Opinion ID: 2365080
Heading Depth: 1
Heading Rank: 4

Heading: Erie Excavating

Text: We begin our discussion with Commonwealth v. Erie Excavating, 432 Pa. 593, 248 A.2d 191 (1968). We held in Erie Excavating that a party need not be a public utility to satisfy the requirements of the exclusion. The claims in Erie Excavating arose when the United States Army Corps of Engineers (the Corps) retained Erie Excavating (Erie) to build a railroad bed to replace the one that the Corps intended to flood to expand a nearby reservoir. Erie built the new railroad bed and the Commonwealth assessed use tax liability against Erie. Erie argued that because it built the railroad bed for the railroad, which is a public utility, it should not have to pay the tax. The Commonwealth contended that because Erie was not a public utility, it should not benefit from the exclusion. This Court agreed with Erie and held that Erie need not be a public utility to satisfy the requirements of the exclusion. The Court explained that: [I]t becomes unimportant to emphasize the nature of the parties to the construction contract. The more relevant inquiry goes to the bona fides of the original arrangement between the Engineers and the Railroad, the type of construction performed, the identity of the real beneficiary of the performance, and the degree of exclusivity of public utility use to which the facility was ultimately put. Erie Excavating, 248 A.2d at 193 (emphasis added). We reasoned that the railroad bed had a singular public utility `personality'... which was to be used directly in rendering public utility service; and the only beneficiary thereof, [from the beginning] and by contract, was the Railroad. Id. (footnotes omitted). We pointed out that we could see no reason to impose a tax against Erie here and not impose it if the railroad directly retained a contractor to construct facilities. Id. Essentially, Erie Excavating stands for the proposition that an entity need not be a public utility to benefit from the public utility exclusion. This holding we do not question. As the above-quoted selection explained, when analyzing whether to apply the exclusion, what is most important is the nature of the construction, who it benefits and the degree of exclusivity of public utility use to which the facility [is] ultimately put. Id. at 193. Because the railroad bed was constructed solely for use in a public utility service[,] we held that the property purchased and used to build the railroad bed should not be subject to taxation. Id. We did not hold that the use must be exclusive for the exclusion to apply. However, the Court observed that because the public utility railroad exclusively used the railroad bed, it was clear that the degree of exclusivity portion of its test was met and allowed the exclusion.