188 A.3d 421 | Pa. | 2018
Lead Opinion
OPINION
CHIEF JUSTICE SAYLOR
*424In this limited appeal by allowance, we address a claim that the Philadelphia City Council violated an express statutory limitation on taxing power delegated to it by the Pennsylvania General Assembly, when the council created what is colloquially referred to as the City's soda or beverage tax.
In June 2016, City Council enacted the challenged ordinance, which imposes a tax regarding specified categories of drinks sold, or intended to be sold, in the municipal limits. See PHILA. CODE , ch. 19-4100. Although the council's formal denomination for this levy was the "Sugar-Sweetened Beverage Tax," a broader array of beverages is impacted, including specified drinks containing sugar substitutes. See Williams v. City of Phila. ,
The tax applies to the supply, acquisition, delivery, or transport of beverages. See PHILA. CODE § 19-4103(1). It is generally collected when beverages are transferred from a distributor, wherever located, to a Philadelphia retailer, which the ordinance refers to as a "dealer."
The beverage tax is assessed at one and one-half cents per fluid ounce, based on the volume of the drink to be sold at retail, see
Appellants -- a group of consumers, retailers, distributors, producers, and trade associations -- commenced the present civil action against the City and the Commissioner of the Philadelphia Department of Revenue, in the court of common pleas, challenging the legality and constitutionality of the tax and seeking declaratory and injunctive relief. In relevant part, Appellants advanced a theory of express preemption premised upon the Sterling Act,
According to the complaint, the beverage tax duplicates the six-percent state sales and use tax levied on the purchase price of tangible personal property, including "soft drinks." 72 P.S. §§ 7201(a) & (m), 7202. Prominent within the complaint was Appellants' contention that a subject matter of the local and state taxes -- i.e. , beverages -- is the same. Accord Brief for Appellants at 8 ("Virtually every beverage covered by the [beverage tax] is already subject to the Commonwealth's sales tax, and vice versa.").
From the outset, Appellants recognized that the beverage tax is assessed at a different tier of commercial activity than the state sales and use tax, since the beverage tax generally is paid at the distributor/dealer level. See, e.g. , Complaint ¶ 4 ("[T]he City has attempted to skirt the preemptive effect of the [state sales and use tax] by imposing the [beverage tax] on 'the distribution' of soft drinks that will be held out for retail sale in the City -- one step up the chain from the actual retail sale of these beverages to consumers."). It was the Appellants' position, however, that this distinction lacked legal significance, since, they asserted, the practical effect is that the tax is imposed on consumers, just as in the case of the state sales and use tax.
In this regard, Appellants also stressed that the beverage tax has a strong retail-sale nexus, see PHILA. CODE § 19-4103(1). See, e.g. , Complaint ¶ 58 ("On its face, the plain language of the Tax demonstrates that it is intended to burden the retail consumer."). Along these lines, Appellants invoked a series of judicial decisions recognizing that the character of a tax is determined according to its incidence. See, e.g. ,
The common pleas court sustained preliminary objections advanced by the City. See Williams v. City of Phila. , No. 1452 Sept. Term 2016, slip op. ,
From a broader tax-law perspective, the county court explained that, in determining whether one tax duplicates another, the "incidence" of the two taxes is controlling, with "incidence" referring to "the subject matter [of the tax] and, more important, the measure of the tax, i.e. , the base or yardstick by which the tax is applied." Commonwealth v. Nat'l Biscuit Co. ,
The common pleas court also rejected Appellants' argument that the incidence of the beverage tax should be determined according to post-tax economic consequences experienced in the marketplace. See Williams , No. 1452 Sept. Term 2016, slip op. at 7 (summarizing Appellants' argument that "the incidence of the tax[es] [are] the same because the [beverage tax] will cause the distributor to pass the economic burden of the tax [on to] the dealer who will then pass the economic burden to the consumer"). In fact, the court deemed such considerations to be irrelevant. See
Ultimately, the common pleas court differentiated the beverage tax as a "non-retail, distribution level tax." Williams , No. 1452 Sept. Term 2016, slip op. at 6. Given its conclusion that the tax does not apply to the same transaction or subject as the state sales and use tax, the court discerned no violation of the Sterling Act.
A divided, en banc panel of the Commonwealth Court affirmed. See Williams ,
Judge Covey dissented, joined by Judge Cohn Jubelirer, opining that the beverage tax is indeed duplicative of the state sales and use tax, because the former is only triggered when "there is a retail sale involved."
Appeal was allowed on a limited basis to address whether the beverage tax violates the Sterling Act. As the issue is one of law, our review is plenary.
The present arguments to this Court delve deeply into federal and state case law pertaining to a variety of taxing subjects and are at times highly complex. In the broadest frame, Appellants maintain that the beverage tax represents a transparent effort, by the Philadelphia City Council, to do indirectly what it could not do directly. See, e.g. , Brief for Appellants at 2, 13 (contending that the City cannot "sidestep the Sterling Act by dressing up a tax on selling retail products as a tax on 'distribution transactions' "). The tax is thus preempted, Appellants posit, because the City is taxing "the same thing" as the Commonwealth, in violation of the Sterling Act's prohibition on double taxation. Id. at 15; see also id. at 20 ("The Tax was intended to and in fact does operate on selling soft drinks in Philadelphia.").
Appellants continue to stress that both the local beverage tax and the state sales and use tax apply to the same beverages, and thus, in their view, the same subject, as well as the retail nexus associated with the beverage tax. See, e.g. , id. at 1 ("Although the [beverage tax] is generally collected from those who distribute the drinks to retailers, it is imposed only where the drinks are sold or intended to be sold at retail in Philadelphia." (emphasis in original) (citing PHILA. CODE § 19-4103(1) ). They contend that this frame of reference favors a test for assessing tax duplication for Sterling Act purposes grounded on economic impact. See, e.g. , id. at 15 ("Although cast as a tax on distribution, the City's Tax is inextricably tied to retail sales and is ultimately borne by the same Philadelphia consumers who already pay the Commonwealth's sales tax."). In this respect, Appellants reference Murray v. City of Philadelphia ,
Appellees, on the other hand, maintain that the beverage tax ordinance taxes non-retail, distribution-level transactions and therefore, does not duplicate the state sales and use tax. It is their position that tax duplication, for purposes of the Sterling Act, should be assessed according to a standard per which only a local tax having the same legal incidence as a state tax should be deemed preempted. See, e.g. , Brief for Appellees at 15 ("Contrary to the core of [Appellants'] position, duplication is shown through actual sameness -- not mere relatedness."). Appellees highlight that the beverage tax touches upon only a subset of commodities subject to the state sales and use tax; employs a different measure (volume as opposed to price); operates on the sale at distribution, whether or not a retail sale occurs, as long as one was intended; and is paid by distributors or dealers as opposed to consumers. According to Appellees, the beverage tax "is a lawful exercise of the power the General Assembly granted to the City of Philadelphia to wrestle with its own tax base and local politics in order to solve its own problems and meet its own needs." Brief for Appellees at 1.
I. Preemption Under the Sterling Act
In considering the General Assembly's intentions in devising the Sterling Act, we apply conventional principles of statutory construction, which are discussed in myriad decisions of this Court. See, e.g. , Norfolk S. Ry. Co. v. PUC ,
id="p429" href="#p429" data-label="429" data-citation-index="1" class="page-label">*429
As the litigants recognize, the Sterling Act is an embodiment of Depression-era legislation intended to enhance the City of Philadelphia's ability to address essential local needs and issues. See City & Cty. of Phila. v. Samuels ,
This Court has described the Sterling Act as tax enabling legislation vesting in the City "an enormously broad and sweeping power of taxation." Nat'l Biscuit Co. ,
The relevant provisions of the Sterling Act are as follows:
[T]he council of any city of the first class shall have the authority ... to levy, assess and collect ... such taxes on persons, transactions, occupations, privileges, subjects and personal property ... as it shall determine, except that such council shall not have authority to levy, assess and collect ... any tax on a privilege, transaction, subject or occupation, or on personal property, which is now or may hereafter become subject to a State tax or license fee. If, subsequent to the passage of any ordinance under the authority of this act, the General Assembly shall impose a tax or license fee on any privilege, transaction, subject or occupation, or on personal property, taxed by any city of the first class hereunder, the act of the Assembly imposing the State tax thereon shall automatically vacate the city ordinance passed under the authority of this act as to all taxes accruing subsequent to the effective date of the act imposing the State tax or license fee. It is the intention of this section to confer upon cities of the first class the power to levy, assess and collect taxes upon any and all subjects of taxation which the Commonwealth has power to tax but which it does not now *430tax or license, subject only to the foregoing provisions that any tax upon a subject which the Commonwealth may hereafter tax or license shall automatically terminate upon the effective date of the State act imposing the new tax or license fee.
53 P.S. § 15971(a) (emphasis added).
Consistent with the General Assembly's explicit statement of its intentions, expressed within the four corners of the Sterling Act, we agree with Appellees that the question in this case ultimately reduces to whether the Commonwealth has the power to tax -- but does not tax -- the supply, acquisition, delivery, or transport of beverages at the dealer/distributor level. See, e.g. , Brief for Appellees at 12. If so, the beverage tax imposed upon such transactions and/or subjects facially resides within the broad, general grant of autonomous taxing power available to the City per the Sterling Act. Significantly, however, Appellants offer no argument that the Commonwealth lacks this power.
Instead, Appellants' sole reference to the Legislature's explication of its own intentions proceeds as follows: "[T]hat sentence does not vary the main grant of taxing authority earlier in the subsection -- on the contrary, it is expressly 'subject ... to the foregoing provisions,' ... -- and it is not the sentence on which this Court has focused in Sterling Act cases." Reply Brief for Appellants at 5 n.1 (quoting 53 P.S. § 15971(a) ). To the degree that this Court has not previously focused on these specific terms of the Sterling Act, however, certainly such inattentiveness cannot mean that the Legislature's directions should be deemed to have been judicially nullified. In point of fact, we find that the statutory language in question operates to clarify the preceding terms of the enactment and, in our view, to alleviate any relevant ambiguity which might otherwise be present.
In terms of Appellants' contention that this material statement of the General Assembly has been made expressly "subject ... to the foregoing provisions,"
*431In our view, that statement strongly reinforces the legislative design of an expansive delegation of taxing power (subject to the Legislature's express reservation of the power to preempt through future legislation). Accord, e.g. , Nat'l Biscuit Co. ,
Relatedly, we credit Appellees' position that tax duplication, for purposes of the Sterling Act, turns on legal -- and not economic -- incidence. Significantly, this Court has rejected an economic incidence test in determining the nature of a tax in analogous contexts. For instance, in John Wanamaker, Philadelphia v. School District of Philadelphia,
We discern no evidence from the text of the Sterling Act suggesting that Pennsylvania courts are to embark upon such an inquiry into economic incidence for purposes of evaluating the permissibility of local taxes. Indeed, had the Legislature wished for the courts to eschew the "reasonably bright-line standard" of a legal-incidence litmus,
II. Application of the Sterling Act's Preemption Provisions
Appellants and a number of their amici suggest, with varying degrees of directness, that this Court should deem "beverages" to be the overarching subject of both the state sales and use tax and the City's beverage tax for Sterling Act purposes. As we understand this position, the premise is that each one of the discrete range of "persons, transactions, occupations, privileges, subjects and personal property" within the scope of the Sterling Act should be bundled into an overarching subject-matter category, which the City is prohibited from reaching. See 53 P.S. § 15971(a).
In many decisions, however, this Court has looked to a far more "precise inciden[ce]" to determine the nature of a tax. John Wanamaker,
If the Court were to adopt a broad subject-matter litmus, Sterling Act cases distinguishing state and city taxes on related *433subjects as entailing "property" versus "excise" would also be rendered incoherent. See, e.g. , Samuels ,
Notably, the Court has observed that matters that are distinct, for instance at a transactional level, can often be described as having a single subject "if the point of view be carried back far enough." Commonwealth v. Neiman ,
Consistent with the above decisions, we read the Sterling Act as permitting the City to tax a wide range of "persons, transactions, occupations, privileges, subjects and personal property," 53 P.S. § 15971(a), and the preemption provisions as constraining such authority only where the Commonwealth has already imposed a tax having the same legal incidence relative to the same discrete "persons, transactions, occupations, privileges, subjects and personal property."
Turning to a discrete analysis of the legal incidences of the Commonwealth *434sales and use tax as compared to the City's beverage tax, we agree with the assessments of the common pleas and intermediate courts. Briefly, the state tax is upon "sale[s] at retail," 72 P.S. § 7202(a) ; is measured by purchase price, see id. § 7203; and falls directly upon consumers, albeit that retailers serve to collect the tax for the benefit of the Commonwealth, see id. § 7202(a).
The beverage tax, on the other hand, applies to distributor/dealer-level transactions (and/or subjects) made with the purpose of the dealer "holding [the beverage] out for retail sale" in Philadelphia, but independent of whether any retail sale actually occurs. PHILA. CODE § 19-4103(1). The measure is the volume of fluid ounces of beverages distributed between the distributor and dealer. Id. § 19-4103(2)(a). The payer of the beverage tax is the distributor, or in certain circumstances, dealers, see id. §§ 19-4107(2), 19-4105(2), but never the purchasing consumer.
Based on the above, we agree with Appellees the taxes have different subjects, *435measures, and payers, and accordingly, distinct legal incidences. Accord Williams ,
We are cognizant of the retail sales nexus integrated into the beverage tax, presumably to establish the essential geographic connection for jurisdictional purposes. See 53 P.S. § 15971(a) (granting Philadelphia the authority to levy taxes on authorized subjects "within the limits of such city of the first class").
III. United Tavern Owners
As previously noted, a strong focus has been placed, in this litigation, on the opinion announcing the judgment of the Court in United Tavern Owners of Philadelphia ,
In that case, the City enacted an ordinance authorizing a ten-percent local tax on the retail sale of liquor in Philadelphia's hotels, restaurants, taverns, and clubs. The Commonwealth already had imposed its general six-percent sales tax on liquor, as well as an eighteen-percent tax on liquor sold by the state liquor control board. The state's two taxes, however, unlike Philadelphia's alcohol retail sales tax, were collected when the beverages were transferred from distributor to retailer. This Court nonetheless invalidated the tax under the Sterling Act. The lead opinion, supported by a single Justice, stated: "We hold today that because the sales of liquor are already subject to two state taxes, the state has preempted the specific field of liquor sales for taxation purposes and Philadelphia is barred from enacting the ordinance in question." Id. at 284,
The parties dispute the applicability of United Tavern Owners in terms of both the precedential value of a non-majority opinion and the applicability of the lead opinion's reasoning. We find Appellees to have the better part of the argument on both points. "It is axiomatic that a plurality opinion of this court is without precedential authority[.]" CRY, Inc. v. Mill Serv., Inc. ,
IV. Policy
Finally, we respond as follows to Appellants' assertion that a Sterling Act preemption threshold that permits the City to tax upstream transactions or subjects allows too much room for local manipulation. See, e.g. , Brief for Appellants at 14 ("Municipalities around the Commonwealth are watching to see whether the Court will accept the City's novel argument that municipalities can impose new taxes on top of existing sales taxes -- at whatever by-volume rate they please -- so long as they couch those taxes as distribution transaction taxes."). The concern that unintended consequences may unfold are prevalent relative to the promulgation of experimental, remedial legislation such as the Sterling Act. Where the language of the governing statute is clear (or clear enough), however, the solution is legislative -- and not judicial -- adjustment.
Indeed, the history of the treatment of the taxing power of Pennsylvania municipalities at large provides a ready example. In 1947, the General Assembly enacted a law conferring on the broader range of municipalities a power to tax so expansive that the enactment soon became known as the "Tax Anything" law. See Act of June 25, 1947, P.L. 1145. See generally PA. DEP'T OF COMMUNITY AFFAIRS, TAXATION MANUAL § IX at 27 (2002) ("The original enactment[, like the Sterling Act,] excluded from local taxing power subjects of taxation preempted by state taxation, but otherwise had few restrictions."); James A. Moore, The "Home Rule" Tax Act -- A Solution or a Challenge? , 97 U. PA. L. REV. 811, 814 (1949) (characterizing the "Tax Anything" enactment, like the Sterling Act, as "a delegation of the state's unused taxing powers to the subdivisions, giving them the responsibility of raising their own revenue in the way they saw fit."). Subsequently, however, with experience, the Legislature imposed a plethora of restrictions, more recently, within the successor statute known as the Local Tax Enabling Act.
*437For whatever reason, however, the General Assembly has left extant the "enormously broad and sweeping power of taxation" granted to the City by the Sterling Act. Nat'l Biscuit Co. ,
V. Summary and Conclusion
In summary, the Sterling Act conferred upon the City of Philadelphia a broad taxing power subject to preemption, while clarifying that "any and all subjects" are available for local taxation which the Commonwealth could, but does not presently, tax. 53 P.S. § 15971(a). The Commonwealth could, but does not, tax the distributor/dealer-level transactions or subjects targeted by the beverage tax. Moreover, the legal incidences of the Philadelphia tax and the Commonwealth's sales and use tax are different and, accordingly, Sterling Act preemption does not apply.
The order of the Commonwealth Court is affirmed.
Justices Baer, Todd and Donohue join the opinion.
Justice Wecht files a dissenting opinion.
Justice Mundy files a dissenting opinion.
Justice Dougherty did not participate in the consideration or decision of this case.
Act of August 5, 1932, Ex. Sess., P.L. 45 (as amended 53 P.S. §§ 15971 -15973 ).
Conversely, tax exemptions are generally construed in favor of the taxing authority. See 1 Pa.C.S. § 1928(b)(5).
The Commonwealth Court majority and the dissent also debated the significance of the opinion announcing the judgment of the Court in United Tavern Owners of Philadelphia v. School District of Philadelphia ,
Appellees' preliminary objections were in the nature of a demurrer, which presents the question of "whether, on the facts averred, 'the law says with certainty that no recovery is possible.' If doubt exists concerning whether the demurrer should be sustained then 'this doubt should be resolved in favor of overruling it.' " Bruno v. Erie Ins. Co. ,
Numerous amici have filed briefs in support of Appellants' position, including a group of 34 Pennsylvania legislators; the Teamsters Local Union No. 830 and the Pennsylvania Conference of Teamsters; and the National Federation of Independent Business Small Business Legal Center, Pennsylvania Chamber of Business and Industry, Pennsylvania Restaurant and Lodging Association, Pennsylvania Retailers Association, National Association of Theatre Owners, and Tri-State Automatic Merchandising Council.
Amici favoring Appellees' position include: The Sustainable Business Network of Greater Philadelphia; the International Municipal Lawyers Association; Public Citizens for Children & Youth, CEIBA, Inc., the Delaware Valley Association for the Education of Young Children, and Public Health Management Corporation; the Philadelphia Parks Alliance; African-American Chamber of Commerce for Pennsylvania, New Jersey & Delaware; Philadelphia Opportunities Industrialization Center, Inc.; City of Berkeley, California; the American Heart Association, American Cancer Society Cancer Action Network, American Medical Association, Food Trust, Healthy Food America, Momsrising.org, National Alliance for Hispanic Health, National Association of Chronic Disease Directors, National Association of County and City Health Officials, National Association of Local Boards of Health, Notah Begay III Foundation, Pennsylvania Association of Staff Nurses and Allied Professionals, Pennsylvania Medical Society, Philadelphia County Medical Society, Physicians for Social Responsibility Philadelphia, and Public Health Law Center; and Changelab Solutions, Children's Defense Fund, Highscope Educational Research Foundation, Pennsylvania Association for the Education of Young Children, and Pennsylvania Child Care Association.
Various of these amici focus on broader social policy issues regarding asserted benefits of the beverage tax in combatting adverse health effects and funding local programs for the benefit of the public at large and, particularly, vulnerable populations. Our analysis here, however, is centered upon the issue of statutory interpretation on which the appeal was allowed.
See generally Brief for Amicus Int'l Mun. Lawyers Ass'n at 4 ("Historically, Pennsylvania and its political subdivisions relied almost exclusively on real estate taxes, but the depression aggravated other developing problems from the Industrial Revolution and brought the need for increased revenue. To alleviate the persistent financial strain, 'the 1930's witnessed the beginning of attempts to broaden local taxing powers.' " (quoting Advisory Comm'n on Intergovernmental Relations, A-14, State Constitutional and Statutory Restrictions on Local Taxing Powers 74 (1962) ) ).
The statute originally applied to both first- and second-class cities, but the authority extended to the latter expired, and the enactment was amended in 1961 solely to exclude references to second-class cities. See Act of July 26, 1961, P.L. 904, § 1. This is the only modification made during the statute's eighty-six-year history.
Regarding the statute's delineation of "persons, transactions, occupations, privileges, subjects, and personal property" subject to taxation, the litigants agree that the Legislature utilized terms that are broad, overlapping, and imprecise to capture a wide range of subject matter. See, e.g. , Brief for Appellants at 16 (quoting V.L. Rendina, Inc. v. City of Harrisburg ,
To facilitate the present focus, we note that we have omitted the geographic nexus of the Sterling Act from the above quote. That aspect is discussed independently below. See, e.g. , infra note 18.
Indeed, in a statute concerning the taxing authority of certain municipalities other than the City of Philadelphia, the General Assembly has demonstrated that it knows well how to subordinate a statement of its intentions more generally, where it wishes to do so. See 53 P.S. § 6924.305 (repealed in part) ("It is the intention of this section to confer upon such political subdivision the power to levy, assess and collect taxes upon any and all subjects of taxation, except as above restricted and limited ...." (emphasis added) ). The Legislature's approach of refraining from so qualifying its statement of intentions in the Sterling Act represents yet another manifestation of its design to afford expansive taxing power to the City. See generally infra Part IV.
In Commonwealth v. Wetzel ,
This determination was central to the Court's holding that the tax did not violate the Uniformity Clause of the Pennsylvania Constitution, in light of the fact that it imposed a differential tax on commercial and industrial realty as compared with residential property. See generally Valley Forge Towers Apts. N, LP v. Upper Merion Area Sch. Dist. ,
We realize that this Court refers to the "practical operation of the two taxes [claimed to be duplicative] as against mere difference in terminology from time to time employed in describing taxes in various cases." Murray ,
Our present decision relative to the applicability of a legal incidence standard is tethered to the Sterling Act. We recognize that, in some other settings, consideration of economic incidence may be necessary. See, e.g. , Camps Newfound/Owatonna, Inc. v. Town of Harrison ,
We are under no illusion concerning the intuitiveness and cohesiveness of the decisions in the Sterling Act line on various points. See Reply Brief for Appellants at 7 ("[F]or every case that the City cites, one can readily find a different case that finds impermissible duplication despite certain differences between the state and local taxes."); City of Phila. v. Tax Rev. Bd. , 144 Pa. Cmwlth. 374, 379,
Notably, throughout the titles, headings, and text of the Laws of Pennsylvania, the Legislature has frequently employed the term "subjects of taxation" as a term of art to capture a range of things upon which the legal incidence of taxation is or may be placed. See, e.g. , 72 P.S. § 7101, Historical and Statutory Notes (reflecting that, in the title of the Tax Reform Code of 1971, the General Assembly depicted the enactment as codifying and enumerating certain "subjects of taxation" and imposing taxes thereon). Indeed, the term appears in the Pennsylvania Constitution in the same sense. See Pa. Const. , art. VIII, § 2 (b)(2) (authorizing the Legislature to establish a special class or classes of "subjects of taxation" for exemption purposes).
Accordingly, and as explained in the text above, in the context of the Sterling Act it is plain that "subjects of taxation" means the "persons, transactions, occupations, privileges, subjects and personal property" that the statute otherwise and expressly permits the City to tax. And, again, it is dispositive here that the Legislature has specified that it is its intention to permit the City to tax "all subjects of taxation" that the Commonwealth has the power to but does not tax, "subject only to the foregoing provisions" pertaining to future displacement of local tax by a new state levy. 53 P.S. § 15971(a) (emphasis added).
The statute makes clear that "sale at retail" does not include "any such transfer of tangible personal property or rendition of service for the purpose of resale."
Throughout his dissenting opinion, Justice Wecht attributes particular motivations to City Council in its enactment of the beverage tax. See, e.g. , Dissenting Opinion, 439-41, 444-46. For our part, we remain with the sentiment of the Court, expressed long ago, that, in determining whether the City has authority to levy a tax in the manner and form in which it was imposed, "[w ]e have nothing to do with .... the purpose of its levy. " Blauner's, Inc. ,
[A]ssumptions regarding a unified, clear legislative intent to cause a particular post-tax economic reaction are misplaced. The [beverage tax] is a general revenue raising measure, and individual Councilmembers were free to vote for the [tax] because of -- or even in spite of -- countless policy considerations, such as raising general monies, enabling thousands of pre-K seats, improving community and recreational facilities, and/or the effect of market forces on consumer behavior and health.
Brief for Appellee at 30.
At several locations within their briefs, Appellants observe that the beverage tax's applicability does not depend upon whether any distribution transactions take place in Philadelphia, see, e.g. , Brief for Appellants at 17, thus suggesting that the tax may impermissibly reach extraterritorial activity. See 53 P.S. § 15971(a) (authorizing local taxation of appropriate subjects of taxation "within the limits of" the City). Appellants explain, however, that they have not raised this point to challenge particular applications of the tax, see Reply Brief for Appellants at 8, but to emphasize that "the connection that the Tax draws between soft drink commerce and the City's geographic boundaries is at the retail level, not the distribution level." Brief for Appellants at 18. We have otherwise responded to this argument. Regarding the extraterritorial issue as such, as Appellees explain, such a challenge would represent an as-applied one to particular applications of the beverage tax rather than implicating our consideration of the claim of facial invalidity that Appellants pursue at present.
Given our determination that the beverage tax survives scrutiny under a plain meaning application of the Sterling Act, the policy of strict construction of taxing statutes does not pertain to this case.
Notably, the argument has also been made that a broad construction of Sterling Act preemption may yield unfavorable social policy, in that such a reading disregards the economic reality inherent in a delegation to tax at the local level and encourages "second-rate taxes, administrative wastefulness, and litigation." Bright , 27 Summ. Pa. Juris . 2D Taxation § 14:5.
See, e.g. , Official Comm. of Unsecured Creditors of Allegheny Health Educ. & Research Found. v. PriceWaterhouseCoopers, LLP,
Act of Dec. 31, 1965, P.L. 1257 (as amended 53 P.S. §§ 6924.101 -6924.901 ) (the "LTEA").
Dissenting Opinion
I agree with the doctrinal framework set forth by the learned Majority, which invokes the legislative intent we have previously discerned in the Sterling Act
In the Sterling Act, our General Assembly stated: "It is the intention of this section to confer upon cities of the first class [i.e. , Philadelphia] the power to levy, assess and collect taxes upon any and all subjects of taxation which the Commonwealth has power to tax but which it does not now tax or license." 53 P.S. § 15971(a). The General Assembly then described and limited this taxing authority as follows:
[T]he council of any city of the first class shall have the authority by ordinance, for general revenue purposes, to levy, assess and collect, or provide for the levying, assessment and collection of, such taxes on persons, transactions, occupations, privileges, subjects and personal property, within the limits of such city of the first class, as it shall determine, except that such council shall not have authority to levy, assess and collect ... any tax on a privilege, transaction, subject or occupation, or on personal property, which is now or may hereafter become subject to a State tax or license fee.
I have no quarrel with this paradigm. But it cannot be stretched to the point that the legislative ban on duplicate taxation is ignored or read out of the law. In nominally levying a tax imposed by volume upon the distribution of sugar-sweetened beverages ("SSBs")
* * * *
As I dig more deeply into the PBT, I am compelled to greet skeptically the characterization of the PBT as a "distribution" tax in the first instance. The PBT, enacted by dint of the Sterling Act's grant of authority, defines a distributor as "[a]ny person who supplies sugar-sweetened beverage to a dealer." PHILA. CODE § 19-4101(2). A dealer, in turn, is "[a]ny person engaged in the business of selling sugar-sweetened beverage for retail sale within the City."
[T]he supply of any sugar-sweetened beverage to a dealer; the acquisition of any sugar-sweetened beverage by a dealer; the delivery to a dealer in the City of any sugar-sweetened beverage; and the transport of any sugar-sweetened beverage into the City by a dealer. The tax is imposed only when the supply, acquisition, delivery or transport is for the purpose of the dealer's holding out for retail sale within the City the sugar-sweetened beverage or any beverage produced therefrom.
Notably, Subsection 19-4103(1), the core grant of authority in this putative "distribution" tax, does not even use the word "distribution" or refer by its terms to a "distributor." Nonetheless, the express terms delineating taxable activities ensure that a distributor can be taxed, wherever it is found, wherever its transaction with a Philadelphia dealer occurs. But when a distributor cannot be taxed, for example *439because one cannot be identified or has failed to provide the dealer with proof of registration, then the dealer will be. See , e.g. ,
We also must bear in mind the effect of the limitation of the Sterling Act's taxing authority to "persons, transactions, occupations, privileges, subjects and personal property, within the limits of such city of the first class ." 53 P.S. § 15971(a) (emphasis added). If the PBT can affect distribution or procurement outside Philadelphia-if, for example, a dealer leaves Philadelphia to obtain SSBs with the intent to transport those SSBs back into the City for retail-it is unclear how that extraterritorial transaction can be taxed under a provision that permits taxation only within the city limits. In fact, the only understanding of the activity to be taxed that respects and adheres to the statutorily required geographical nexus with Philadelphia is that it applies inexorably to the offering of SSBs for sale at retail in the City. Thus, for the PBT to be understood consistently with the Sterling Act's authority, we again must conclude that the tax by design targets retail sales of SSBs.
These textually-driven inferences are difficult to dispute. Moreover, they are reinforced by the history of the drafting, refinement, and enactment of the PBT, and by a review of the process through which SSBs, rather than some other category of retail commerce or economic activity, were selected as the source of the revenue that Philadelphia tapped in order to fund improvements in early childhood education. The City Council was well aware that much of the cost of the tax, wherever in the supply chain it was to be assessed, would be passed through in significant part to the consumer. Indeed, Council's revenue projections incorporated the conservative assumption that sales of SSBs would drop by 55% as a consequence of the tax's expected impact on retail prices.
Relevantly, at the March 29, 2016 Committee Hearing, the Mayor's Chief of Staff *440signaled her familiarity with other cities' experiences with the imposition of similar taxes, vis-à-vis whether and to what extent the cost of the tax would be passed on from the distributor to the consumer. She and the City's Finance Director both attested that, in those other cities, roughly half of the new tax burden reached the consumer.
In a recorded and transcribed April 7, 2016 conversation
Well we're not a nanny state. We're a city with a large poor population that costs us money in many different ways. If you look at the cost of our prisons, the cost of prosecuting crime, the cost of fighting crime, the cost-the unreimbursed costs of health issues like diabetes and other things , we pay in the end anyway.
*441opportunities to be funded by PBT revenues, Mayor Kenney again emphasized the "ancillary health benefits which are terrific, if people start drinking less sugar-sweetened beverages."
Thus, speaking generally, the many official and public discussions that occurred during the preparation and enactment of the PBT expressly invoked both the virtues of the educational opportunities to be funded and the health benefits to be realized from deterring SSB consumption, specifically by way of the anticipated pass-through of a portion of the tax burden to the consumer in the form of higher retail prices. Although great consideration was given to the direct beneficiaries of the anticipated tax revenues, attention also was directed to the public health benefit associated with reducing obesity and other conditions caused or exacerbated by consumption of SSBs. Significantly, at various times and in various ways, that benefit was cited to justify taxing SSBs, rather than some other category of commerce or retail item, in order to fund universal pre-K.
* * * *
It is against this legal and circumstantial backdrop that this Court must determine the validity of the PBT. In doing so, we cannot overlook our historically strict approach in construing the scope of the taxing power conferred upon local governments by the General Assembly, in this case by the Sterling Act:
[I]t is a principle universally declared and admitted that municipal corporations can levy no taxes, general or special, upon inhabitants, or their property, unless the power be plainly and unmistakably conferred. And the grant of such right is to be strictly construed, and not extended by implication.... In cases of doubt the construction should be against the government.
Murray v. City of Phila. ,
Our approach to examining whether a new local tax is duplicative under the Sterling Act has remained practical, perhaps to a fault, as illustrated by the Majority's brief effort to demonstrate how the incidence test brings our disparate case law into harmony, an effort that, unsurprisingly, yields a pointillist account revealing no clear motif. See Maj. Op. at 433 n.14 (confessing that "[w]e are under no illusion concerning the intuitiveness and cohesiveness of the decisions in the Sterling Act line on various points.").
*442These caveats aside, I have no objection to the Majority's first interpretive step, which focuses upon the utility of Nabisco 's"incidence test." Echoing Murray , the Nabisco Court described the test as follows:
In determining whether a tax duplicates another tax and results in double taxation prohibited to local taxing authorities, the operation or incidence of the two taxes is controlling as against mere differences in terminology from time to time employed in describing taxes in various cases. The incidence of a tax embraces the subject matter thereof and, more important, the measure of the tax, i.e., the base or yardstick by which the tax is applied .
Nabisco ,
The Majority distinguishes the legal incidence test from what it calls the "economic incidence" test. The Majority notes that, in Jon Wanamaker, Philadelphia v. School District of Philadelphia ,
Taken in isolation, I do not find this argument compelling, but I have no issue with the cautionary approach it embodies. It certainly is true that, if one sufficiently broadens one's focus, one can trace the vast majority of taxes of any kind to the final participant in a given chain of commerce. Cf. Maj. Op. at 433 (quoting Commonwealth v. Neiman ,
I am sensitive to the limited utility of an "economic incidence" test. As noted above, applying such a test at a sufficient level of generality would lead one to conclude that virtually any tax Philadelphia might impose would in some sense be duplicative of some other state tax, since every cost of doing business will tend to flow downstream to the end-purchaser. Thus, if that consideration is to enter into our analysis at all, it must be utilized narrowly and with great care. Still, I cannot endorse the Majority's categorical rejection of the relevance of the economic effect of a given tax for purposes of the Sterling Act inquiry, given our oft-repeated concern for the practical effect of the tax rather than how it is described or how it nominally operates. Who benefits and who is burdened are essential inquiries in discerning the true nature of any tax. Simply to assert that he who superficially bears the immediate burden of a given tax is the only burdened party, or even the chiefly burdened party, is to undermine our time-honored emphasis upon the practical effects of a given tax. Certainly, who bears the brunt of the tax in the final tally has some relevance to the question, even if courts employ that tool with sensitivity to its explanatory limitations.
The Sterling Act limits the taxing authority it confers by denying Philadelphia "the authority to levy, assess and collect ... any tax on a privilege, transaction, subject or occupation, or on personal property, which is now or may hereafter become subject to a State tax or license fee." 53 P.S. § 15971(a). Plain language strips most of the enumerated categories of taxation of any relevance to this case, leaving us to focus upon the two that remain: whether the distribution "transaction," as such, is impermissibly duplicative of the state sales tax; or, whether the actual "subject" of the distribution tax echoes the "subject" of the state tax. In assessing the import of these terms, we must give distinct effect to each of them. See 1 Pa.C.S. §§ 1921(a) ; White Deer Twp. v. Napp ,
The answer to the "transaction" inquiry is clear: The point of imposition and collection, as well as the measure, of the distribution tax plainly differ materially from the sales tax as applied to retail soft drink purchases. Thus, if there is impermissible duplication, it lies in the conclusion that the PBT and state sales tax, under the instant circumstances, have the same "subject." For present purposes, the question presented is whether the subject of the *444PBT is, practically, the distribution or retail sale of SSBs.
The Majority relies ultimately on a fairly rigid application of the Nabisco rubric, noting the distinction between the putative subject of the PBT (distribution versus retail sales), the different measures employed to assess each (volume versus a percentage of retail price), and the distinct putative payors of the tax (distributors versus consumers). These, the Majority would conclude, obviate any suggestion that the "subject" of the PBT is duplicative of the "subject" of the sales tax.
Whatever its superficial appeal, I find this analysis wanting in practice. Informed by our continuing emphasis on assessing the defining aspects of a tax by how it actually operates in the world, I am compelled to conclude that the true and intended subject of the PBT is, and has always been, the retail purchase and consumption of SSBs. To find otherwise is to insist that, in knowingly deterring the purchase of soft drinks by effectively ensuring some increase in the retail price, it was merely the curtailment of their distribution that the Council actually effectuated and intended. This neat conclusion is one that the text of the PBT cannot bear and in fact does not sustain, given how quickly that text wanders afield of that particular commercial function (i.e. , distribution) whenever it must in order to ensure that not a single drop of SSB is sold at retail within the jurisdiction without first paying the prescribed assessment. To make sense of the intended reduction in consumption coupled with the raising of revenue upon the backs of the end-purchasers, which the City Council so certainly anticipated that it built that reduction into its calculations, the distribution point must have been understood merely as where the tax would be imposed for administrative purposes (with the ancillary benefit that it would furnish Council the best chance of avoiding Sterling Act invalidation).
Simply put, I do not find the Majority's effort to find the safe harbor of clarity in the bright-line of the "legal incidence" test reconcilable with a test requiring the assessment of a tax's practical effect . Indeed, speaking generally, I find irreconcilable the very notions of a practical inquiry and a bright-line test, and I discern no substantive benefit in this context to abandoning our long-standing if messier approach to such questions. For this reason, I find it incongruous to imply, as the Majority does, that we cannot seek a given levy's "legal incidence" by looking beyond nomenclature to focus upon its foreseen, and *445even intended, effects-regardless of whether that entails some consideration of economic effects. The "subject" of the PBT is SSB consumption at retail. The only way to find otherwise is to indulge the convenient fiction of calling the PBT a distribution tax, despite the fact that the levy does not even use that terminology in the critical passage and despite the fact that the PBT suggests no concern for whether it actually is levied on distribution as such, but only the concern that no SSB intended for retail sale eludes its grasp.
The Council and the Mayor, guided in part by officials and experts who anticipated and saw social good in reducing the consumption of SSBs, enacted the PBT to realize the dual benefits of funding universal pre-K education and improving public health. Although the PBT's advocates often foregrounded the educational benefits, they treated as complementary, rather than merely incidental, the public health benefits associated with substantial reductions in SSB consumption, which they anticipated would manifest disproportionately in the very same communities that would receive the lion's share of the PBT revenues collected. Nowhere is it suggested that they treated this as a happy accident. Nor should we. The Sterling Act provided sufficient authority for Council to generate new revenue by any number of means-and the political actors behind the PBT selected SSBs as the most suitable. We would unmoor Council's choice, as embodied in the text of the PBT and reinforced by the process of its development and enactment, from its full context were we to pretend that deterring SSB consumption was merely incidental. I do not discern how we may indulge this fiction. The only conventional mechanism to deter consumption is to increase the effective retail cost of SSBs. By imposing a substantial tax specifically upon SSB "distribution," Council literally banked on that effect.
It elevates form over substance to grant Philadelphia the benefit of its self-serving description, when to do so obscures the tax's foreseeable and intended effect-one that the Mayor and Council, in fact, studied in gauging the prudence and effectiveness of an SSB tax in the first instance, one that was designed to affect all avenues by which a can of cola might arrive in a bodega cooler. Furthermore, to split hairs based upon Philadelphia's chosen characterization confounds our time-honored interpretive presumptions, which unerringly favor the putative taxpayer when the scope of a tax-authorizing statute is in question.
I am sensitive to the challenges facing cities seeking to finance their own needs, especially given the limited degree to which funds flow from state coffers to address those needs. Furthermore, I am mindful that, in answer to this difficulty, the General Assembly with the Sterling Act long ago invited Philadelphia to finance its own initiatives by collecting revenues from those who live and do business within the city limits. But the Sterling Act's grant of broad taxing authority is not absolute, and it specifically precludes Philadelphia from piggybacking on extant state taxes. The General Assembly has seen fit to impose a sales tax on certain goods, including a class of beverages that overlaps heavily with SSBs. In imposing a tax that foreseeably would be borne in substantial part by the retail purchaser, the City of Philadelphia knowingly stacked the PBT upon the state sales tax, and in so doing duplicatively taxed retail trade in soft drinks, a "subject" already burdened by the state sales tax. For these reasons, I believe we are bound to find that the PBT impermissibly imposes upon the state sales tax in violation of the Sterling Act.
A rose by any other name smells just as sweet, and, whether styled a retail tax or a distribution tax, the levy here at bar, like *446the state sales tax, raises revenue specifically by burdening the proceeds from the retail sale of sugar-sweetened beverages. This the Sterling Act does not allow. I respectfully dissent.
Phila. Code. § 19-4100.
Act of Aug. 5, 1932 P.L. 45, § 1, as amended 53 P.S. §§ 15971 -73.
As highlighted by the Majority, this moniker is misleading insofar as the tax applies to certain beverages sweetened by sugar substitutes. See Maj. Op. at 424 (citing Williams v. City of Phila. ,
The details of the considerable overlap between SSBs under the PBT and "soft drinks" as defined by the General Assembly for purposes of excluding them from the sales tax exemption for certain food items are not essential to my analysis. However, the distinctions may be gleaned by comparing Philadelphia Code § 19-4101(3) with 72 P.S. § 7201(a) (defining "soft drinks") and the "soft drink" exemption from the sales tax exclusion for "food or beverages for human consumption" provided in 72 P.S. § 7204(29).
See Transcript, Hearing on Bill Nos. 160170, 160171, and 160172 Before the Committee of the Whole (hereinafter "Committee Hearing"), 5/3/2016, at 112-13 (testimony of Thomas Farley, Commissioner of Philadelphia's Department of Public Health) (opining that the group estimating PBT receipts assumed a 55% decline in consumption). Limited excerpts of transcripts documenting this hearing and others have been submitted as exhibits to filings in the trial court. We may (and I do) take judicial notice of the full transcripts of these meetings. Transcripts of public City Council committee meetings may be obtained by utilizing the search form located at legislation.phila.gov/council-transcriptroom/transroom_committee.aspx (last reviewed June 6, 2018).
See Committee Hearing, 3/29/2016, at 19 (Chief of Staff Jane Slusser), 20 (Finance Director Rob Dubow).
Id. at 24. Chief of Staff Slusser and Finance Director Dubow relied upon the experience of Berkeley, California, following its enactment of a similar tax directed at the distribution of sugar-sweetened beverages. The degree to which the cost of the distribution tax imposed by Berkeley was passed to consumers is taken up at length in a study prepared by the Public Health Institute and the Global Food Research Program of the University of North Carolina at Chapel Hill, attached to the Complaint as Exhibit N. This pass-through question was of particular importance to Berkeley officials, because Berkeley specifically intended to reduce through retail price increases the rate of consumption of SSBs to improve public health.
See, e.g., Committee Hearing: Neighborhood, 4/12/2016, at 23-24 (comments of Barbara Gold, M.D., Philadelphia pediatrician).
Committee Hearing, 5/3/2016, at 92, 93-102 (testimony of Commissioner Thomas Farley).
The transcript was entered into the record as Exhibit M to the Tax Objectors' Complaint.
The Majority's concession in this regard arguably contradicts its later observation that its "determination that the [PBT] survives scrutiny under a plain meaning application of the Sterling Act." Maj. Op. at 435 n.19. The complexity and arguable irreconcilability of past precedent, as well as aspects of my discussion below, strongly suggest that the text of the Sterling Act is anything but a model of clarity.
Justice O'Brien authored the lead opinion, which no justice joined. Chief Justice Bell and Justice Roberts concurred only in the result. Justice Pomeroy filed a dissent in which Justice Eagen joined. Justices Jones and Cohen did not participate in the case. The similarity of United Tavern Owners leads the parties to debate at length which of the views expressed in that case should prevail, which prompts the Majority to discuss that 1971 decision at greater length than any other Pennsylvania case. See Maj. Op. at 435-36. I discern little if any analytic utility in United Tavern Owners , a case that failed to generate any precedential holding. Rather, I believe that we must wrestle with such rules as we can glean from the Sterling Act itself and the principles it embodies, moreso than with our inapposite and non-binding case law on the matter, which offers scant guidance.
Neither does the Sterling Act specifically instruct courts to consider the "base or yardstick by which the tax is applied," as Nabisco prescribes. See Nabisco ,
The Majority endorses the United States Supreme Court's concern, stated in Oklahoma Tax Commission v. Chickasaw Nation ,
Dissenting Opinion
Philadelphia City Council skillfully constructed the Sugar-Sweetened Beverage Tax
At the outset, I agree with the Majority that the legal-incidence test applies, specifically an analysis of the subject matter and measure of the tax, and not an economic-incidence test. Majority Opinion at 431-32. I further agree that the particular motivations of City Council in enacting the Beverage Tax are not relevant to our inquiry. Id. at 433-34, n. 16. However, I disagree with the Majority's conclusion that the subject of the Beverage Tax is the distributor. Id. at 434-35. While it is true that the distributor or dealer is ultimately the payor, and thus seemingly the subject, for the reasons that follow, in my view the SSBs are the subject of the Beverage Tax.
In Murray v. City of Philadelphia ,
In this case, the subject of the tax is SSBs intended to be sold in Philadelphia; it is not a tax on all distributors in Philadelphia. If the tax applied to the sale of all SSBs sold in the City of Philadelphia, the issue would be resolved as a clear violation of the Sterling Act. In order to distance the tax from the retail transaction, the Beverage Tax is applicable only on distributors who sell SSBs to dealers who intend to retail the beverages in the City of Philadelphia. PHILA. CODE. § 19-4103. Further, a dealer is subject to the tax if the distributor has not paid it. PHILA. CODE. § 19-4105(2). However, the tax does not apply to the act of distribution because not all distributors in Philadelphia are subject to the tax. For example, under the parameters of the Beverage Tax, a distributor is exempt from the tax if it sells SSBs to a dealer in Philadelphia as long as the dealer intends to sell the beverages outside the city limits. Additionally, a distributor is exempt if it sells SSBs to dealers who do not intend to sell the beverage but rather to give it away or provide it to their own employees for consumption. Likewise, a *447distributor located outside the Philadelphia City limits is obligated to pay the tax if it sells SSBs to a dealer transporting the SSBs into Philadelphia for retail sale. Plainly, these illustrations demonstrate that the subject of the tax is only SSBs retailed in Philadelphia, albeit imposed at the distribution level prior to holding the SSBs out for retail sale. The imposition of the tax at the distribution level to attempt to avoid duplication of the tax at the retail level is strikingly similar to Murray .
Thus, while I agree that the legal-incidence of taxing the transaction of distribution may not be a violation of the Sterling Act, I cannot agree that under the specific language of the Beverage Tax that it is truly a tax on distribution. Instead, the Beverage Tax is a tax on SSBs intended for retail sale in Philadelphia. As a result, the imposition of the Beverage Tax is a violation of the Sterling Act by the Philadelphia City Council.
See Act of Aug. 5, 1932, P.L. 45, § 1, as amended , 53 P.S. §§ 15971 -73.
Below, I have occasion to cite a separate decision of this Court involving National Biscuit Co. For clarity's sake, I use Nabisco only to refer to our 1957 decision.