptions of use, invoices, and proof of
payment prior to hearing” and that Taxpayer’s appeal petition
(relative to BFR Docket No. 1201689) “was not filed with an
appeal schedule of contested transactions and supporting
information”; however, no such information was ever provided.
After review of Taxpayer’s appeals, the BFR concluded that
Taxpayer was not entitled to relief under the arguments it made
in its petitions. In addition, to the extent Taxpayer did not
provide the Appeals Board or the BFR with any supporting
information/documentation, the BFR determined it did not have
anything to review to determine if Taxpayer had “erroneously
paid tax” or “was erroneously assessed.” Further, the BFR
determined it did not have the authority to “pass upon the validity
or constitutionality of the law” or the authority to award
attorney’s fees. Thus, the BFR denied Taxpayer’s appeal
petitions. Taxpayer subsequently filed Petitions for Review [ ]
with this Court.
Id. at 5-6 (citations and footnotes omitted).
II. QDC I
In its petition for review,5 Taxpayer argued, as it did before both the
Appeals Board and BFR, that it qualifies for the sales and use tax
“manufacturing/processing” exemption because it is engaged in “manufacturing” as
that term is defined in the above-referenced provisions of the Tax Code and
Department of Revenue regulations. It also again argued that its contract labor does
4
53 Pa. C.S. §§ 8421-8438.
5
“This Court reviews de novo the determinations of the [BFR],” and “[a]lthough cases from
the [BFR] are addressed to our appellate jurisdiction, we function as a trial court.” Allegheny County
Department of Public Works v. Commonwealth, 222 A.3d 450, 452 n. 3 (Pa. Cmwlth. 2019) (citations
omitted).
4
not qualify as “help supply” and is, therefore, exempt from sales and use tax. The
Commonwealth disagreed on both points, arguing that Taxpayer does not engage in
manufacturing because its food packaging process does not bring about a change in the
form, composition, or character of the ingredients used in the process. The
Commonwealth also argued that Taxpayer’s contract labor is “help supply” subject to
sales and use tax because Taxpayer retains control over its production process and
requires the vendor’s workers to comply with its policies and procedures. The
Commonwealth further contended that, even assuming Taxpayer was successful on
appeal, it was not entitled to a refund because it did not, in fact, pay the taxes assessed.
In QDC I, we first concluded that Taxpayer’s preparation of ready-to-eat
meals was not “manufacturing” for sales and use tax purposes because “[a]lthough it
is true that Taxpayer takes individual food products and transforms them into
prepackaged, ready-to-use, full meals, this process does not result in the kind of
substantive change necessary to qualify for the tax exemption it seeks.” QDC I, slip
op. at 19. We likened Taxpayer’s process to preparing and packaging tea mixes in
teabags, making popcorn, and mixing and dressing salads, none of which constitutes
“manufacturing” under Pennsylvania law. Id. (citing Commonwealth v. Tetley Tea Co.,
220 A.2d 832 (Pa. 1966) (teabags), Commonwealth v. Berlo Vending Co., 202 A.2d 94
(Pa. 1964) (popcorn), and Van Bennett Food Co., Inc. v. City of Reading, 486 A.2d
1025 (Pa. Cmwlth. 1985) (salads)).
We also concluded, however, that Taxpayer’s contract labor does not
constitute “help supply” and therefore is exempt from sales and use tax. Although
Taxpayer retains ultimate authority over its production process, we nevertheless found
that “its contractors worked independently on the plant floor with very little hands-on
oversight by Taxpayer.” Id. at 20, 22-23. We therefore concluded that Taxpayer did
not provide “the requisite level of direction for the third-party labor services to be
considered help supply” and reversed the portion of the BFR’s decision concluding to
5
the contrary. Id. at 22.6 We remanded the case to the BFR to re-calculate Taxpayer’s
sales and use tax assessment and issue a refund, if appropriate. Id. at 23, Order.
III. EXCEPTIONS
Pennsylvania Rule of Appellate Procedure (Pa. R.A.P.) 1571(i), which
governs our review of BFR determinations, provides, in pertinent part, as follows:
(i) Exceptions. Any party may file exceptions to an initial
determination by the court under this rule within 30 days after
the entry of the order to which exception is taken. Such timely
exceptions shall have the effect . . . of an order expressly granting
reconsideration of the determination previously entered by the
court. . . .
Pa. R.A.P. 1571(i). The mere restatement of arguments already asserted in an initial
appeal will not, without more, justify granting exceptions. Greenwood Gaming &
Entertainment, Inc. v. Commonwealth, 218 A.3d 982, 988 (Pa. Cmwlth. 2019);
Consolidated Rail Corporation v. Commonwealth, 679 A.2d 303, 304 (Pa. Cmwlth.
1996), aff’d, 691 A.2d 456 (Pa. 1997); Kalodner v. Commonwealth, 636 A.2d 1230,
1231-32 (Pa. Cmwlth. 1994), aff’d, 675 A.2d 710 (Pa. 1995).
A. Taxpayer Exceptions
In its exceptions, Taxpayer takes issue with our determination that it is not
engaged in “manufacturing” and therefore is not entitled to the benefit of the associated
exemption from sales and use tax. Taxpayer’s arguments and briefing in support of its
exceptions are virtually identical to those it offered to the Court in QDC I. We
understood and thoroughly dealt with those arguments there. Because Taxpayer has
not established any change in circumstances or other basis for reconsideration on this
6
Taxpayer asserted constitutional challenges to the BFR’s determinations and also requested
attorneys’ fees. It did not brief those issues, however, and we accordingly did not address them. QDC
I, slip op. at 13 n. 9.
6
issue, we remain soundly convinced that our determination was correct. Taxpayer’s
exceptions accordingly are overruled.
B. Commonwealth Exceptions
All of the Commonwealth’s five exceptions take issue with our
determination that Taxpayer’s contract labor does not constitute “help supply” and
therefore is not subject to sales and use tax. The Commonwealth argues that we erred
in (1) concluding that “hands-on” supervision by Taxpayer is required, (2) concluding
that Taxpayer’s affidavits were “largely unrebutted,” and (3) shifting the burden to the
Commonwealth to prove that Taxpayer’s contract labor is taxable. Essentially, the
Commonwealth argues that, because Taxpayer retained quality control authority and
imposed its own policies and procedures on its vendor’s workforce through the
vendor’s supervisors, Taxpayer sufficiently “supervises” the vendor’s employees to
bring them within the definition of “help supply.” We again disagree.
Although it is undisputed that Taxpayer retained control over its food-
packaging process and utilized its vendor’s supervisors to implement its policies and
procedures on the production line, it does not necessarily follow, as the Commonwealth
argues, that Taxpayer “supervised” its vendor’s employees. As we previously noted,
see QDC I, slip op. at 22, it is hard to envisage a scenario where a purchaser of contract
labor would not retain ultimate authority over its own production process, if for no
other reason than to ensure regulatory compliance. The pertinent question, however,
is whether Taxpayer supervises its vendor’s employees. As the stipulations of fact
submitted by the parties indicate, Taxpayer retained quality control authority and could
replace any vendor employee that underperformed or did not comply with safety and
sanitary guidelines. (Stipulation of Fact, 10/29/20, ¶¶ 17-18.) Taxpayer’s plant
manager also oversaw all plant activities, including “meeting with staffing contractor’s
personnel, overseeing shipping and purchasing, and meeting with the government
agencies that monitor [Taxpayer’s] production process.” (Id. ¶ 12.) Nevertheless, the
7
staffing contractor and its supervisors train employees, determine working hours,
manage workloads, and inspect production lines. (Id. ¶¶ 14-16.) These latter tasks
clearly were in view in QDC I where we referred to “hands-on” supervision:
The distinction in each case is the actual degree of authority
exercised by the taxpayer. Thus, every scenario requires its own
analysis. This analysis must include a close assessment of the
degree of ground-level direction provided by the contractor
versus the level of direction retained by the subject
taxpayer/manufacturer. Here, Taxpayer’s largely unrebutted
affidavits support the position that its contractors worked
independently on the plant floor with very little hands-on
oversight by Taxpayer. Accordingly, we cannot say that
Taxpayer provided the requisite level of direction for the third-
party labor services to be considered help supply services as
defined, and thus, we cannot say Taxpayer was required to pay
tax on those services.
(Id. at 22.) This is the correct analysis. Thus, and the Commonwealth’s creative
characterizations notwithstanding, in QDC I we did not ignore stipulations of fact, shift
any burdens, or inject additional requirements into the Tax Code. We continue to
conclude that the QDC I correctly determined that Taxpayer’s contract labor was not
“help supply” and, thus, not subject to sales and use taxation.
IV. CONCLUSION
Both Taxpayer’s and the Commonwealth’s exceptions lack merit. We
accordingly will overrule them in their entirety and remand this matter to the BFR for
further proceedings as directed in QDC I.
________________________________
PATRICIA A. McCULLOUGH, Judge
8
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Quality Driven Copack, Inc., :
Petitioner :
: Nos. 862 and 879 F.R. 2013
v. :
:
Commonwealth of Pennsylvania, :
Respondent :
ORDER
AND NOW, this 29th day of November, 2022, the exceptions filed by
Quality Driven Copack, Inc. and the Commonwealth of Pennsylvania are
OVERRULED, and this Court’s December 29, 2021 Memorandum Opinion and
Order are AFFIRMED in all respects. The Prothonotary is directed to enter
judgment accordingly, and this matter is remanded to the Board of Finance and
Revenue to make any necessary determinations in accordance therewith.
Jurisdiction relinquished.
________________________________
PATRICIA A. McCULLOUGH, Judge