70 A.2d 640 | Pa. | 1949
The City appeals from an order restraining the collection of taxes claimed under an ordinance of December 13, 1939, as amended.1 *514
The plaintiff is a resident of the city engaged in the practice of law. His contention is that from year to year, as required by the ordinance, he filed returns and paid all taxes due; that the City has changed its prior understanding of the meaning of the ordinance and has demanded additional taxes for past years and on an increased tax base for the current year; that the ordinance does not authorize the collection of additional tax and that the injunction was proper.
The City contends (in the words of its brief) the plaintiff is taxable on "net profits realized . . . from the purchase, sale, management and supervision of real estate [and] mortgages, . . ." i.e., that plaintiff so dealt with his real estate and mortgages as to bring himself within the tax on net profits of "businesses, professions or other activities."
Two fundamental principles should be kept in mind in considering the ordinance and its administration. The first measured the City's power to tax; the second prescribes strict construction. We said, in Hillman Coal Coke Co. v. JennerTwp. et al.,
The rule of strict construction was recently stated by PARKER, J., in Scranton v. O'Malley Mfg. Co.,
Among the conclusions of law filed by LEVINTHAL, J., were the following pertinent on this review: (1) that the ordinance "imposes a tax only upon wages and the earned net profits from the operation of a business, a profession, or an activity in the nature of a business or a profession. (2) The term 'activity' as used in the Ordinance is not intended to include isolated acts. (3) The term 'business' as used in the Ordinance involves more than the ownership of property or the receipt of income derived from the ownership of property. (4) To be 'earned' and taxable, the net profits must result from the use of some labor, management or supervision. . . . (6) The inheritance, purchase and holding of mortgages by the plaintiff did not constitute a business activity under the Ordinance. . . . (7) The purchase and holding of stocks and securities by the plaintiff was not a business activity under the Ordinance. . . . (11) The regular income or capital gains derived from personal property or from real property held as passive investments are not subject to the tax. . . ."
To give effect to these legal conclusions, paragraph 2 of the decree declares that "the plaintiff is not liable for taxes on the income derived from the real estate, mortgages, and stocks owned by the plaintiff during the years 1939 to 1947."
The chancellor made the following findings of fact: "11. The ruling [made by the Receiver of Taxes pursuant to section 62 of the ordinance] pertaining to single dwellings, duplex apartments, and apartment houses of less than three stories is as follows: 'Single dwellings, Duplex Apartments, Apartment Houses of Three Stories or Less. As to this type of real estate the income derived therefrom is considered taxable or non-taxable, when the operation thereof is so extended as to constitute an "activity" within the meaning of the ordinance.' *517 12. None of the real properties owned by the plaintiff were or are more than three stories in height. 13. Prior to January 1, 1939, the plaintiff owned thirteen rented parcels of real estate, eight of which were acquired through inheritance and five of which were acquired on various dates by purchase. 14. Between 1939 and 1947, the plaintiff acquired by mortgage foreclosures or purchase certain additional properties and sold others. . . . 16. In 1939-1940 the plaintiff owned seven mortgages, six of which were inherited by him, and in the following years he never held more than seven mortgages, though he bought and maintained them for income. . . . 19. The plaintiff employed several licensed real estate agents who handled the various real estate transactions for him. 20. In 1945 the plaintiff employed a janitor to service part of a property consisting of one-story stores and garages at 467 Queen Lane, 5305-07 Laurens Street, and 5323-31 Newhall Street. He also furnished electricity to the thirty-four individual garages. 21. For the properties, described in Finding No. 20, the plaintiff relied upon the real estate agents to make necessary repairs and to deduct from the rentals, expenses for repairs, insurance and the like. 22. Aside from the above, the plaintiff spent only a little time in connection with the realty by way of telephone conversations and occasional correspondence regarding acquisition, disposal, repairs, and advertising of the property, and maintained no office other than his law office. 23. Generally, the plaintiff acquired or sold his real property upon report of a satisfactory price by the agents who negotiated with the other parties, and he participated only to the extent of executing documents and accepting prices offered. 24. Except for the instance noted in Finding of Fact No. 20, the plaintiff did not furnish any service to the tenants of his real estate, nor did he directly employ any labor in operating the real estate. . . . 27. The plaintiff received income from securities, *518 but did not engage in more than five stock transactions in any one year."
We have now stated the controlling facts and therefore come to the construction of the ordinance itself, keeping in mind the controlling principles stated earlier in this opinion.
The tax is obviously imposed on income earned, as distinguished from income otherwise realized. Section 2 of the ordinance as first enacted in 1939, provided: "Imposition of Tax. An annual tax for general revenue purposes of one and one-half3 per centum is hereby imposed on (a) salaries, wages, commissions and other compensation earned after January 1, 1940, by residents of Philadelphia; and on (b) salaries, wages, commissions and other compensation earned after January 1, 1940, by non-residents of Philadelphia for work done or services performed or rendered in Philadelphia; and on (c) the net profits earned after January 1, 1939, of businesses, professions or other activities conducted by such residents, and on (d) the net profits earned after January 1, 1939, of businesses, professions or other activities conducted in Philadelphia by non-residents.
"The tax levied under (a) and (b) herein shall relate to and be imposed upon salaries, wages, commissions and othercompensation paid by an employer or on his behalf to any personwho is employed by or renders services to him. The tax levied under (c) and (d) herein shall relate to and be imposed on thenet profits of any business, profession or enterprise carriedon by any person as owner or proprietor, either individually or in association with some other person or persons.
"Said tax shall first be levied, collected and paid with respect to the salaries, wages, commissions and other compensation earned during the calendar year one thousand nine hundred and forty, and with respect to the *519 net profits of businesses, professions or other activities,earned during the calendar year one thousand nine hundred and thirty-nine: . . ." (Italics supplied.)
The words "business" and "net profits" are defined in section 1 as follows: " 'Business.' An enterprise, activity, profession, or undertaking of any nature conducted for profit or ordinarily conducted for profit, whether by an individual, copartnership, association, or any other entity." " 'Net Profits.' The net gain from the operation of a business, profession, or enterprise, after provision for all costs and expenses incurred in the conduct thereof, either paid or accrued in accordance with the accounting system used, and without deduction of taxes based on income." Section 6 authorizes the Receiver of Taxes to collect the tax and "to prescribe, adopt, promulgate and enforce rules and regulations relating" to its collection. One of these regulations was referred to by the chancellor in findings of fact 11, 20 and 21, quoted above, dealing with the word "activity" as used in the ordinance.
The word "earned" as used in section 2 of the ordinance, in the phrases "(a) salaries, wages, commissions and other compensation earned" and (c) "the net profits earned after January 1, 1939, of businesses, professions or other activities conducted by such residents . . ." is obviously used in a limited sense and not in the generally comprehensive sense in which the word is sometimes used. Section 33 of the Statutory Construction Act, Act of May 28, 1937, P. L. 1019, 46 PS 533, provides that "Words and phrases shall be construed . . . according to their common and approved usage . . ."
In Lewis's Estate,
In the cases in which this ordinance was considered on appeal, it was held that the tax was on earned, as distinguished from unearned income: Penna. Co. etc. v. Phila.et al.,
Almost the whole of the City's brief is devoted to the contention that the income from plaintiff's real estate and mortgage transactions (described in findings 11 to 23 quoted above) is taxable "in view of the decision of this court in Pennsylvania Co. v. Phila. [supra]." At page 17 of the brief, its contention is: "Hence, the test is not whether the net profits are 'earned' or 'unearned,' but rather whether the net profits *521 are derived from an undertaking of any nature, either conducted for profit or ordinarily conducted for profit. To that extent the net profits are limited by the Ordinance and in no other respect, regardless of what language was used heretofore in any of the briefs of arguments." We must reject these contentions. It clearly appears, both in the title to the ordinance and in section 2, that the tax is on "(c) the net profitsearned after January 1, 1939, of businesses, professions or other activities conducted by such residents . . ." The City's definition of "business"4 has been quoted from the ordinance and expressly includes both words "profession" and "activity." The application of the rule ejusdem generis to the context "businesses, professions, or other activities" restricts the meaning that may be given to the word "activities" by limiting it to what is included in the words "businesses and professions." And this accords with section 33 of the Statutory Construction Act of May 28, 1937, P. L. 1019, 46 PS 533, providing: "General words shall be construed to take their meanings and be restricted by preceding particular words . . ." The ordinance makes a distinction between net profits earned, as taxable income, and net profits not taxable because not gain resulting from professional or business activity as defined in the ordinance. The use of the words "operation" and "net gain" seem clearly to refer to a taxable's active conduct of a moneymaking occupation and not to the kind of acts done by one not engaged in business but merely conserving his property.
Courts must presume that city council intended to pass an ordinance within its legislative power and that the City did not intend to levy a tax which it had no authority to impose. Its power to tax, as was stated earlier in this opinion, was conferred by the Sterling *522
Act which expressly denies municipal power to tax any "privilege, transaction, subject or occupation, or on personal property, which is now or may hereafter become subject to a State tax or license fee . . ." Among the state taxes then in effect were the capital stock tax collected from corporations, the four mills State tax on securities5 and the corporate loans tax6 on securities. In Commonwealth v. Standard Oil Co.,
The injunction does not restrain the City from collecting the tax on plaintiff's net income from his profession *523 as attorney at law. The restraint is against the City's attempted collection of a tax on income or profits realized in plaintiff's transactions in real estate and in shares of corporate stocks during the period from 1939 to 1947, as described in the findings of fact, numbered 11 to 27, quoted above.
In McCoach, Collector of Internal Revenue v. Minehill Schuylkill Haven R. R. Co.,
We agree with the court below that these profits are not within the meaning of the term "earned" as used in the ordinance.
Decree affirmed, costs to be paid by the appellant.