376 Pa. 542 | Pa. | 1954
Opinion by
In this action of assumpsit the School District of Philadelphia sought to recover the sum of $29,056.03
The history, structure and operation of the defendant are well summarized from the evidence adduced in the following portion of the opinion of the learned trial judge: “. . . The company originated in 1905 as the Frankford Retail Grocer Association, which name was changed to the present one in 1909. It was formed by a small group of fourteen or fifteen retailers to purchase goods in large quantities and eliminate wholesalers’ profits because of chain store competition. The articles of incorporation stated that the purpose of the organization was to act as a purely cooperative enterprise of retail grocers. Every member stockholder in the corporation is obligated to buy sufficient capital stock to cover his. average weekly purchases, and to deposit the stock with the company in escrow, and then to pay his bills weekly. This system eliminates credit losses. A member is not obligated to obtain all his supplies from the company. But ordinarily merchandise is distributed only to retail grocer members. Occasionally
The Act of 1949 imposing the tax provides: “Every person engaging in any business in any school district of the first class shall pay an annual tax at the rate of one (1) mill on each dollar of the annual receipts thereof.”. Section 1 (2) defines “Business” as follows: “Carrying on or exercising for gain or profit within a school district of the first class, any trade, business, including financial business as hereinafter defined, profession, vocation, or commercial activity, or making sales to persons within such school district of the first class.”. (Emphasis supplied).
In deciding that the defendant was not subject to the tax on the receipts from its member retail grocers, the court below said: “Our conclusion is that this com
The plaintiff contended in the lower court, as it does here, that the word “business” as defined in the Act should be given a broad meaning so as to include any commercial activity and not be limited to a business carried on for gain or profit; that the defendant is organized as a business corporation and not as a nonprofit or cooperative association; that its by-laws and contracts with its retail grocer members refer to its activities as “business”; that its receipts exceed cost and hence result in a profit. The defendant admits that it is engaged in business but not in business for profit in so far as its cooperative functioning is concerned. As to the latter, it asserts that the business it conducts is really the business of its constituent retail grocer members who pay the general business tax;
As we stated in Breitinger v. Philadelphia et al., 363 Pa. 512, 523, 70 A. 2d 640, “ 1 . . The term “business” is of very broad significance and has a great variety of meanings. (Murray, English Dictionary on Historical Principles [1888], vol. 1, part 2, p. 1205; 3 Encycl. of the Social Sciences, pp. 80-86; 5 Words and Phrases [perm, ed.], 970; 13 id. 126, 184.) The precise meaning depends upon the context. . . .’ ”. We think it clear that business as contemplated by the Act means business for “gain or profit”, that is, for profit motive. We cannot subscribe to appellant’s argument that the words in the last clause in the Act’s definition of business reading “or making sales to persons within such school district of the first class” are used disjunctively as independent of all parts of the definition which precede them, and extend the purview of the Act to sales not made for profit. Such construction requires the anomalous conclusion that all trades, businesses, professions or commercial activities are subject to the tax when they are carried on for profit, but that the only nonprofit operation which is subject to the tax is the making of sales. We incline toward the construction placed upon the clause in question by the defendant, that if it was employed to extend the scope of the tax, it was designed to add to the taxables within the school district carrying on a business for gain or profit, those without the district who made sales to persons within
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. We deem it unimportant that it is incorporated under the Business Corporation Law. We are not concerned with the form but with the substance of its structure and operation in its cooperative activities. 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 Ct. 441, 87 A. 2d 85 (1952)) to the same extent that a nonprofit corporation may be liable for the tax on some of its activities (Board of Christian Education of The Presbyterian Church v. Philadelphia School District, 171 Pa. Superior Ct. 610, 91 A. 2d 372 (1952)).
Appellant argues that the taxing Act grants exemption to various types of organizations or persons, including nonprofit religious, charitable or educational corporations or associations, and that the failure to exempt cooperatives indicates that the latter are therefore subject to the tax. It attempts to buttress this argument by reference to the New York City General Business and Financial Tax which exempts statutory cooperatives, and suggests that the Pennsylvania Act
We think there is a persuasive indication that the Legislature did not contemplate the inclusion of cooperatives in that double taxation would result. Each individual retail grocer member would not only pay, as he does, the tax on his gross receipts, but also on his intermediate purchasing methods. In the case of a chain store, the tax is paid only on receipts from
While it is true that the defendant conducts its operations as a corporation, which is the tendency of most cooperative associations today, it possesses all of the attributes of a purchasing cooperative. In their present form and mode of operation, purchasing cooperatives are of comparatively recent origin and, like all cooperatives, they are somewhat of a hybrid, partaking both of the nature of a corporation and of a partnership. But basically a purchasing cooperative acts as the joint agent of all its member principals in purchasing in bulk and distributing at cost the products sold by its members. That it also acts as such agent in supplying at cost equipment and services incidental to and in furtherance of the economic objectives of its principals, does not change its character. By means of this principle of unified action the merchants secure the advantages of quantity buying, eliminate wholesalers’ profits and attain a position where they can compete on even terms with the giant grocery chains. Viewing the defendant as an enterprise separate and distinct from its members, it has what superficially resembles a profit, that is, an excess of receipts over cost of operation. Realistically, however, the apparent profit is due entirely to the fact that each cooperator has paid in more than enough to cover the cost of the products he obtains for himself. By reason of the contract between the organization and each cooperator, this money belongs to the latter. When a group of individuals enter into an agreement to pool their resources for a common purpose and state therein that their contributions to the extent not required for that purpose shall be repaid to them, it is hard to conceive how the contributions returned to them should be regarded as a gain or profit to the entity acting as
Thus in Article III, Section 311(d) of its regulations it has excluded from the tax money received by an agent for the purchase of property for his principal, except to the extent that the agent deducts a commission therefrom, and by Section 303(d) and (j) permits the exclusion of receipts by an agent in reimbursement of advancements made by him on account of his principal. Section 311 (a) excludes from the tax money received by an agent representing the proceeds of property sold for the account of his principal, the agent being required to report as taxable receipts only commissions retained by him from such monies. Similar exclusions are made with respect to commodity brokers, insurance agents and real estate brokers. Certainly there is more reason for subjecting to the tax the receipt of money by the ordinary agent from his principal than there is for subjecting to the tax defendant’s receipts from its retail grocer members covering withdrawals of merchandise. The ordinary agent or broker has an independent profit motive in the funds going through his hands, for the more of his principal’s money he receives, the more commission he will earn. On the other hand, the defendant has no independent profit motive or interest in any of the monies it receives from
Conflicting views are expressed in the appellate courts of other States as to the tax status of cooperatives under the particular state statutes involved. Confining ourselves to the Pennsylvania statute here in question, we are of the opinion that the defendant in its cooperative functioning is not conducting an independent business separate and apart from its constituent members, and its receipts from them in payment for their withdrawal of merchandise purchased for their account, are not taxable.
Judgment affirmed.