143 A.3d 511
Pa. Commw. Ct.2016Background
- Downs Racing, LP (Taxpayer) operated a racetrack and casino in PA (2005–2008) and was audited for unpaid sales/use tax; assessment ≈ $440,076.38 (including tax, interest, penalties).
- Taxpayer had contracts with three vendors at issue: Teleview (closed‑circuit/simulcast audiovisual services and equipment installation), MRI (staffing for casino opening), and IGT (intellectual property/software license/royalty fees for poker machines).
- Taxpayer sought reassessment and refund; the Department’s Board of Appeals sustained most assessments and denied the refund; Taxpayer appealed to the Commonwealth Court.
- Central statutory provisions: definitions of “sale at retail,” “use,” “purchase at retail,” and “tangible personal property” under the Tax Reform Code, plus the rule that where tangible property possession/retention occurs, full consideration is taxable unless non‑taxable labor/services are separately stated.
- Evidence included contracts, sampled invoices, Form REV‑39 schedules; parties disputed whether invoices separately stated non‑taxable services from taxable tangible‑property charges.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Teleview charges for closed‑circuit/simulcast services taxable? | Teleview’s simulcasting/production is an intangible service; equipment is merely a medium and the true object is the service (non‑taxable). | Teleview furnished, installed, maintained and left equipment in Taxpayer’s possession; equipment and related charges are taxable and services were not separately stated. | Taxable: Teleview equipment/use and related charges taxable; invoices did not sufficiently separate non‑taxable services, so taxed as part of purchase price. |
| Are Teleview labor/help supply charges exempt as in‑house or help‑supply services? | Labor to install/maintain or operate equipment qualifies as exempt help‑supply/in‑house services. | Help‑supply and in‑house exemptions require taxpayer’s employees (or separately stated qualifying labor); Teleview used its own personnel—taxable. | Taxable: contractor’s labor using its employees does not convert the service to non‑taxable in‑house labor; SEI control test applies. |
| Are IGT royalty/license fees for poker machine IP taxable? | Licensing intellectual property is intangible and not within "tangible personal property" definition; royalties should be non‑taxable. | The license transfers the object (software/IP) needed to operate machines; under "true object" analysis software/IP licenses are taxable as tangible personal property. | Taxable: the license is for the object (software/IP) animating machines; treated as tangible personal property and taxable. |
| Did MRI staffing charges (upcharge) qualify as taxable sales of tangible property? | MRI invoiced payroll costs plus an upcharge; Taxpayer contended the upcharge was a non‑taxable service. | Department originally assessed tax, but later conceded that MRI upcharge was not sale of tangible personal property. | Not taxable: Commonwealth conceded MRI upcharge ($2,942 plus interest) was not taxable; Board reversed/remanded to recalculate MRI tax. |
Key Cases Cited
- Graham Packaging Co., LP v. Commonwealth, 882 A.2d 1076 (Pa. Cmwlth. 2005) (adopts “true object” test to determine whether transaction’s essence is tangible property or a service)
- SEI Investments v. Commonwealth, 890 A.2d 1130 (Pa. Cmwlth. 2006) (contractor‑operated equipment/services performed by contractor’s employees do not qualify for in‑house exemption)
- Dechert, LLP v. Commonwealth, 942 A.2d 210 (Pa. Cmwlth. 2008) (software licenses can constitute taxable transfers of tangible personal property)