Court Opinion

ID: 4014605
Source: CourtListenerOpinion
Date Created: 2016-07-11 17:12:29.301003+00
Date Added: 2024-06-11T12:59:38.362684
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Downs Racing, LP,                            :
                 Petitioner                  :
                                             :
               v.                            : Nos. 201 and 202 F.R. 2013
                                             : Argued: June 9, 2016
Commonwealth of Pennsylvania,                :
                Respondent                   :

BEFORE:        HONORABLE P. KEVIN BROBSON, Judge
               HONORABLE ANNE E. COVEY, Judge
               HONORABLE DAN PELLEGRINI, Senior Judge

OPINION BY
SENIOR JUDGE PELLEGRINI                             FILED: July 11, 2016

               Downs Racing, LP (Taxpayer) appeals from two orders of the Board
of Finance and Revenue (Board) sustaining a decision of the Department of
Revenue’s (Department) Board of Appeals denying its reassessment and refund
petitions for sales and use tax paid pursuant to various contracts with third parties
in the operation of its business.1

       1
          Because the parties were unable to stipulate to the pertinent facts, Taxpayer submitted
trial depositions and/or evidence per this Court’s December 10, 2015 Order. The evidence
includes the January 26, 2016 deposition of David Parfrey, Taxpayer’s Director of Finance, who
was involved on behalf of Taxpayer when the Department conducted the audit in this matter and
prepared Form REV-39, Sales & Use Tax Appeal Schedule (Form REV-39), worksheets
identifying all of Taxpayer’s charges relating to each of the third parties (Teleview Racing
Patrol, Inc. (Teleview), MRI Contract Staffing (MRI), and IGT), during the period of the audit,
with a description for each. In his deposition, Mr. Parfrey testified to various aspects of
Taxpayer’s relationship with the third parties, including terms of the contracts, charges made and
taxes paid on the charges, and specific details regarding the invoices. Also included in the
evidence are the contracts between Taxpayer and the third parties, Form REV-39s for the third
(Footnote continued on next page…)
                                                  I.
                 Taxpayer is a Pennsylvania limited partnership registered to do
business in Pennsylvania under the fictitious name Mohegan Sun at Pocono
Downs. During the period of January 1, 2005, through December 31, 2008 (Audit
Period), Taxpayer operated a harness racing track, off-betting locations, and a
casino resort, which also had 2,500 slot machines. All of the gaming activities at
the casino resort are regulated by the Pennsylvania Gaming Control Board and
other state agencies.

                 In Pennsylvania, pursuant to Section 202(a) of the Tax Reform Code
of 1971 (Code),2 a tax of six percent of the purchase price is “imposed upon each
separate sale at retail3 of tangible personal property or services, as defined herein,
within this Commonwealth….” 72 P.S. §7202(a) (footnote added). A tax of six
percent is also imposed on the use within the Commonwealth of tangible personal
property purchased at retail “and on those services described herein purchased at
retail….” 72 P.S. §7202(b). The use tax “shall be paid … by the person who
makes such use as herein provided, except that such tax shall not be paid … by
such person where he has paid the [sales] tax imposed by [Section 202(a) of the

(continued…)

parties, a sampling of Teleview’s invoices, all of MRI’s invoices with corresponding employee
timecards, and all of IGT’s invoices and a sampling of IGT’s invoices concerning daily royalty
fees. Notwithstanding the parties’ inability to agree on a Stipulation, the operative facts gleaned
from this evidence are not in dispute.

       2
           Act of March 4, 1971, P.L. 6, No. 2, as amended, 72 P.S. §7202(a).

       3
           What constitutes a “sale at retail” is enumerated in Section 201(k) of the Code.

                                                  2
Code]….” Id. “Use” is defined in Section 201(o)(1) to include “[t]he exercise of
any right or power incidental to the ownership, custody or possession of tangible
personal property and shall include, but not be limited to transportation, storage or
consumption.” 72 P.S. §7201(o)(1).

              Additionally, Section 201(f) of the Code defines “purchase at retail”
to include:

              (1) The acquisition for a consideration of the
              ownership, custody or possession of tangible personal
              property other than for resale by the person acquiring the
              same when such acquisition is made for the purpose of
              consumption or use, whether such acquisition shall be
              absolute or conditional, and by whatsoever means the
              same shall have been effected.

              (2) The acquisition of a license to use or consume, and
              the rental or lease of tangible personal property, other
              than for resale regardless of the period of time the lessee
              has possession or custody of the property.

72 P.S. §7201(f) (emphasis added).

              After conducting an audit of Taxpayer’s records for the Audit Period,
the Department determined that Taxpayer’s total sales and use tax for the Audit
Period was $1,208,796.86, of which Taxpayer reported $869,240.54. As a result,
in March 2011, Taxpayer was issued a Notice of Audit Assessment assessing it:
(1) sales and use tax of $339,556.32; (2) interest of $75,181.47; (3) an
understatement penalty of $16,977.82; and (4) a major understatement penalty of
$8,360.77, for a total amount due of $440,076.38.

                                          3
              Taxpayer then filed a petition for reassessment with the Department’s
Board of Appeals (Board) regarding application of the sales and use tax to certain
contracts which it claims did not involve transactions involving tangible personal
property. Taxpayer also sought a refund in the amount of $12,959.10 for use tax
self-assessed with respect to a transaction with its vendor, IGT, a manufacturer of
gaming machines, as royalty/licensing fees. The Board bifurcated the petition and
issued two decisions. In one decision, the Board sustained the assessed tax, plus
interest, and abated the imposed penalties. In the other decision, the Board denied
Taxpayer’s refund request in its entirety. Taxpayer then filed a petition for review
and a petition for refund with the Board, and the Board denied both petitions. This
appeal followed.4

                                               II.
                                               A.
              A matter no longer in dispute between Taxpayer and the
Commonwealth that was at issue before the Board involves a contract with MRI
Contract Staffing (MRI) to assist Taxpayer with the process of interviewing and
hiring all new staff members needed to open its casino in November 2006. MRI
charged Taxpayer the payroll costs for the employees plus a percentage upcharge,
and charged sales tax on the difference between the pre-tax invoice amount and the
payroll cost to MRI of the employees who were providing the services reflected on
the invoice, that is, the “upcharge amount.” The Commonwealth in its brief now

       4
          In appeals from decisions of the Board, this Court has the broadest scope of review
because it functions as a trial court, even though such cases are heard in this Court’s appellate
jurisdiction. Kinsley Construction, Inc. v. Commonwealth, 894 A.2d 832 (Pa. Cmwlth. 2006).

                                               4
concedes that this is not the sale of personal property and that $2,942, plus interest
in sales and use tax, is not owed. Accordingly, we will reverse the Board on this
issue.

                                            B.
                                            1.
             The item that involves the largest assessment of tax – $247,891, plus
interest – involves a May 2005 Services Agreement between Taxpayer and
Teleview Racing Patrol, Inc. (Teleview) under which Teleview was to provide “a
highly integrated and complicated audio visual service to basically produce
[Taxpayer’s] live show as well as bring in … simulcast feeds from other
racetracks.” (Parfrey January 25, 2016 Deposition at 17.) In providing the telecast
and the simulcast feeds, Teleview placed physical equipment, ranging from
televisions to switchers, in Taxpayer’s facility. The Services Agreement required
Teleview to “provide, install, [and] maintain certain equipment and materials [as
specified in the Services Agreement.]” (Id. at 22-23.) Moreover, Teleview was to
“provide all necessary and appropriate personnel at the Track to operate the
equipment to be furnished by it and all such personnel shall be under its
supervision and control….”5 (Id. at 23.) The personnel was “there to operate the
equipment, the cameras, everything needed to produce the video aspect of [the]
show, as well as operate the equipment to bring the signal in from the other
racetracks.” (Id. at 21.)

         5
         Under the agreement between Taxpayer and Teleview, labor personnel fell under
Teleview’s supervision and control and, thus, Teleview provided their workers’ compensation
insurance.

                                            5
             Races at the racetrack were also simulcast to other racetracks and to
Taxpayer’s off-track wager sites (OTWs). At Taxpayer’s racetrack, the live feeds
were displayed on monitors located in various areas throughout the facility.
Teleview also provided part of the race security services, recorded and maintained
copies of the live racing at the racetrack, and provided the copies to the Harness
Racing Commission in the event of a protest or other dispute as to the legitimacy
of a race. During the Audit Period, Taxpayer paid Teleview $4,132,053.93 under
their agreement.

             Taxpayer      argues     that    Teleview’s      closed     circuit    television
services/simulcast services are not taxable services under Section 202(a) of the
Code because they do not meet the definition of tangible personal property as
established by Section 201(m).6 It argues that the main purpose of the contract was

      6
       “Tangible personal property” is defined by Section 201(m) of the Tax Code, 72 P.S.
§7201(m), as:

             Corporeal personal property including, but not limited to, goods,
             wares, merchandise, steam and natural and manufactured and
             bottled gas for non-residential use, electricity for non-residential
             use, prepaid telecommunications, premium cable or premium
             video programming service, spirituous or vinous liquor and malt or
             brewed beverages and soft drinks, interstate telecommunications
             service originating or terminating in the Commonwealth and
             charged to a service address in this Commonwealth, intrastate
             telecommunications service with the exception of (i) subscriber
             line charges and basic local telephone service for residential use
             and (ii) charges for telephone calls paid for by inserting money
             into a telephone accepting direct deposits of money to operate,
             provided further, the service address of any intrastate
             telecommunications service is deemed to be within this
             Commonwealth or within a political subdivision, regardless of how
             or where billed or paid. In the case of any such interstate or
(Footnote continued on next page…)

                                              6
for Teleview to produce Taxpayer’s simulcast feed to provide audio and visual
images and to record or film the races and exhibit the event live and on replay for
those in Taxpayer’s premises, including customers placing wagers on OTWs.
Taxpayer contends that just because the use of equipment is required to create and
deliver the services provided by Teleview does not mean that those services are
subject to taxation because “[m]ost services, both those subject to tax and those
not, require the service provider to use equipment …. [but a] service that can be
provided without using any [tangible personal property] is the exception.”
(Petitioner’s Brief at 17.)7

(continued…)

              intrastate telecommunications service, any charge paid through a
              credit or payment mechanism which does not relate to a service
              address, such as a bank, travel, credit or debit card, but not
              including prepaid telecommunications, is deemed attributable to
              the address of origination of the telecommunications service.

       7
          As an additional reason to support its contention that the simulcast services were not
taxable, Taxpayer makes the “true object” test adopted in Graham Packaging Company, LP v.
Commonwealth, 882 A.2d 1076 (Pa. Cmwlth. 2005), applicable in determining that the services
it provided were not taxable. The “true object” test as provided in Graham applies:

              [W]hen a transaction appears to involve both tangible and
              intangible property or tangible property and a service. In order to
              determine whether a taxable sale of tangible personal property has
              occurred, the test focuses on whether the essence or true object of
              the sale is tangible personal property or intangible property or a
              service with tangible property serving only as the medium of
              transmission. If the essence of the transaction or true object of the
              transaction is the intangible property or service, the intangible
              object/service does not assume the taxable character of the tangible
              property serving as the medium of transfer.
882 A.2d at 1083 (emphasis added). Even if the “true object” of the transfer was for intangible
personal property, it does not make taxable items non-taxable.

                                               7
             The Commonwealth does not disagree with Taxpayer’s position that
such services are not subject to the sales or use tax if they are separately stated on
the invoice from items that were subject to the sales and use tax. The items subject
to the tax in the contract were equipment used to provide audio and visual images
and to record or film the races and exhibit the event live and on replay for those in
Taxpayer’s premises, including customers placing wagers on OTWs. Given that
Taxpayer has taken possession of this equipment, including cameras and other
audio visual equipment, and Teleview was obligated to “provide, install and
maintain” the equipment, that sufficiently meets Section 201(f)’s definition of
“purchase at retail” and “tangible personal property.” Therefore, those items are
taxable.

             The Commonwealth then points us to Section 201(g)(4) of the Code,
which requires in pertinent part:

             Where there is a transfer or retention of possession or
             custody, whether it be termed a rental, lease, service or
             otherwise, of tangible personal property … the full
             consideration paid or delivered to the vendor or lessor
             shall be considered the purchase price, even though such
             consideration be separately stated and be designated as
             payment     for    processing,     laundering,   service,
             maintenance, insurance, repairs, depreciation or
             otherwise. Where the vendor or lessor supplies or
             provides an employe to operate such tangible personal
             property, the value of the labor thus supplied may be
             excluded and shall not be considered as part of the
             purchase price if separately stated….

                                          8
72 P.S. §7201(g)(4) (emphasis added).8              The Commonwealth asserts that the
invoices involving services contain no description of or amounts relating to the
services, and neither was any charge for claimed exempt services specified in the
Taxpayer’s contract. Because Taxpayer’s possession of the equipment invoiced by
Teleview is a taxable use and the purchase prices are the amounts indicated on the
invoices, Taxpayer has not proven the “separately stated” cost of services
associated with the equipment operation. Taxpayer responds that the invoices do
separate out services from equipment, but the Commonwealth counters that those
invoices do not state what services are taxable and what are non-taxable so they are
not “separately stated.”

              The Code requires that every sale of tangible personal property or
services thereon shall be presumed to be at retail and be subject to sales tax.
Persons liable for sales and use taxes or for the collection of such taxes must keep
records as required by the Department. See Section 271 of the Code, 72 P.S.
§7271. 61 Pa. Code §34.2(a)(2) requires that the taxpayer keep, as a minimum for
practicable enforcement, certain sales tax records that are amenable to a three-point
audit. One of the audit points requires that a taxpayer keep records in a certain
way so that an otherwise non-taxable transaction remains so:

       8
          Section 236 of the Code, 72 P.S. §7236, provides that “[i]n all cases of petitions for
reassessment, review or appeal, the burden of proof shall be upon the petitioner or appellant, as
the case may be.” A taxpayer appealing an adverse decision of the Board with respect to a
petition for refund of sales taxes paid has the burden to prove facts requiring reversal, and the
government is not required to prove facts necessary to sustain an order of assessment. Anastasi
Brothers Corporation v. Board of Finance and Revenue, 315 A.2d 267, 270 (Pa. 1974); see also
Fiore v. Commonwealth, 668 A.2d 1210 (Pa. Cmwlth. 1993), affirmed per curium, 690 A.2d 234
(Pa. 1997).

                                               9
               Sales tax records shall be maintained from which it is
               possible to ascertain the vendor’s compliance with the
               taxing and exemption features of the act, that is, whether
               sales made without collection of tax were in fact
               nontaxable. The records shall describe items sold
               without tax, and show those sales which were made tax
               free because the purchase price was less than the amount
               at which the statute begins to impose tax. This is the first
               essential for determining the amount of tax incurred in
               the vendor’s business.

61 Pa. Code §34.2(a)(2)(i)(A).

               The question here, then, is whether it is possible from Taxpayer’s
sales tax records – the invoices – to determine if sales made without collection of
tax were, in fact, non-taxable by being separately stated as required by 72 P.S.
§7201(g)(4).

               Taxpayer provided a sampling consisting of seven of Teleview’s sales
invoices for the service period of September 7-13, 2008. The invoices generally
indicate the category of the charge, the number of days charged, the charge per day
or week, and the total charge. For Taxpayer’s various OTWs, the invoices separate
charges into categories such as “Closed Circuit TV System, Audio System &
Downlink Dishes” and “Large Screen DLP TV’s [sic].”                   The invoice for
Taxpayer’s Live Racing and/or Simulcasting Performances lists charges for
“Closed Circuit Television Systems and Services,” “26” LCD TV’s [sic] and Wall
Mounts for Dial-A-Bet,” and “140 – 15” Color LCD TV’s [sic].” Another invoice
lists various labor charges, including “Labor for Simulcast Only Days” for three
days, “Labor for Live Racing and Simulcast Days” for four days, and includes the

                                           10
State Minimum Wage Differential and the Labor Differential for the Technical
Director. A final, separate invoice states a charge for “One Third of Pennsylvania
Area Technician Manager Labor.”

             Also submitted as evidence is Form REV-39, Sales & Use Tax Appeal
Schedule (Form REV-39), and an Excel worksheet prepared by David Parfrey,
Taxpayer’s Director of Finance, which states all of Teleview’s charges during the
Audit Period, including those of the above invoices, with a description of either
“Closed Circuit Television Service” or “Help Supply Labor CCTV” that
correspond to each charge. Form REV-39 also indicates the value of each charge,
the state tax for the charge, and an accounts payable county tax of $0 for each
charge.

             The auditor’s summary of the invoices for the Teleview charges were
similarly fashioned, with descriptions of charges as either “CCTV Equipment
Rental” or an occasional “Help Supply Labor,” and indicated that the tax paid on
these charges was $0 across the board.9

      9
          During his deposition, Mr. Parfrey was asked to compare four descriptions on the
auditor’s summary, all stating “CCTV Equipment Rental” with the actual invoices:

             Q:      Okay. In your view is the phrase that the auditor has used
             in [the summary of Teleview’s charges] of, quote, CC TV [sic]
             equipment rental, close quote, an accurate description of what
             actually appears on the actual invoices?

             A:     It is not.

             Q:     Let’s take the first document again, the first invoice 79289
             and instead of saying the words CC TV [sic] equipment rental,
(Footnote continued on next page…)

                                             11
              Upon review of the evidence, we find that neither the auditor nor this
Court can determine from the submitted invoices what was billed for taxable
services versus non-taxable services because they were billed together as one item
on the invoice. Although the invoices separate charges such as “Closed Circuit TV
System, Audio System & Downlink Dishes” from “Large Screen DLP TV’s [sic],”
all taxable tangible property, the invoices do not separate taxable service charges
from non-taxable service charges such as those billed for the installation or service
of said equipment.        Because non-taxable services for simulcasting were not
separately stated from taxable services relating to the service and installation of the

(continued…)

              what does it really say is the items [sic] at issue here or the items
              being invoiced?

              A:      It says closed circuit television systems and services.

              Q:       The auditor at page 13 of Exhibit P-2 … characterizes the
              Teleview contract as involving the, quote, sale and installation of
              audio visual equipment and therefore concludes that it’s a sale of
              what’s referred in the tax rule as tangible personal property. Do
              you think it’s an accurate description of what’s going on there to
              call it sale and installation of audio visual equipment?

              A:      I do not.

              Q:      In what way is that inaccurate?

              A:     This is not a, this is not purely a rental of equipment. They
              are producing and packaging a live show, not only a live show that
              we are running three to four days a week, but they are also
              handling the transmission of signals in from around the country
              and putting them onto TVs for our patrons to wager on.

(Parfrey January 25, 2016 Deposition at 31-32.)

                                               12
equipment charges, those services are presumed to be taxable as part of the
purchase price under 61 Pa. Code §33.2(a)(3).10

                                              2.
              Alternatively, Taxpayer contends that Teleview’s labor charges in
installing and maintaining the equipment are exempt from sales and/or use tax
because the charges qualified as “help supply services” under 61 Pa. Code §60.4(a)
for which Teleview assessed no upcharge.

              Pursuant to Section 201(cc) of the Code, “help supply services” are
subject to tax. “Help supply services” are defined in pertinent part as:

              Providing temporary or continuing help where the help
              supplied is on the payroll of the supplying person or
              entity, but is under the supervision of the individual or
              business to which help is furnished. Such services
              include, but are not limited to, service of a type provided
              by labor and manpower pools, employe leasing services,
              office help supply services, temporary help services,
              usher services, modeling services or fashion show model
              supply services.

72 P.S. §7201(cc) (emphasis added).11

       10
         Pursuant to 61 Pa. Code §33.2(a)(3), “Amounts included in the taxable portion of the
purchase price include: … [t]he charge for labor, service or alteration.”

       11
          61 Pa. Code §60.4 further defines “help supply service” as “[t]he providing of an
individual by a vendor to a purchaser whereby the individual is an employe of the vendor and the
work performed by the individual is under the supervision of the purchaser. (i) The term
includes the type of service provided by labor and manpower pools, employe leasing services,
(Footnote continued on next page…)

                                              13
               Moreover, in SEI Investments v. Commonwealth, 890 A.2d 1130 (Pa.
Cmwlth. 2006), where a taxpayer’s printing equipment was supplied by a
contractor and operated by the contractor’s employees, the taxpayer argued that it
should be exempt from paying taxes on its printing services because it did not have
to perform its own printing services, but rather simply provide the services.12
Finding that the contractor’s operation of the equipment was sufficient to deny the
in-house printing exemption sought by the taxpayer, we affirmed the Board’s
decision to deny the refund, reasoning:

               Here, [taxpayer’s] contention that the nature of the
               operation is the controlling factor, not the identity of the
               operator, is not supported by the plain language of [61
               Pa. Code § ]32.36(a)(4). The regulation requires that the
               in[-]house printing be performed by “employees.” The
               only logical construction of this requirement is that
               taxpayer’s employees must perform the printing services.
               This construction is supported by the remainder of
               subsection (4).      As written, the regulation clearly
               contemplates that the taxpayer is performing the printing
               services and not an outside contractor. Otherwise, it
               would not be necessary to specify that the printing
               activities cannot be an integrated part of the taxpayer’s
               other business activities [see subsection (4)(iv)] or that
               such activities are of a sufficient scope that they could be
               conducted on a separate commercially viable basis [see
               subsection (4)(v)].       Obviously, here, the printing
               activities are of a sufficient scope that they can be
               conducted on a separate, commercially viable basis

(continued…)

office help supply services, temporary help services, usher services, modeling services or fashion
show model supply services.”

       12
           We note that Section 201(k) of the Code and 61 Pa. Code §32.36 provide guidance
specifically relating to printing operations and related businesses.

                                               14
             because [the contractor] is performing them on that very
             basis for a fee. If [the contractor] performed these
             services for [the taxpayer] at its own facilities, there is
             no doubt such services would be taxable. The fact that
             [the contractor] has agreed to provide the same services
             at [the taxpayer’s] premises using [the contractor’s]
             own equipment and personnel does not change the
             taxability of the service. Whether the printing services
             are performed at [the taxpayer’s] premises or [the
             contractor’s], [the taxpayer] has contracted with a
             separate entity, which uses its own personnel and
             equipment to meet [the taxpayer’s] printing
             requirements.

SEI Investments, 890 A.2d at 1136-37 (emphasis added).

             Under its contract with Taxpayer, Teleview was obligated to “provide,
install and maintain” the equipment at issue on Taxpayer’s various properties. In
doing so, Teleview provided its own personnel, whom it supervised and controlled.
If Teleview had performed these services for Taxpayer at its own facilities, these
services would be taxable. As such, Teleview’s performance of such services with
its own personnel for Taxpayer at Taxpayer’s premises does not change the
taxability of the services.

                                         C.
             The other transaction for which Taxpayer challenges its reassessment
involves a 2006 Intellectual Property Agreement (IP Agreement) between
Taxpayer and IGT, under which IGT licensed to Taxpayer the intellectual property
needed to operate its poker machines. Pursuant to the IP Agreement, Taxpayer, as
licensee, was granted a “qualified right and license to Third Party Intellectual

                                         15
Property,” which is defined as “all patents, trademarks, copyrights and trade
secrets … that IGT licensed for incorporation into a Multi-Hand Poker Game.” (IP
Agreement at ¶¶1-2.) In turn, Taxpayer paid IGT royalty fees of $15 or $20 per
day per slot machine – depending on the type of slot machine – on the poker
games. As daily royalties, Taxpayer paid IGT an aggregate sum of $215,985.00
during the Audit Period. Taxpayer argues that the $12, 959 in sales and/or use tax
is not due on the licensing fees it paid to IGT because the licensing of intellectual
property does not fall under the definition of tangible personal property or any of
the taxable services enumerated in Section 201 of the Code, 72 P.S. §7201.

             Addressing whether software licenses are tangible personal property,
in Dechert, LLP v. Commonwealth, 942 A.2d 210, 212 (Pa. Cmwlth. 2008), this
Court reasoned:

             First, pursuant to Section 201(k)(1), a taxable “sale at
             retail” includes the “transfer, for a consideration, of the
             ownership, custody or possession of tangible personal
             property, including the grant of a license to use or
             consume....” 72 P.S. §7201(k)(1) (emphasis added).
             Clearly, a license to use tangible personal property is
             subject to tax. Second, as the Commonwealth notes, [the
             taxpayer] continues to confuse the corporeal software
             program with the intangible right to use and copy the
             software. The object of the transaction is the computer
             program, not the license. Absent the program, the
             license is useless; it is the program, stored on the
             computer hardware, which enables the user to perform
             the desired tasks or functions.

(Emphasis added.) See also Graham Packaging Company, LP v. Commonwealth,
882 A.2d 1076 (Pa. Cmwlth. 2005) (where, under the “essence of the transaction”

                                         16
or “true object” standard, renewals of licenses to use canned software were sales at
retail of “tangible personal property” and, therefore, subject to sales tax; software
was not merely incorporeal knowledge or intelligence, but was a physically
arranged matter that animated computers; and it did not matter whether the initial
or upgraded versions of the software were acquired in disk form or electronically).

               Similarly, the IP Agreement between Taxpayer and IGT licensed
Taxpayer the intellectual property it needed in order to operate its poker machines.
Without the intellectual property, Taxpayer could not use or operate its poker
machines. Thus, the object of the transaction is the intellectual property and not
the license.      Further, just because the Code does not expressly mention
“intellectual property” in its definition of “tangible personal property” does not
mean that it does not constitute tangible personal property. See Dechert, 942 A.2d
at 212 (“we conclude that the Code’s definition of ‘tangible personal property’ is
not rendered ambiguous merely because the statute fails to expressly state that
software licenses constitute tangible personal property….”).

               Accordingly, the orders of the Board are affirmed in part and reversed
in part. They are affirmed insofar as they relate to Taxpayer’s contracts with
Teleview and IGT, and this matter is reversed and remanded to the Board to
recalculate Taxpayer’s taxes due on its contract with MRI.

                                        __________________________________
                                        DAN PELLEGRINI, Senior Judge

Judge McCullough did not participate in the decision of this case.

                                          17
          IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Downs Racing, LP,                      :
                 Petitioner            :
                                       :
             v.                        : Nos. 201 and 202 F.R. 2013
                                       :
Commonwealth of Pennsylvania,          :
                Respondent             :

                                    ORDER

             AND NOW, this 11th day of July, 2016, the orders of the Board of
Finance and Revenue dated January 30, 2013, at Nos. 1111828 and 1211315, are
affirmed insofar as they relate to Downs Racing, LP’s contracts with Teleview and
IGT, and are reversed and remanded to the Board to recalculate Downs Racing,
LP’s taxes due on its contract with MRI. This Order shall become final unless
exceptions are filed within thirty (30) days pursuant to Pa. R.A.P. 1571(i).

                                       __________________________________
                                       DAN PELLEGRINI, Senior Judge