Commonwealth v. Wilsbach Distributors, Inc.

FLAHERTY, Justice,

dissenting.

The majority holds that the legislature has adopted a regulatory scheme over the alcoholic beverage industry that pre-empts the field of taxation to the exclusion of most other taxation by local governmental agencies. For the following reasons, I dissent.

The majority’s view rests on this Court’s decision in City of Pittsburgh v. Allegheny Valley Bank, 488 Pa. 544 , 412 A.2d 1366 (1980) (hereinafter “Allegheny Valley Bank ”), which held that the legislature’s comprehensive regulation of the banking industry precluded the imposition by the City of Pittsburgh of a local tax on any function of the national and state banks within the city. The majority *229 believes that the same result is required here due to the legislative regulation of the malt and brewed beverage distribution industry. I disagree.

In Allegheny Valley Bank this Court considered the stated purpose of the regulatory enactments governing the banking industry, as expressed in the legislature’s delegation of power and duties to the Banking Department, to be indicative of the regulatory concern and purpose of the enactment. So viewed, the express legislative regulatory scheme for the banking industry emanates from a primary concern for the financial soundness of banking institutions, in order to afford the greatest possible safety to depositors, creditors and shareholders, and maintain public confidence in the institutions. Department of Banking Code, Act of May 15, 1933, P.L. 565, § 1 et seq., as amended, § 202, 71 P.S. § 733-202. It was thus concluded that local taxation was inconsistent with the stated purpose and invalidly impinged upon the responsibility of the Banking Department. Allegheny Valley Bank, supra 488 Pa. at 553 , 412 A.2d at 1370 .

Thus, the holding of Allegheny Valley Bank is primarily attributable not to the degree of state regulation of the banking industry, as is stated by the majority, but to the nature of the industry regulated, and the goals inherent in the regulation of such an industry. Local taxation necessarily and unavoidably impinges upon and jeopardizes the subject of the regulation in the specific area of concern, the financial soundness of banking institutions, thus giving rise to the holding of this Court that the local taxation of banks created a “direct burden” upon the banking industry in contravention of the manifest legislative intent to maintain the soundness of banks. Id.

When compared to the legislative enactment regulating the malt beverage industry, the difference in focus is apparent. The expressly stated purpose of the Liquor Code, supra, as set forth in Section 104(c) is “to prohibit the manufacture of and transactions in ... malt or brewed beverages ... except by and under the control of the [liquor *230 control] board as herein specifically provided ...,” 1 47 P.S. § l-104(c). Likewise, the general power and duty conferred to the Liquor Control Board, relevant to this case, is to control the manufacture of and commerce in malt and brewed beverages, 47 P.S. § 2-207(b). Thus, it becomes clear that the legislative concern is the exercise of control over commerce in a commodity, without any suggestion of concern for the financial soundness of the entities necessarily regulated.

Additionally, a pervasive concern crucial to the Allegheny Valley Bank decision was the concept of a unified state wide regulation of a financial institution with an eye to the best interests of the public at large and tending to be exclusive of local concerns. That intent is not evident with regard to the regulation of the malt and brewed beverage industry which is indeed pursued with a view to the impact of the industry upon localities. Section 437(f) of the Liquor Code provides that the combined number of distributor’s and importing distributor’s licenses shall not exceed a ratio of one license for each fifteen thousand inhabitants of the county in which the licenses are issued, 47 P.S. § 4 — 437(f). Legislative concern for the regulatory impact upon the locality is evidenced also by the establishment of local option, the means by which a municipality may, by a majority vote of its electors, determine that no licenses for the distribution or retail sale of liquor, alcohol or malt and brewed beverages shall be granted by the Liquor Control Board, 47 P.S. § 4-472.

Thus, I do not perceive any indication in the state’s regulation of malt and brewed beverage distribution comparable to that of the regulation of the banking industry which evidences an intention on the part of the legislature to exclude local taxation as improperly impinging upon the state regulated industry. Because the stated purpose of *231 the regulatory scheme is not jeopardized or burdened by local taxation, local taxation is not inconsistent with the legislature’s objective of maintaining control over the commerce in the regulated commodity. Accordingly, so long as the local tax imposed is valid under the Enabling Act, it should be upheld. Because of its disposition of the case, the majority does not address the question of whether the Enabling Act permits the imposition of a local tax on the liquor industry, but since I would hold that legislature did not intend to preclude local taxation, I proceed to address the question of whether the Enabling Act permits such taxation.

Section 2 of the Enabling Act delegates to municipalities the power to

levy, assess and collect or provide for the levying, assessment and collection of such taxes as they shall determine on persons, transactions, occupations, privileges, subjects and personal property within the limits of such political subdivisions ...

53 P.S. § 6902. Pursuant to this delegation, the City’s Business Privilege and Mercantile tax was enacted which, as applied to Wilsbach taxes at a rate of one and one-half mills per $1000 of gross volume of business conducted within the territorial limits of the City, up to a maximum tax of $3000. The City tax, by its own definition, is a tax upon the “privilege” of doing business within the territorial limits of the City and is measured by the gross receipts of the business.

The concept of a business “privilege” tax was reviewed in F.J. Busse Co. v. Pittsburgh, 443 Pa. 349 , 279 A.2d 14 (1971) and was upheld generally as a proper municipal enactment under the Enabling Act. However, Wilsbach challenges not the general validity of the tax but its application to an importing distributor of malt and brewed beverages, arguing that it constitutes a tax invalidly duplicitous of other state taxes and license fees impacting its business operations. Wilsbach relies upon Section 2(1) of the Enabling Act which establishes an exclusion from the legisla *232 ture’s broad delegation of taxation power and which provides, in pertinent part:

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

(1) To levy, assess and collect or provide for the levying, assessment and collection of any tax ... on a privilege, transaction, subject, occupation or personal property which is now or does hereafter become subject to a State tax or license fee;

53 P.S. § 6902(1) (emphasis supplied).

Wilsbach argues that two state taxes, the Malt Beverage Tax, imposed by the Malt Beverage Tax Law, Act of May 5, 1933, P.L. 284, § 1 et seq., as amended, 47 P.S. § 103 et seq. (hereinafter the “Malt Beverage Tax”) and the general six percent sales tax levied pursuant to the Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6, § 101 et seq., as amended, 72 P.S. § 7101, et seq. (1985 Supp) (hereinafter “Sales Tax”) as well as a state license fee imposed by section 439(c) of the Liquor Code, supra, bar the imposition of the City’s tax. 2

*233 In addressing the question whether a local enactment taxes the same “privilege, transaction, subject, occupation or personal property which is now or does hereafter become subject to a State tax or license fee,” as prohibited by Section 2(1), the “incidence” of the allegedly duplicitous tax is examined. Commonwealth v. National Biscuit Co., 390 Pa. 642 , 136 A.2d 821 (1957). The incidence of a tax embraces 1) the subject matter of the tax, 2) the measure of the base, i.e., the base or yardstick by which the tax is applied, F.J. Busse Company v. Pittsburgh, supra 443 Pa. at 357 , 279 A.2d at 18 ; Commonwealth v. National Biscuit Co., supra 390 Pa. at 652 , 136 A.2d at 826-827 , and occasionally, 3) an identification of the party subject to the tax, Mellon Square Garage, Inc. v. Public Parking Authority of Pittsburgh, 442 Pa. 229, 232 , 275 A.2d 654, 656 (1971).

Under these “incidence” criteria, the “subject” of the City tax, as stated in the ordinance and accepted as a valid exercise of the taxation power in F.J. Busse v. Pittsburgh, supra, is the general “privilege,” under Section 2(1), of doing business in the city. Its “measure” is the gross receipts of the business and the party legally responsible for payment of the tax is the party engaged in business, here, Wilsbach.

The Malt Beverage Tax is thus distinguishable from the City tax on all three bases of incidence: the subject of the Malt Beverage tax, though not clearly identified by the Act, appears to be a “transaction,” under Section 2(1), of a manufacturer’s sale of malt or brewed beverage for use in the Commonwealth, whether the manufacturer is inside or outside the Commonwealth, 47 P.S. § 105(a), the measure of the tax base is a volume of beverage manufactured and sold by the manufacturer, Id., and the party legally responsible for the tax is the manufacturer, 3 47 P.S. § 105(c). Accord *234 ingly, I perceive no duplicity of taxation violative of Section 2(1).

Next, appellant points to the Sales Tax, Tax Reform Code of 1971, supra, which imposes upon “each separate sale at retail” a tax of six percent of the purchase price. 72 P.S. § 7202(a).

The “subject” of a sales tax is a “transaction” under Section 2(1), i.e., a sale at retail, Mellon Square Garage, Inc. v. Public Parking Authority of Pittsburgh, supra 442 Pa. at 232 , 275 A.2d at 656 ; Blauner’s Inc. v. Philadelphia, 330 Pa. 342, 345 , 198 A. 889 , 891 (1938) whereas the subject of the City tax is the “privilege” under Section 2(1) of conducting business in the locality. On this dissimilarity, it is apparent that the City” privilege” tax does not breach Section 2(l)’s prohibition against taxing a “transaction” already subject to a state tax. Moreover, the measure of the tax is dissimilar, for in the case of the Sales tax, it is the purchase price, whereas the City tax is calculated on a “gross receipts” basis. Additionally, the party subject to the Sales Tax is the party making the purchase, with the importing distributor, who acts as a vendor, being responsible as the “collector” and remitter of the tax to the Commonwealth. 72 P.S. § 7202(a). Again, I perceive no violation of Section 2(1).

Finally, the state’s imposition of an annual license fee of $900 upon an importing distributor under Section 439(c) of *235 the Liquor Code, 47 P.S. § 4-439(c) and the related $20 application fee for annual license renewal under Section 439(h) of the Liquor Code, 47 P.S. § 4-439(h), is asserted as barring the imposition of the City tax. Assuming that there may exist duplicity in that the Liquor Code provision imposing a license fee is upon a “privilege” under Section 2(1), see Pennsylvania Liquor Control Board v. Publicker Commercial Alcohol Co., 347 Pa. 555, 560 , 32 A.2d 914, 917 (1943), the question is whether the City tax, which also taxes a “privilege,” is imposed upon a privilege already subject to a state license fee and thus is within the prohibition of Section 2(1).

The state license fee is for the privilege of conducting a specific type of business, distribution of malt and brewed beverages. This is distinguishable from the City tax which is a tax upon the general privilege of conducting business within the City, not on the specific privilege, as is licensed by the state, of selling a regulated commodity.

That two distinct privileges may exist and are separately taxable, one by the state and one by the locality, was established in Federal Drug Co. v. Pittsburgh, 358 Pa. 454 , 57 A.2d 849 (1948) which upheld the imposition of a city privilege tax on entities also subject to a tax on foreign corporations for the separate privilege of conducting business in the Commonwealth “in corporate form”. Id., 358 Pa. at 457 , 57 A.2d at 850 . Here, there are two distinct taxable privileges, one taxed by the state for the privilege of engaging in malt and brewed beverage distribution and one taxed by the City for the privilege of engaging in business within the territorial limits of that city. Thus no duplicity prohibited by Section 2(1) is present.

Accordingly, because the Business Privilege and Mercantile Tax imposed by the City of Harrisburg is consistent with the legislature’s regulation of the malt and brewed beverage distribution industry and because the tax is not duplicative under Section 2(1) of any State tax or license fee upon the same “privilege, transaction, subject, occupation or personal property,” 53 P.S. § 6902(1), I would affirm the *236 decision of the Commonwealth Court upholding the validity of the tax.

HUTCHINSON, J., joins this dissenting opinion.

. The legislative regulation of this industry is expressly a police power enactment, 47 P.S. § l-104(a), which, in view of the historic separation of the police and taxation powers, is a prima facie indication of legislative intent not to intrude upon a locality’s power to impose a tax under the Enabling Act.

. Wilsbach seeks to rely upon United Tavern Owners of Philadelphia v. Philadelphia School District, 441 Pa. 274 , 272 A.2d 868 (1971) in which a sales tax imposed by the Philadelphia School District upon sales of liquor and malt and brewed beverages by retail-type establishments was held invalid under a provision similar to that in issue here, i.e. the Sterling Act, Act of August 5, 1932, P.L. 45, as amended, 53 P.S. §§ 15971-15973. Because the Sterling Act and the instant Enabling Act are virtually identical in wording and intendment, the same case law has been applied to both.

However, because of the division of the Court in United Tavern Owners, the result there reached is of no avail to Wilsbach. In United Tavern Owners, the leading opinion announcing the judgment of the court was written by then Mr. Justice O’Brien with Mr. Chief Justice Bell and Mr. Justice Roberts concurring in the result only. No opinion purporting to speak for more than two justices appears and the two-justice opinion is a dissenting opinion. Thus, the result reached in United Tavern Owners, of striking down the local tax, is binding as precedent only if the case is factually identical to the instant case. It is not.

The local tax imposed in United Tavern was a ten percent tax on the sale of liquor and malt and brewed beverages in hotels, restaurants, taverns and clubs within the City of Philadelphia. The local tax in instant case is a privilege tax upon the gross receipts of all businesses operating within the City of Harrisburg imposed for the privilege of *233 doing business in that City and, accordingly, on that crucial factual distinction alone, the result reached in United Tavern Owners holding invalid the local tax is without value to appellant Wilsbach.

. Wilsbach argues that because sales of beverage to unincorporated organizations of armed forces personnel are exempt from the Malt Beverage Tax and because Wilsbach is thus "reimbursed" by the *234 manufacturer for Malt Beverage Tax paid on beverage subsequently sold by Wilsbach to such associations, the true “incidence” of the tax is upon Wilsbach, the importing distributor, not upon the manufacturer.

However, it is not relevant that the Malt Beverage Tax is, in effect, "included” in the price paid by Wilsbach to a manufacturer upon Wilsbach’s purchase of the beverage. The Malt Beverage Tax Act, as well as regulations promulgated by the Department of Revenue under the Authority of the Section 113 of that Act, expressly provide that such refunds shall be made by the Department of Revenue to the manufacturer upon the manufacturer’s affidavit and proof, 47 P.S. § 112(b) & (c), 61 Pa.Code §§ 74.33, 74.32. In the event of delinquency in payment, the penalty sanction established by the Act is directed against the manufacturer, 47 P.S. § 105(a.l) and on these criteria, the incidence of the tax is clearly upon the manufacturer. Tax Review Bd. v. Esso Std. Division, 424 Pa. 355, 358 , 227 A.2d 657, 658 (1967).