Kuharchik Constr., Inc. v. Commonwealth

265 A.3d 829

KUHARCHIK CONSTRUCTION, INC., Petitioner

v.COMMONWEALTH of Pennsylvania, Respondent

No. 486 F.R. 2015

Commonwealth Court of Pennsylvania.

Submitted on Briefs June 9, 2021

Decided October 14, 2021

Roy S. Cohen, Philadelphia, for Petitioner.

Anthony Bowers, Deputy Attorney General, Harrisburg, for Respondent.

BEFORE: HONORABLE P. KEVIN BROBSON, President Judge, HONORABLE RENÉE COHN JUBELIRER, Judge, HONORABLE PATRICIA A. McCULLOUGH, Judge, HONORABLE ANNE E. COVEY, Judge, HONORABLE MICHAEL H. WOJCIK, Judge, HONORABLE ELLEN CEISLER, Judge, HONORABLE J. ANDREW CROMPTON, Judge

OPINION BY JUDGE COHN JUBELIRER

Before the Court en banc are Exceptions filed by the Commonwealth of Pennsylvania (Commonwealth) to a July 15, 2020 three-judge panel Opinion and Order affirming in part and reversing in part the order of the Board of Finance and Revenue (Board) that granted in part and denied in part Kuharchik Construction, Inc.’s (Petitioner) Petition for Review of the use taxes imposed against it. Kuharchik Constr., Inc. v. Commonwealth , 236 A.3d 122 (Pa. Cmwlth. 2020) ( Kuharchik I ). Specifically, we concluded that Petitioner's purchase and use of items that support a traffic signal–specifically, signal poles, mast arms, and pedestal bases (Traffic Signal Related Purchases)¹ –qualify as "building machinery and equipment" (BME) as defined by Section 201(pp) of the Tax Reform Code of 1971 (Code), 72 P.S. § 7201(pp) ( Section 201(pp) ).² The Commonwealth asserts that this Court erred because: our decision that the Traffic Signal Related Purchases constitute BME resulted from an improper statutory construction analysis that is inconsistent with prior precedent; the holding analyzed BME as an exception to use tax rather than an exclusion and thus improperly modified the Commonwealth's burden; the Court misconstrued and conflated the Commonwealth's arguments and discussions, as well as the relevant statutory language; and the opinion contained factual conclusions inconsistent with or contradictory to the parties’ Joint Stipulations of Fact (Stipulation). After careful review, we overrule the Exceptions.

I. BACKGROUND

The underlying facts, as stipulated by the parties and set forth fully in Kuharchik I , need not be restated here. For the present analysis, it is sufficient to state that Petitioner is a Pennsylvania corporation engaged in the electrical construction contractor business that regularly contracts with the Commonwealth and its subdivisions. (Stipulation (Stip.) ¶¶ 13-14.) Pursuant to construction contracts with the Commonwealth, Petitioner purchased and installed the Traffic Signal Related Purchases in connection with the installation of traffic signals. (Id. ¶ 15.) Petitioner did not pay sales tax or remit use tax in purchasing the Traffic Signal Related Purchases. (Id. ¶¶ 27-29.)

The Department of Revenue (Department) performed a sales and use tax audit of Petitioner's activities covering the period of January 1, 2011, through January 31, 2014. (Id. ¶ 4.) Based on the audit, the Department found that Petitioner had a use tax deficiency. (Id. ¶¶ 5, 19, 19(a), 19(b), Exhibits (Exs.) A, B.) The Department found that the Traffic Signal Related Purchases were taxable because they do not qualify as BME. Petitioner then filed a Petition for Reassessment with the Department's Board of Appeals (BOA), contesting the audit's finding as to the use tax deficiency. (Id. ¶ 6, Ex. C.) While the BOA abated the penalties associated with the use tax deficiency because Petitioner showed good faith and a lack of negligence, it denied any tax relief, finding that the Traffic Signal Related Purchases are not BME but, rather, fell within the "real estate structure" exception to the use tax, as found in Section 201(qq) of the Code. (Id. Ex. D.) However, given that Petitioner is a construction contractor, the BOA found that this exception is not available to Petitioner and concluded that the Traffic Signal Related Purchases are subject to the Commonwealth's use tax. (Id. Ex. D at 2.) Petitioner then filed a Petition for Review with the Board. (Id. ¶ 8, Ex. E.) The Board denied relief, agreeing with the BOA's conclusion that the Traffic Signal Related Purchases are not within the definition of BME. (Id . Ex. F at 7.)

Petitioner then petitioned this Court for review of that order, asserting that the Traffic Signal Related Purchases are exempt as BME because the items are included under the term "traffic signals," as defined in Section 201(pp) or, alternatively, that the items constitute a traffic control system, which also qualifies as BME. In response, the Commonwealth argued that the Traffic Signal Related Purchases do not fit the unambiguous definition of BME, since they do not meet the "two-part test" from Kinsley Construction, Inc. v. Commonwealth , 894 A.2d 832 (Pa. Cmwlth. 2006), but instead are "structural supports" under the "real estate structure" exception.

In Kuharchik I , this Court agreed with Petitioner that the term "traffic signals" in the definition of BME necessarily encompasses the Traffic Signal Related Purchases because those items are required to support a traffic signal head for purposes of controlling traffic. Kuharchik I , 236 A.3d at 132. After engaging in a statutory construction analysis as to the meaning of the term "traffic signals," we determined that the common usage of the term is an object used to transmit information, such as a notice or warning, to control traffic. For supportive inferences to this meaning of the term, we looked to the sample traffic signal plan provided by Petitioner, (Stip. Ex. H at 64), and the Department of Transportation's (DOT) "Traffic Signal Design Handbook" (Handbook), (Stip. Ex. L). Id. at 132-33. We further rejected the Commonwealth's argument that the Traffic Signal Related Purchases cannot be BME because those items are "real estate structure" under Section 201(qq). Id. at 134. Looking to Section 201(qq), which explicitly includes both "structural supports" and "traffic control devices," we reasoned that the inclusion of traffic control related items in both the definition of BME and "real estate structure" indicates that these definitions overlap. Id. Finding no statutory language indicating that an item cannot be BME simply because that item may also fall within the definition of "real estate structure," and recognizing that the Legislature did not include the Traffic Signal Related Purchases in the exclusions from the definition of BME as it did "conduit," "receptacle," and "junction boxes," we concluded that the Traffic Signal Related Purchases were included in the commonly used meaning of "traffic signals." Id. at 134-35. Accordingly, we reversed with regard to the Traffic Signal Related Purchases but affirmed with respect to the remaining contested items.

II. EXCEPTIONS

The Commonwealth filed Exceptions pursuant to Rule 1571(i) of the Pennsylvania Rules of Appellate Procedure, Pa.R.A.P. 1571(i), in which it asserts this Court erred by: (1) concluding that the Traffic Signal Related Purchases constitute BME through an improper statutory interpretation analysis; (2) allegedly treating BME as an exception rather than an exclusion to use tax and thus improperly modifying the holding in Crawford Central School District v. Commonwealth , 585 Pa. 131, 888 A.2d 616 (2005) ; (3) misconstruing the Commonwealth's argument with regard to "support structures" and conflating statutory terms; and (4) making certain factual conclusions that were inconsistent with, unsupported by, or contradictory to the Stipulation.³ We address these Exceptions in turn.

A. Whether this Court erred in determining that the Traffic Signal Related Purchases constitute BME and in our statutory interpretation analysis in so concluding.

1. Parties’ Arguments

The Commonwealth takes exception to this Court's legal determination that the term "traffic signals" in the definition of BME encompasses " ‘poles, mast arms, and pedestal bases,’ ‘conduit receptacle, and junction boxes,’ or other items ‘required to support a traffic signal head for purposes of controlling traffic.’ " (Exceptions ¶ 1 (quoting Kuharchik I , 236 A.3d at 132 ).) First, the Commonwealth takes exception to this Court's statutory construction analysis in Kuharchik I . (Exceptions ¶ 2.) The Commonwealth argues that this Court erred by employing "a three-step process", in which we: (1) "spliced together Merriam-Webster's definitions of the terms ‘traffic signal’ and ‘signal’ "; (2) "syllogized that judicially-spliced definition with [the] separately undefined term ... ‘signal head’ to expand that judicially-spliced definition as encompassing other ‘related items’ which are ‘functionally required’ "; and (3) "re-engrafted" the relevant statutory language onto our "syllogized-spliced definition as a post hoc exception" to arrive at the conclusion that the term "traffic signals" encompasses the Traffic Signal Related Purchases. (Commonwealth's Brief (Br.) at 4.) Additionally, the Commonwealth asserts that it was error to consider DOT's Handbook as an aspect of our statutory construction analysis. (Exceptions ¶ 2(a).)

The Commonwealth also contends that the Court failed to consider the factors and presumptions of the Statutory Construction Act of 1972 (Statutory Construction Act), 1 Pa.C.S. §§ 1501 - 1991. (Exceptions ¶ 2(e).) Further, the Commonwealth asserts that "the BME definition is unambiguous" and that this Court "could have simply denied Petitioner's [P]etition on that basis." (Commonwealth's Br. at 19.) Because we found the term "traffic signals" to be ambiguous, the Commonwealth argues, this Court erred in not considering the requisite factors and presumptions under the Statutory Construction Act. (Id . (citing 1 Pa.C.S. §§ 1921 - 1922 ).) Specifically, the Commonwealth contends that the Court failed to consider legislative intent, in that our "interpretation does not advance th[e] legislative goals of certainty and clarity[.]" (...