407 Pa. 106 | Pa. | 1962
Opinion by
In Pittsburgh the Oldsmobile Division of the General Motors Corporation has established what is known as a Car Locator System, that is to say, in a certain
The transfer can be arranged in one of several ways:
1. Dealer A, the inquiring dealer, may deliver to Dealer B, the possessing dealer, a car of a similar model in exchange for the car he wishes. This would result in an even exchange of inventory.
2. Dealer A could supply Dealer B with a car of a different model and style from the one he is seeking, and the difference in price of the cars, if any, would be adjusted through cash payments based on the invoice cost of both cars.
3. Dealer A could directly pay to Dealer B exactly what B had paid for the car. If B had to finance the purchase of the car he would not collect from A any interest he may already have paid in the financing transaction. This amount would be written off as loss by Dealer B.
4. If Dealer B added accessories to the car after he purchased it, A would reimburse B the actual cost of the accessories.
This practice, which is known in the trade, as the “swapping” of cars, has been found to be satisfactory all the way around. A dealer who does not have the particular ear a customer is seeking could, of course, order that car from the manufacturer but in these days of rapid, impatient, impulsive life, the customer would
The legal question involved in this appeal before us is whether Dealer B, who accommodates Dealer A, must pay a mercantile tax on the money received from A. Dealer B, in this case on appeal, represents the Ed McKean Oldsmobile Company and the McKean Oldsmobile Company (hereinafter referred to collectively as McKean). The City of Pittsburgh and the School District of Pittsburgh have attempted to tax such moneys as receipts from sales at wholesale and they have appealed from a decision of the County Court of Allegheny County which held that the receipts are not taxable under the governing mercantile laws, ordinances and regulations.
However, it is their contention that when McKean receives payment in money this money must be included in its taxable gross receipts and that mercantile tax must be paid on it at the wholesale vendor’s rate. Law, logic and common sense cannot support such an obviously unfair proposition. If the physical exchange of cars does not constitute a sale, why would the transfer of cost price, which still represents an even exchange, be a selling transaction? McKean’s position does not change whether it receives a car in exchange for another car or is reimbursed for the cost of the car it furnished Dealer A. In fact, McKean may even be in a worse position in such a transaction if it financed the purchase of the exchanged car since it receives no reimbursement for interest payments on the loan which enabled it to obtain the funds with which to make the original purchase. In addition, McKean must, in
The reasoning which would apply in a situation like the one under discussion found expression in the case of H. J. Heinz Company v. School District of Pittsburgh, 170 Pa. Superior Ct. 441. There the Heinz Company operated three dining rooms or cafeterias on its premises for the convenience and benefit of its employees, the prices charged being lower than those charged in commercial restaurants. They were only sufficient to permit the Company to recover the direct costs of the food and labor involved in the operation of the dining places. Both the City of Pittsburgh and the School District of the City of Pittsburgh sought to tax the amount of Heinz’s gross sales of food involved in this operation. The Superior Court held that the Heinz Company’s business was the manufacture and processing of foods in wide variety, that the operation of the dining rooms and cafeterias was only incidental to its principal activity and that it only “indirectly” benefited its main business. Said the Superior Court: “A Mercantile License Tax as its name implies is a levy on the privilege of conducting a commercial enterprise
Thus also, even if the transfer by McKean of a car to another dealer and the receipt of invoice cost for that car is generically called a sale, it is not such a sale encompassed within the aim, perspective and purpose of mercantile tax laws. This conclusion is reached not merely because no profit arises from the transaction
Let us look at another case shedding illumination on this interesting phase of business and commercial transactions.
In Philadelphia School District v. Frankford Grocery Company, 376 Pa. 542, the Frankford Grocery Company was formed as a corporation for the purpose of creating a purchasing agency for several retail grocers whereby they could compete with the larger businesses by obtaining the savings that accompany quantity buying. This Court held that the Company was not subject to tax on the receipts received from the member retail grocers for merchandise withdrawn by them. “The matter thus reduces itself to the question whether the defendant in its cooperative functioning is carrying on a business for gain or profit, and therefore within the purview of the tax . . . That it pays the tax on some of its activities does not prevent immunity from tax on its nonprofit activities (H. J. Heinz Company v. School District of Pittsburgh, 170 Pa. Superior
That decision and our later decision in Jefferson Grocery Company v. Pittsburgh School District, 394 Pa. 110, which did have to do with the School District’s mercantile tax, as well as the decision in the Heinz case, supra, clearly demonstrate that in construing taxing laws, all transactions which take place solely for the accommodation of either members or employees of the taxpayer, are only incidental to the main functions of the taxpayer’s business and which create only an indirect benefit at most to the taxpayer in that main function, are not taxable, even though the receipts from his main business are taxable.
In the ease of Jefferson Grocery Company v. Pgh. School District, 394 Pa. 110, just mentioned, the company was formed for the specific purpose of creating a purchasing agency for the Sparkle chain of markets and to effectuate substantial savings by quantity purchases for all the retail stores in the chain. We said in that case that “It (Jefferson Grocery Company) made no profit and never paid any dividends; it entered into leases for the buildings housing the retail stores; it negotiated collective bargaining agreements; it kept the books for the individual stores; and it obtained blanket liability and fire insurance policies. In this manner, both in coordinated buying and management, Sparkle was able to compete with the food chains operating in the same general vicinity.”
In determining whether or not the receipts of the Jefferson Grocery Company were subject to mercantile tax of the City of Pittsburgh and the School District of the City of Pittsburgh, we said: “The ordinance and
The appellants strongly rely on Beaver County Co-Operative Association's Appeal, 118 Pa. Superior Ct. 305, in support of their position but it is to be noted that in that case the Court pointed out it was not being called upon to decide the taxability of business done solely for the accommodation of members of the cooperative organization. That case involved sales made
The case of Commonwealth v. McKinley-Gregg Auto. Company, 345 Pa. 544, additionally relied upon by appellants, also involved receipts from sales which formed the very business in which the taxpayer was engaged, and the Court properly applied the rule that the lack of profit did not govern taxability.
The City and the School District will not be denied their tax when it is due. They will make their collections when the accommodated dealers sell to their customers the vehicles they have received from McKean. We cannot sanction their receiving taxes twice on what really constitutes but one complete transaction.
Orders affirmed.
The City of Pittsburgh, pursuant to the authority of the Act of June 25, 1947, P. L. 1145, 53 PS §6851, as amended, in 1947 enacted (and has since reenacted annually) an ordinance providing for the issuance of mercantile licenses and the imposition of mercantile license taxes upon every person engaged in the City of Pittsburgh in the occupation or business of vendor or dealer in goods, wares and merchandise; the tax, in the case of a wholesale dealer or vendor to be at the rate of one mill on each dollar of the volume of the annual gross business transacted by him.
Regulation 6(a) of the School District of Pittsburgh Mercantile License Tax Regulations provides: “Where a dealer transfers property, such as an automobile, to another dealer with the understanding that property of identical description, will be returned at a subsequent date, such transaction does not constitute a sale and the value of the property exchanged need not be included in the tax base of either dealer.”
Beaver County Cooperative Association's Appeal, infra; Com. v. McKinley-Gregg Auto. Co., infra.