Court Opinion

ID: 9962274
Source: CourtListenerOpinion
Date Created: 2024-04-23 14:11:16.201712+00
Date Added: 2024-06-11T08:20:13.652653
License: Public Domain

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Jennifer Montgomery,                        :
                 Petitioner                 :
                                            :
      v.                                    :   No. 336 F.R. 2020
                                            :
Commonwealth of Pennsylvania,               :
                Respondent                  :   Argued: February 7, 2024

BEFORE:        HONORABLE RENÉE COHN JUBELIRER, President Judge
               HONORABLE ANNE E. COVEY, Judge
               HONORABLE MICHAEL H. WOJCIK, Judge
               HONORABLE CHRISTINE FIZZANO CANNON, Judge
               HONORABLE ELLEN CEISLER, Judge
               HONORABLE STACY WALLACE, Judge
               HONORABLE MATTHEW S. WOLF, Judge

OPINION NOT REPORTED

MEMORANDUM OPINION
BY JUDGE WOLF                                   FILED: April 23, 2024

      Before the Court is Jennifer Montgomery’s (Montgomery) Petition for
Review of the Board of Finance and Revenue’s (Board) decision denying
Montgomery’s petitions for refund (refund petitions) of sales tax paid on purchases
of two bottles of Perrier non-flavored mineral water (hereinafter, “Perrier”).
Concluding that Perrier is subject to sales tax pursuant to the Tax Reform Code of
1971 (Tax Reform Code or Code),1 the Court affirms the Board’s decision.
                                        Background
      The parties stipulated to the following facts. On June 1, 2019, and June 14,
2019, respectively, Montgomery purchased a single 16-ounce bottle of Perrier from

      1
          Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§ 7101-10004.
Sheetz, Inc. (Sheetz).2 Joint Stipulation of Agreed Upon and Disputed Facts (Joint
Stipulation) ¶¶ 5, 7. For these purchases, Sheetz collected and remitted a total of 24
cents in sales tax. Id. ¶¶ 6, 8, 12. Thereafter, Montgomery filed two refund petitions
with the Pennsylvania Department of Revenue Board of Appeals (Department)
seeking a 24-cent refund based upon her belief that Perrier is natural mineral water
and not subject to sales tax under the Tax Reform Code. Id. ¶ 12. Montgomery also
initiated a class action complaint against Sheetz in the Court of Common Pleas of
Allegheny County alleging the same.3 Id. ¶ 9.
       On October 31, 2019, the Department issued a decision and order denying
Montgomery’s refund petitions. Id., Exhibit C. The Department concluded that
Perrier is carbonated water and, thus, falls within the definition of “soft drink” and
is subject to sales tax pursuant to 61 Pa. Code § 31.28 (defining “soft drink” to
include “carbonated water”). Id.4 Montgomery appealed the Department’s decision
to the Board, which affirmed the denial of the refund petitions on a different basis.
Id., Exhibit D. The Board concluded that Perrier is “carbonated water” and, thus,
qualifies as a “soft drink” per the definition found in Section 201(a) of the Tax
Reform Code, subjecting it to sales tax under Sections 202 and 204. See 72 P.S. §§
7201(a), 7202, 7204.

       2
          Sheetz is an intervenor in this matter. Findings of Fact (F.O.F.), 4/4/2023, No. 3. Except
for the footnotes, Sheetz’s brief is identical to the Commonwealth’s brief, and, thus, the
Commonwealth and Sheetz shall be collectively referred to as “Commonwealth” for purposes of
this opinion.
        3
          The class action was stayed pending the Department’s decision on Montgomery’s refund
requests. Joint Stipulation of Agreed Upon and Disputed Facts (Joint Stipulation) ¶ 11.
        4
          The Court notes that 61 Pa. Code § 31.28 discusses the taxation of items from vending
machines, which is inapplicable to the instant litigation.
                                                 2
       Montgomery petitioned this Court for review and filed the Joint Stipulation
pursuant to Pennsylvania Rule of Appellate Procedure 1571(f).5 The Court held an
evidentiary hearing on the disputed facts on January 24, 2023, and issued findings
of facts on April 4, 2023. The parties submitted their respective briefs, and the
matter is now ready for disposition.6
                                               Issues
       Montgomery raises two issues for this Court’s consideration:

                1. Whether Perrier is a mineral water that is excluded from
                sales tax pursuant to Section 204(25) and (29)(i) of the Tax
                Reform Code.

                2. Whether Perrier is artificially carbonated and thus
                subject to sales tax as a “soft drink” pursuant to Section
                204(29)(i) of the Tax Reform Code.
Montgomery’s Brief at 1-2.
                                          Relevant Law
       We begin with a review of the relevant law. Section 202(a) of the Tax Reform
Code imposes a six percent sales tax upon the sale “at retail of tangible personal

       5
           Rule 1571(f) provides:

                (f) Record. No record shall be certified to the court by the Board of
                Finance and Revenue. After the filing of the petition for review, the
                parties shall take appropriate steps to prepare and file a stipulation
                of such facts as may be agreed to and to identify the issues of fact,
                if any, which remain to be tried. See Pa.R.A.P. 1542 (evidentiary
                hearing).

Pa.R.A.P. 1571(f).
       6
         This Court reviews decisions of the Board de novo based on stipulated facts or a record
created before this Court. Pa.R.A.P. 1571(h); Synthes USA HQ, Inc. v. Commonwealth, 236 A.3d
1190, 1193 n.4 (Pa. Cmwlth. 2020). Here, the record consists of the parties’ Joint Stipulation and
attached exhibits and this Court’s April 4, 2023 Findings of Fact.
                                                  3
property.” 72 P.S. § 7202(a). Section 204 of the Code limits sales taxation, in
relevant part, as follows:

              The tax imposed by [S]ection 202[, 72 P.S. § 7202,] shall
              not be imposed upon any of the following:

                                     ....

                  (25) The sale at retail or use of water.

                                     ....

                  (29) The sale at retail or use of food and beverages for
                  human consumption, except that this exclusion shall
                  not apply with respect to--

                     (i) Soft drinks[.]
72 P.S. § 7204(25), (29)(i). The Code specifically defines the term “soft drinks” as:

              [a]ll nonalcoholic beverages, whether carbonated or not,
              such as soda water, ginger ale, coca cola, lime cola, pepsi
              cola, Dr. Pepper, fruit juice when plain or carbonated
              water, flavoring or syrup is added, carbonated water,
              orangeade, lemonade, root beer or any and all
              preparations, commonly referred to as “soft drinks . . . .”

72 P.S. § 7201(a) (emphasis added).
       The Department issues informal guidance, such as statements of policy, which
are published in Title 61 of the Pennsylvania Code.7 Statements of policy are issued
“[f]or the purposes of providing guidelines to the general public and interpreting law
or regulations[.]” 61 Pa. Code § 3.2.          Relevant to the instant discussion is the
Statement of Policy found at 61 Pa. Code § 60.7 (Statement of Policy 60.7), which
discusses taxation on the sale and preparation of food and beverages. The definition

       7
         Statement of Policy 60.7 is part of Chapter 60 of Title 61, titled “Sales and Use Tax
Pronouncements-- Statements of Policy.” It provides example scenarios to guide consumers in
properly taxing the sale and preparation of food and beverages.
                                              4
of “soft drink” in Statement of Policy 60.7 varies slightly from the definition of “soft
drink” found in the Code. It provides that a soft drink is

               [a] nonalcoholic beverage, in either powder or liquid form,
               whether or not carbonated, such as soda water, ginger ale,
               colas, root beer, flavored water, artificially carbonated
               water, orangeade, lemonade, juice drinks containing less
               than 25% by volume of natural fruit or vegetable juices,
               and similar drinks. The term does not include fruit and
               vegetable juices containing at least 25% by volume of
               natural fruit or vegetable juice. The term does not include
               coffee, coffee substitutes, tea, cocoa and milk or
               noncarbonated drinks made from milk derivatives.

61 Pa. Code § 60.7(a) (emphasis added).8 Under the example scenarios set forth in
the Statement of Policy, soft drinks are subject to sales tax. 61 Pa. Code § 60.7(b).
       The Department also publishes pamphlets and brochures to aide taxpayers in
interpreting the Tax Reform Code, including the Retailer’s Information Pamphlet
(Pamphlet) and Notice of Taxable and Exempt Property (Notice) published in the
Pennsylvania Bulletin. See Joint Stipulation Exhibits F, G. The Pamphlet and
Notice explain to consumers that soft drinks are taxable, while water, “including
non[-]flavored mineral water,” is not. Id., Exhibit F at 7, 21; Exhibit G at 9
(electronic pagination).
       With this legal landscape in mind, the Court turns to the parties’ arguments.
                                Montgomery’s Arguments
       Montgomery advances two arguments in support of her petition for review.
First, she argues that Perrier is excluded from sales tax under Section 204(25) of the
Tax Reform Code because it is natural mineral water. She maintains that the Tax

       8
          Statement of Policy 60.7’s defined terms are preceded by the phrase “[t]he following
words and terms, when used in this section, have the following meanings, unless the context clearly
indicates otherwise.” 61 Pa. Code § 60.7 (emphasis added).
                                                5
Reform Code, the Department’s Statement of Policy, and the Department’s
Pamphlet and Notice are unambiguous that water, including natural mineral water,
is not subject to sales tax. She argues, broadly, that “there is no dispute that Perrier
is a sparkling natural mineral water.” Montgomery’s Brief at 6. Citing specifically
to the Department’s Pamphlet and Notice, she maintains that the Department’s
informal guidance clarifies that all non-flavored mineral water is exempt from tax
and does so without distinguishing between carbonated mineral water and
noncarbonated mineral water. In further support, Montgomery asserts that when
interpreting tax exclusions such as those found in Section 204 of the Code, it is well
settled that the exclusionary provision must be construed against the Commonwealth
and in favor of the taxpayer.           Interpreting Section 204’s water and beverage
exclusions in her favor renders Perrier sparkling natural mineral water, not
carbonated water and, thus, excludes it from sales tax.
       Second, Montgomery argues that Perrier does not qualify for sales tax under
Section 204(29)(i) as a “soft drink” because it is not artificially carbonated.
Focusing solely on the definition of soft drink found in Statement of Policy 60.7,
which includes “artificially carbonated water,” Montgomery maintains that this
Court should conclude Perrier contains natural carbonation. See 61 Pa. Code § 60.7;
see also F.O.F. No. 33 (“[t]he water in the natural springs from which Perrier is
collected is naturally carbonated”). Interpreting the Department’s guidance to mean
that water containing natural carbonation is exempt from tax, she asks this Court to
conclude that Perrier is not taxable as a soft drink under Section 204(29)(i) of the
Code.9

       9
        In her brief, Montgomery avers that because all carbonated beverages go through a similar
carbonating process in a plant setting, to give the term “artificially carbonated water” meaning, it

                                                 6
                              Commonwealth’s Arguments
       The Commonwealth responds that Perrier is not exempt from tax as “water”
under Section 204(25) and holding as such would render the statutory definition of
soft drink superfluous. It maintains that Perrier is “carbonated water” and thus falls
squarely within Section 201(a)’s definition of “soft drink” and is subject to sales tax
under Section 204(29)(i).          By statutory definition, “soft drink” includes “all
nonalcoholic beverages, whether carbonated or not, such as soda water . . .
carbonated water . . . of whatsoever kind.” 72 P.S. § 7201(a) (emphasis added). It
maintains that the statute does not define the term “carbonated” and, thus, the word
shall be construed according to its common and approved meaning. 1 Pa.C.S. §
1903. The term “carbonate” means “to combine or infuse with carbon dioxide.”
Commonwealth’s            Brief      at      10-11       (citing      https://wwww.merriam-
webster.com/dictionary/carbonation) (last visited April 22, 2024).                     Perrier is
carbonated water because it is manufactured by combining a specific amount of
filtered or scrubbed carbonic gas to still water in an industrial plant setting. Id. at 11
(citing F.O.F. Nos. 35, 37, 39). Moreover, this Court found that the process to
carbonate Perrier is the same process used to carbonate Coca-Cola and Pepsi. Id.
(citing F.O.F. No. 40). For these reasons, the Commonwealth submits that Perrier,
a type of carbonated water, qualifies as a soft drink pursuant to the plain language
of the Code.
       Additionally, the Commonwealth claims that Section 204 of the Tax Reform
Code sets forth exemptions to sales tax, not exclusions, and, thus, its application must

can only refer to the source of carbonation. See Statement of Policy 60.7, 61 Pa. Code § 60.7. In
the case of Perrier, carbonic gas and water are “collected from natural springs,” sourced together,
but then separated so the water may be filtered, cleaned, and purified without the carbonic gas and
then combined again for the final product of Perrier. F.O.F. No. 35. Thus, she asks this Court to
conclude that Perrier falls outside the definition of soft drink.
                                                7
be strictly construed against the taxpayer.                See Plum Borough Sch. Dist. v.
Commonwealth, 860 A.2d 1155, 1157 (Pa. Cmwlth. 2004), aff’d, 891 A.2d 726 (Pa.
2006). As a result, this Court must interpret the water and beverage exemptions
narrowly and may not extend either to exempt carbonated water from sales tax.10
       Finally, the Commonwealth avers that because Montgomery lacks any
statutory support for her argument, she improperly relies on the Department’s
informal guidance, such as Statement of Policy 60.7, the Pamphlet, and the Notice.
However, none of these sources support a finding that Perrier is exempt from tax.
While Montgomery advances an argument that artificially carbonated water and
naturally carbonated water are taxed differently, such an argument is wholly
unfounded. Montgomery relies exclusively on the definition of “soft drink” found in
Statement of Policy 60.7 and fails to acknowledge that the statutory language
contained in Section 201(a) of the Code makes no qualifications for naturally or
artificially carbonated water. Instead, the Code simply provides that “carbonated
water,” whether naturally or artificially carbonated, is subject to sales tax. The
Code’s plain and clear language is dispositive, as statements of policy do not
function to provide comprehensive statements of the law or create new exemptions
not contemplated by statute. Thus, even if this Court concludes that Perrier is
“naturally carbonated water,” it is still not exempt under the plain language of the
Tax Reform Code.

       10
           The Commonwealth also advances various other statutory interpretation arguments,
averring that there is a clear legislative intent to tax drinks that are not vital for human life, like
Perrier, and that if Perrier is exempt as water, the inclusion of “carbonated water” in Section
201(a)’s definition of soft drinks is mere surplusage. Commonwealth’s Brief at 13.
                                                  8
                                      Discussion
        The issues raised before this Court bubble down to one question: is Perrier
“water” and, thus, exempt from sales tax under Section 204(25) of the Code, or
“carbonated water” and, thus, taxable under Section 204(29)(i).              “Whether a
particular product fits within a particular category of products excluded from
taxation is a matter of law[.]” O’Boyle’s Ice Cream Island, Inc. v. Commonwealth,
553 A.2d 1033, 1034 (Pa. Cmwlth. 1989). At the outset, the Court addresses the
parties’ disagreement concerning whether Section 204 of the Code sets forth
exclusions from tax or exemptions from tax. Our Supreme Court has explained:

              Whether a tax provision is considered an “exemption” or
              an “exclusion” is not controlled by how it is characterized,
              but by its language and the effect of that language. Section
              204 of the Tax Code is derived from and supplants the
              former Section 3403–203 of what was known as the
              Selective Sales and Use Tax Act of March 6, 1956, P.L.
              (1955–56) 1228, as amended 72 P.S. 3403–203 (Tax Act).
              Like 204, 203 of the predecessor Tax Act was entitled
              “Exclusions to tax”; the “exclusions,” however, were
              generally interpreted as “exemptions” from taxation for
              items that would otherwise be considered “tangible
              personal property.” Courts have continually interpreted
              the modern 204 as containing exemptions, not exclusions.
Crawford Cent. Sch. Dist. v. Commonwealth, 888 A.2d 616 (Pa. 2005) (internal
citations and quotations omitted). Despite its title, Section 204 of the Tax Reform
Code sets forth exemptions to tax, not exclusions, and, thus, must be strictly
construed against the taxpayer. Id.; see also Plum Borough Sch. Dist., 860 A.2d at
1157.
        With this in mind, we turn to the parties’ arguments          We agree with
Montgomery that Section 204(25) unambiguously exempts the sale at retail of water
from sales tax. However, the Court cannot agree with Montgomery that as a matter

                                           9
of law, Perrier qualifies as water. The record in this case consists of, inter alia, the
Court’s findings of fact that were issued following an evidentiary hearing. The
hearing largely focused on the process required to create Perrier. To that end, this
Court found the following facts:

      31. Perrier is sourced from non-flavored mineral water.

      32. Perrier comes from underground natural springs located near the
      village of Vergeze, in Provence, France.

      33. The water in the natural springs from which Perrier is collected is
      naturally carbonated.

      34. The carbonic gas and water in Perrier are independently harvested
      from different depths within the same geologic formation.

      35. The carbonic gas and water in Perrier, which are collected from
      natural springs, are combined at the bottling plant.

      36. Prior to combination, the water in Perrier is chilled, all of the air is
      removed (deaeration,) and any carbonation is stripped out.

      37. Prior to carbonation, filters or scrubbers are used to remove natural
      elements and impurities in the carbonic gas and to ensure a consistent
      carbonation level.

      38. Similarly, prior to combination, impurities are removed from the
      water.

      39. The water then goes through one of two processes – either a
      carbonated tank or an in-line carbonation process – where the carbonic
      gas is added to the water and the carbonation levels are adjusted to reach
      the desired amount for the product.

      40. The processes used are the same used as those for making soft
      drinks like Coca-Cola and Pepsi. There is no alternative process for
      carbonating beverages.

      41. Following these processes, the product is bottled for sale.

                                          10
F.O.F. Nos. 31-41.
      While Montgomery relies heavily on Finding of Fact 31, which states “Perrier
is sourced from non-flavored mineral water,” her argument fails to account for the
remaining factual findings that detail the process used to create Perrier, which
includes stripping the water of its natural carbonation and thereafter combining
water and carbonation in the same way soft drinks such as Coca-Cola and Pepsi are
made. F.O.F. Nos. 36-41. These findings make clear that at the time a consumer
purchases a bottle of Perrier, the non-flavored mineral water has carbonation. A
holding that a mineral water with carbonation is not “carbonated water” (as counsel
suggested during oral argument) flies directly in the face of the plain language of the
Code, which treats “water” and “carbonated water” differently for sales tax
purposes. Accordingly, the Court concludes that Perrier constitutes “carbonated
water” as a matter of law and is subject to sales tax pursuant to Section 204(29)(i)
of the Code as it falls within the definition of “soft drink.”
      The Court also rejects Montgomery’s argument that only “artificially
carbonated water” may be taxed as a soft drink. The definition of soft drink
contained in Section 201(a) of the Code does not contain any “natural” or “artificial”
qualifications, and Montgomery’s reliance on the definition of soft drink used in
Statement of Policy 60.7 does not hold water in the face of the clear and
unambiguous statutory language. See 61 Pa. Code § 60.7. While Montgomery may
argue that it is unclear and there is an ambiguity as to the definition of “carbonated
water” created by the Code and the Statement of Policy as it applies to Perrier, the
Court disagrees. It is well settled that to the extent a definition section in a statement
of policy can be read as in conflict with statutory language, the statutory language
prevails. See Hommrich v. Pa. Pub. Utils. Comm’n, 231 A.3d 1027, 1035 (Pa.

                                           11
Cmwlth. 2020) (“When an agency adopts regulations at variance with the statute,
the regulations, and not the statute, fall by the wayside.”). Indeed, whether the
carbonation in Perrier is natural or artificial is inconsequential to the instant
disposition.11 For purposes of the Tax Reform Code Perrier is “carbonated water”
and subject to tax.
                                          Conclusion
       For the reasons articulated above, the Court concludes that Perrier is
“carbonated water” and thus subject to sales taxation as a “soft drink” pursuant to
Sections 201(a), 202(a), and 204(29)(i) of the Tax Reform Code. The Board’s
decision is affirmed.

                                              __________________________________
                                              MATTHEW S. WOLF, Judge

Judge Wallace concurs in result only.

       11
           Concluding that the statutory language is unambiguous, the Court need not address the
Commonwealth’s remaining statutory interpretation arguments. See 1 Pa.C.S. § 1921(c) (it is only
when the words of a statute “are not explicit” that a court may resort to other considerations, such
as the statute’s perceived “purpose” in order to ascertain the legislative intent).
                                                12
           IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Jennifer Montgomery,                   :
                 Petitioner            :
                                       :
      v.                               :   No. 336 F.R. 2020
                                       :
Commonwealth of Pennsylvania,          :
                Respondent             :

                                    ORDER

      AND NOW, this 23rd day of April, 2024, the order of the Board of Finance
and Review entered May 20, 2020, is AFFIRMED. This Order will become final
unless exceptions are filed within 30 days after the entry of this Order, pursuant to
Pa.R.A.P. 1571(i).

                                       __________________________________
                                       MATTHEW S. WOLF, Judge