Court Opinion

ID: 6260204
Source: CourtListenerOpinion
Date Created: 2022-02-17 22:00:53.579127+00
Date Added: 2024-06-11T08:59:41.366617
License: Public Domain

Opinion by
Mr. Justice Eagen,
The sole question presented by this appeal is whether the Business Use and Occupancy Tax of Philadelphia, imposed on the use or occupancy of real estate for commercial or industrial activity, is an unequal tax on real estate and thus violates the Uniformity Clause of the Pennsylvania Constitution.1 We hold today that the tax in question is a valid privilege tax on the use of such real estate and, hence, is in no sense violative of the uniformity provision.
The facts and history of the case may be summarized as follows:
On June 4, 1970, the Council of the City of Philadelphia enacted Bill No. 1860 authorizing the Board of Education of the School District of Philadelphia to impose a tax “. . . on the use or occupancy of real estate . . .” within the School District for the purpose of carrying on any commercial or industrial activity.2 The ordinance was to become effective on July 1, 1970.
*570On June 8, 1970, the Board of Education passed a resolution imposing the tax authorized by Bill No. 1860.
*571On June 17, 1970, the appellees, various owners-occupiers of real estate in Philadelphia used for business purposes, instituted this suit challenging the tax and requesting this Court to take original jurisdiction. The School District filed preliminary objections, and appellees filed an amended complaint. This Court refused to take original jurisdiction on June 30, 1970.
The case was then argued before the Honorable Edmund B. Spaeth, Jr., on July 21, 1970, after the parties had filed stipulations of facts in lieu of testimony. On August 24,1970, Judge Spaeth filed an opinion holding the tax unconstitutional. The parties then stipulated that Judge Spaeth’s decree nisi be considered as a final decree. A timely appeal was filed with the Court, and our jurisdiction was properly invoked under the Act of June 24, 1895, P. L. 212, as amended, Act of August 14, 1963, P. L. 819, §2, 17 P.S. §191.4.3 The Philadelphia Industrial Development Corporation and the Philadelphia Port Corporation filed a brief as amicus curiae on behalf of the appellees, indicating the detrimental economic effects the proposed tax would have, in their view, on Philadelphia’s ability to attract new industry.
We start with the proposition that the challengers of the constitutionality of state or local taxation bear a very heavy burden in their efforts to overturn such legislation. Campbell v. Coatesville Area School District, 440 Pa. 496, 270 A. 2d 385 (1970) (“clear, palpa*572ble and plain violation” standard applied to local municipal taxation); L. J. W. Realty Corp. v. Philadelphia, 390 Pa. 197, 134 A. 2d 878 (1957) (“clearly, palpably, plainly” leaving “no doubt or hesitation in our minds”). The court below held that the appellees carried that burden inasmuch as the method of computation caused the tax to be levied on real property. We conclude the lower court erred for the reasons that follow.
The use and ownership of property are distinct and separate. The right to use property is just one of the several rights incident to ownership, Henneford v. Silas Mason Co., 300 U.S. 577, 57 S. Ct. 524 (1937); Billings v. United States, 232 U.S. 261, 34 S. Ct. 421 (1913); Ampco Printing v. City of New York, 14 N.Y. 2d 11, 197 N.E. 2d 285 (1964). As stated by Mr. Justice Cardozo in Henneford, supra, “The privilege of use is only one attribute, among many, of the bundle of privileges that make up property or ownership”. 300 U.S. 582, 57 S. Ct. 526-27. And in several cases the United States Supreme Court has upheld taxes on the use of personal property as a form of excise tax. See Henneford v. Silas Mason Co., 300 U.S. 577, 57 S. Ct. 524 (1937) ; Burnet v. Wells, 289 U.S. 670, 53 S. Ct. 761 (1933); Nashville C. & St. L. Ry. v. Wallace, 288 U.S. 249, 53 S. Ct. 345 (1933); Billings v. United States, 232 U.S. 261, 34 S. Ct. 421 (1913); and Hylton v. United States, 3 Dall. 171, 1 L. ed. 556 (1796). While the foregoing cases involved personal rather than real property, as in the case here, this, to us, is of no legal significance. Is there any difference or legal significance between 'that bundle of rights which we call ownership of real property and that termed ownership of personal property? Can it be fairly said that active use is consciously calculated into the ad valorem property tax when, for example, the measure of the property tax of a building suitable to use as a department store, *573but which is empty and not so used, is the same as that of the thriving Wanamaker’s, namely, the fair market value?
The lower court attempted to distinguish certain of the use tax cases cited hereinbefore, especially Henneford v. Silas Mason Co., by noting that an equalizing, non-recurring tax was there being imposed on personal property, i.e., that the use tax was imposed not for the privilege of doing business but to compensate the sales tax by permitting taxation of property brought into and used within the limits of the taxing authority under circumstances that prevented collection of the sales tax.
But, we believe the case of Billings v. United States, 232 U.S. 261, 34 S. Ct. 421 (1913), cannot be distinguished in this fashion. Billings involved the construction and constitutionally of §37 of the Tariff Act of 1909, imposing an annual tax on the use of foreign-built yachts.
The plaintiff argued, inter alia, that the tax was repugnant to the due process clause of the Fifth Amendment because there were many domestic yachts whose use was identical to his which escaped taxation. Important for our purposes is what Chief Justice White had to say in upholding the tax about “use” as the basis for taxation: “[I]t is not ownership but the election during the taxing period of the owner to take advantage of one of the elements which are involved in ownership, the right to use which is the subject upon which the statute places the excise duty. In this view the fact of use, not its extent or its frequency, becomes the test, as distinguished from mere ownership, for that in the statutory sense could exist without use having taken place. . . . Let it be conceded that the ownership of property includes the right to use, plainly we think, as use and ownership are distinguished one from the other in the provision, the word ‘use’ as there em*574ployed means more than the mere privilege of using which the owner enjoys, and relates to its primary signification, as defined by Webster; ‘The act of employing anything or of applying it to one’s service; the state of being so employed or applied’. If the use which arises from the fact of ownership without more was what the statute proposed, then it is inconceivable why the difference between use and ownership was marked in the provision and made the basis of the tax which it imposed. While this construction in this case leads to the same conclusion as does that which the court below affixed to the statute, that is, that it taxed the privilege of use, or, in other words the potentiality of using involved in ownership, inherently there is this fundamental difference between the' interpretation we give and that which the lower court adopted, since the privilege of use is purely passive (or subjective), a right which necessarily pertains to ownership and must exist where there is ownership, as one may not obtain ownership without acquiring the privileges of use which ownership gives. The other, on the contrary, that is, use in the statutory sense, although it arises from ownership, is active (objective), that is, it is the outward and distinct exercise of a right which ownership confers but which would not necessarily be exerted by the mere fact of ownership.” 232 U.S. at 280-81.
The Court’s analysis of the concept of use in the Billings case, supra, points the way to an understanding of the tax under consideration here. In Billings, what was levied upon was the “outward and distinct exercise of a right which ownership confers hut which would not necessarily he exerted hy the mere fact of ownership”. (Emphasis supplied.) 232 U.S. at 281. This active, ongoing exercise of the use of property for commercial purposes is the precise incident which the School Board’s tax falls upon, and with constitutional sanction.
*575It can be conceded without fatality to the appellants’ case that the ad valorem property tax is bottomed on factors which include the intrinsic element of use. “ ‘We have defined market value as the price which a purchaser willing but not obliged to buy, would pay an owner, willing but not obliged to sell, taking into consideration all uses to which the property is adapted and might in reason be applied’.” Flamingo Apartments, Inc. v. Board of Revision of Taxes, 383 Pa. 223, 225, 118 A. 2d 197, 198 (1955). But, it is submitted, this latter element of use is what the Billings court termed “purely passive”. There still remained that active exercise of the right, “that state of being so employed or applied”, which was held taxable to Mr. Billings. In this case, the Philadelphia School Board has gone and done likewise. While economically the incidence of the tax is on the property itself, its legal incidence is on the privilege of using, making it a true excise tax.
It has been said in the past that real estate only has taxable value because of its actual or potential use. Flamingo Apartments, Inc. v. Board of Revision of Taxes, 383 Pa. 223, 118 A. 2d 197 (1955); Hudson Coal Company’s Appeal, 327 Pa. 247, 193 Atl. 8 (1937). While surfacely this statement appears to be unimpeachable, we are persuaded that other cases show that it should not be taken as the all-inclusive and final test. The taxable value of property is not solely derived from its actual use or the uses to which it may be adapted; it is not deemed valueless because it is not able to be put to any use. Marine Coal Co. v. Pgh. M. & Y. R. R. Co., 246 Pa. 478, 92 Atl. 688 (1914). “The particular use [of the land] ... is a mere collateral consideration. In estimating the market value of the land everything which gives it intrinsic value is a proper element for consideration.” Shenango and Allegheny Railroad Co. v. Braham, 79 Pa. 447, 453 (1875).
*576Having persuasively demonstrated, we hope, that the imposition of a tax on the use of real estate is constitutionally permissible, we now address ourselves to the reasons why the lower court ruled that the levy involved was a direct realty tax, rather than an excise tax.
The basic reasons furnished by the lower court in striking down this tax were: (1) that when such a recurring tax as this is imposed on the use by an owner of his own real estate, it is in no wise different from a real property tax;4 (2) because the standard of measurement is not directly related to the exercise of any alleged privilege since the sole method of computing the tax is the assessed value of the land.
As to No. 1, we see no reason in law or logic why, as outlined earlier, if the incident of use can be separated from ownership of personal property and individually taxed, it cannot be so done with real property. To repeat the words, quoted before, of Chief Justice White in Billings v. United States, 232 U.S. 261, 34 S. Ct. 421 (1913), “[X]t is not ownership but the election during the taxing period of the owner to take advantage of one of the elements which are involved in ownership, the right to use which is the subject upon which the statute places the excise duty. In this view the fact of use, not its extent or its frequency, becomes the test, as distinguished from mere ownership, for that in the statutory sense could exist without use having taken place.” 232 U.S. at 280.
The second and principal reason advanced by the lower court, that “the sole method of computing the tax is the assessed value of the land,” fails to take into *577consideration the tawing formula which adjusts the amount of the tax to the space occupied times the number of days of the activity, a rather seismographic test which records all tremors of use and is levied on just those recordings and nothing else.
We would agree that if a tax is assessed solely in the same manner as a real estate tax, i.e., on the total value of the property used, this is a factor to be considered in determining the true nature of the tax, but we cannot agree that this, in itself, renders the tax per se an in rem tax. See United States v. City of Detroit, 355 U.S. 466, 78 S. Ct. 474 (1958). There Mr. Justice Black stated for the majority: “Nevertheless, the Government argues that since the tax is measured by the value of the property used it should be treated as nothing but a contrivance to lay a tax on that property. We do not find this argument persuasive. A tax for the beneficial use of property, as distinguished from a tax on the property itself, has long been a commonplace in this country. See Henneford v. Silas Mason Co., 300 U. S. 577, 582-583. In measuring such a use tax it seems neither irregular or extravagant to resort to the value of the property used; indeed no more so than measuring a sales tax by the value of the property sold.” 355 U.S. at 470, 78 S. Ct. at 476.
We adopt City of Detroit, supra, to the extent that it supports the proposition that the measure of the tax is only one factor, albeit a considerable one, among several by which a determination of the true nature of the tax is to be made by the courts.
The general indicia of a property tax are said to be that it is a levy “on all property or on all property of a certain class... on a specified date in proportion to its value (as assessed by the assessors) . . . the obligation to pay which is absolute and unavoidable and is not based on any voluntary action of the person as*578sessed”. (Emphasis supplied.) Cf. 51 Am. Jur., Taxation, §29. However, the tax obligation involved here is in no way absolute (it can be escaped by not using the property in one of the enumerated ways); it results from the voluntary election by the owner to use the property in a certain way; and it is measured by the extent to which this election is enjoyed.
The court below, in considering Section 3(b) of the ordinance,5 also determined that there would be a conflict within the measure “were the taxing section to refer to privilege and the exemption section to property.” We believe the statute has internal consistency in that Section 3(b) excludes from taxation persons— not property—while the taxing section taxes persons, i.e., business users of property, and not the property which they use or occupy.
Finally, the Philadelphia Industrial Development Corporation and the Philadelphia Port Corporation, as amicus curiae, have characterized the tax as one which would drive many businesses from the city. But this argument is addressed to the wisdom of the legislature and hence is beyond the scope of our consideration. “It has become a mere platitude to state, what has so often been proclaimed, that Courts are concerned, not with the wisdom of legislation, but with the right of the legislative body to enact it—not with policy but with power.” National Biscuit Co. v. Philadelphia, 374 Pa. 604, 608, 98 A. 2d 182, 184 (1953).
Decree reversed and the complaint is dismissed. Each party to pay own costs.
Mr. Justice Cohen took no part in the decision of this case.

 The Uniformity Clause provides: “All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.” Pa. Const, art. VIII, §1 (1968).

 Bill No. 1860, amending Section 19-1800 of The Philadelphia Code, reads, in part, as follows:
“(2) Imposition of the Tax. The Board of Education of the School District of Philadelphia is authorized to impose a tax for general public school purposes on the use or occupancy of real *570estate within the School District of Philadelphia during the tax year beginning July 1, 1970, for the purpose of carrying on any business, trade, occupation, profession, vocation, or any other commercial or industrial activity. This tax is imposed on the user or occupier of real estate.
“(3) Exlusions.
“(a) This authorization shall not include the authority to levy a tax on the use or occupancy of real estate to the extent that the real estate is used or occupied as the dwelling or principal place of residence of the user or occupier or its use or occupancy is subject to tax by the Commonwealth of Pennsylvania under the Tax Act of 1963 for Education.
“(b) This authorization shall not authorize this tax to be imposed upon any person exempt from real estate taxes in the City of Philadelphia.
“(4) Rate of Tax. The tax authorized by this section shall be measured by the assessed value of the real estate at a rate not to exceed $1.25 per $100 of the assessed value of real estate as most recently returned by the Board of Revision of Taxes. The tax to be paid by the user or occupier.shall be computed, as follows:
“Square feet occupied or used Assessed Rate of Days of actual -xxx use or occupancy value Taxation -
Total square feet available for use 360 or occupancy on the real estate
“(5) Collection of the Tax.
“(a) Each owner of real estate used or occupied solely by himself, which use or occupancy is subject to tax under this section, shall make a return to the Commissioner and pay any tax due within 25 days after the end of any month for which any tax is due.
“(b) Each landlord or other person authorized to collect rentals on premises, the use or occupancy of which is subject to tax under this section, shall collect monthly as agent for the School District of Philadelphia, from each user or occupier the proper proportion of the user’s or occupier’s tax and make a return to the Commissioner and pay the total tax collected, together with any *571tax for which the landlord or other person is liable, to the Commissioner within 25 days after the end of any month for which any tax is due.”

 This statute was repealed by the “Appellate Court Jurisdiction Act of 1970”, Act of July 31, 1970, P. L. , 17 P.S. §211.101 et sea (Purdon’s Pennsylvania Legislative Service p. 476) (effective September 11, 1970). Under the 1970 Act, jurisdiction of the present appeal would be in the Commonwealth Court. However, since the appeal was filed prior to September 11, 1970, the Act of 1895 governs and the appeal is properly here.

 In bis able opinion below Judge Spaeth observed, “. . . to speak of an owner’s ‘privilege’ of occupying his real estate is itself a confusion. If someone owns real estate he has a right to occupy it. To denominate his right a privilege is to transform it by dimishing it.”

 Section 3 (b) provides: “This authorization shall not authorize this tax to be imposed upon any person exempt from real estate taxes in the City of Philadelphia.”