Court Opinion

ID: 9543357
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:44:48.713171+00
Date Added: 2024-06-11T15:10:12.518957
License: Public Domain

PELLEGRINI, Judge,
dissenting.
I respectfully dissent. I disagree with the majority’s conclusion that food, non-alcoholic beverages and related non-food supplies used in food service are excluded from payment of the 6% use tax because of its finding that those items are used directly in providing a public utility service.1
*311Section 201 (o )(4) of the Tax Reform Code of 19712 (Tax Reform Code), 72 P.S. § 7202(b), excludes personal property from the tax if it is used directly in the rendition of public utility service. It provides:
(4) ... And provided further, That the term “use” shall not include—
(B) The use or consumption of tangible personal property, including but not limited to machinery and equipment and parts therefor, and supplies or the obtaining of the services described in subclauses (2), (3) and (4) of this clause directly in any of the operations of—
(iii) The producing, delivering or rendering of a public utility service, or in constructing, reconstructing, remodeling, repairing or maintaining the facilities which are directly used in producing, delivering or rendering such service. ...
61 Pa.Code 32.34(a)(1) sets forth a three-prong test to determine whether property is directly used in carrying out a “public utility service”. It involves determining:
(i) The physical proximity of the items while in use and the proximity of time of their use to the production, rendition and delivery of the utility service;
(ii) The causal relationship between the use of the item and the production, delivery and rendition of the utility service;
(iii) The character of the item, as to whether it is in the nature of a general improvement to the premises that would serve various users or is particularly designed or constructed for public utility use.
Because the term “public utility” is not defined in the Revenue Code, the majority looks to Section 1501 of the Pennsylvania Public Utility Code (Utility Code), 66 Pa.C.S. § 1501, as an aid in interpreting whether food service falls within the ambit of public utility service. That provision requires utilities to “furnish adequate, efficient, safe and reasonable service ... as shall be necessary or proper for the accommodation, convenience and safety of its patrons, employ*312ees and the public.” Because meals are a “convenience” and an “accommodation” to passengers and flight crew, the majority finds that items used in food service are part of Taxpayer’s public utility service.
The majority then goes on to say that since food service is a “convenience” or an “accommodation” recognized in Section 1501, it becomes part of the utility service, and, as part of, it must be “directly used” in carrying out that service. Only by looking at the more expansive language of Section 1501 unencumbered by the requirement that it be “directly used” can the majority arrive at its conclusion that food service items are excluded from the use tax.
I disagree with the majority’s reasoning because rather than using Section 1501 as an aid in interpreting Section 201(o )(4) or 61 Pa.Code § 32.24(a)(1), the majority makes it the controlling provision in determining whether food service items are excluded from calculation of the use tax. Section 201(o)(4) of the Revenue Code requires that the personal property be “directly used” in providing utility service, and that a “convenience” or an “accommodation” by definition does not meet that standard. That provision requires something more than the item just being “convenient” or a “nice touch” for it to be “directly used”; it requires that it be integral in carrying out the utility service. Under the majority’s interpretation, virtually everything used by any utility could be considered excluded as long as it was shown that it was “convenient” and “accommodates” customers or employees; it results in “directly used” meaning “anything used”. If the General Assembly wanted to exclude for payment of a use tax everything that a common carrier used, it would have said so rather than limit the tax to those items that are only “directly used” in carrying out that service.
Other state courts in interpreting similar provisions have found that “directly used” means that the items must have a necessary and integral effect on carrying out the service to be exempt from the tax, a test that is accomplished in Pennsylva*313nia in 61 Pa.Code § 32.24. In finding that food service3 was not directly used in carrying out the airline’s transportation services, the Tax Court of Indiana, in a case involving the same plaintiff, USAir, Inc. v. Department of Revenue, 542 N.E.2d 1033 (Tax 1989)4 stated:
The service of food on certain flights to airline passengers is not necessary and integral in providing transportation. USAir contends that serving meals on flights is necessary to compete in the field of public transportation. However, passengers bargain for safe and efficient transportation when they purchase tickets and not for the food which may or may not be provided during the flight. There is no evidence that the food is furnished in order to make the actual service of air travel more effective. The food is only incidental to the airline’s transportation service and, therefore, is not necessary and integral to providing transportation.
Affirming that decision, the Supreme Court of Indiana, 582 N.E.2d 777 (1991), went on to explain why food service is not an integral part of providing transportation services:
Some commercial airlines furnish food and costly beverages during flights for the convenience and comfort of passengers to promote ticket sales. Some airlines, on the other hand, attempt to increase their market share in the commercial airline industry by boasting that they can offer cheaper fares because they have limited superfluous amenities such as food and drinks ... The food need not be considered more than an added amenity to air travel and merely incidental to airline’s transportation services.
*314Similarly, the Supreme Court of Virginia in Commonwealth of Virginia v. United Airlines, 219 Va. 374, 248 S.E.2d 124 (1978), in holding that food service was not directly used in providing airline transportation services, stated:
The record shows that food and related items are not served on all United flights. Meals are served to passengers only .when the time of those flights occurs around regular meal hours. The same fare is charged on flights between the same points even when food is not served. Under those circumstances, the service of food is considered a commercial amenity and an operating expense which is necessary in the competitive field of transportation by air. Thus, food and related items cannot be considered essential tangible personal property “used immediately and principally” by United to transport passengers by air in its role as a common carrier.
Because food service is an amenity, it does not meet the three-prong standard set forth in 61 Pa.Code § 32.31(a)(1). While it meets the first prong, because food and beverages are served during the flight, there is no causal relationship between providing airline services and providing food and beverages. As the Commonwealth’s brief points out, “the airplane flies just as well without almonds and omelettes as it does with them.”
I agree with the reasoning of the Indiana and Virginia courts and find that food service items used on flights is not an integral part of that service and not excluded from the use tax. Accordingly, I respectfully dissent.5

. Taxpayer is a common carrier that serves foods, snacks and beverages to its passengers and its flight crew. No separate charge is made to customers for the food service. Food service is not provided on all flights, but only on the flights Taxpayer designates because of duration or other airlines are serving meals on competing flights, or because the flight occurs around regular meal times.

. Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§ 7101-10004.

. Section 58-441.6(u) of the Virginia Tax Code exempts:
[t]angible personal property sold or leased to an airline ... for use or consumption by such airline directly in the rendition of its common carrier service. (Emphasis added).

. Indiana Code 6-2.5-5-27 provides:
Transactions involving tangible personal property and services are exempt from the state gross retail tax, if the person acquiring the property or service directly uses or consumes it in providing public transportation for persons or property. (Emphasis added).

. Because it found that food and beverage items were excluded from the payment of the use tax as they are used in the providing of a public utility service, the majority did not address Taxpayer’s contentions that it was not required to pay the tax because its food and beverages were for human consumption and were for resale. While Section 204(29) of the Tax Reform Code, 72 P.S. § 7204(29), does not require the payment of tax for food or beverages for human consumption, that provision does not apply to food purchased from caterers as defined in 61 Pa.Code § 49.1(a).
USAir also contends that food, beverages and non-food items purchased from its vendors are excluded from taxation under Section 201 (k)(8)(i) which excludes property purchased for resale. I would *315follow the reasoning set forth in Air Jamaica Ltd. v. State of Florida, 374 So.2d 575 (Fla.App.1979); Virginia v. United Airlines, supra, and American Airlines v. Department of Revenue, 58 Ill.2d 251, 319 N.E.2d 28 (1974), all holding that transactions such as these are not sales for resale.