USAir, Inc. v. Commonwealth

PALLADINO, Judge.

USAir, Inc. (Taxpayer) appeals from an order of the Board of Finance and Revenue (BFR) which sustained a decision of the Board of Appeals (Board) denying Taxpayer’s claim for a *305refund of Pennsylvania use tax on its purchases of food, nonalcoholic beverages and related non-food supplies for the period February 1, 1986 through December 31, 1987. We reverse.

The parties stipulated to the facts which follow. Taxpayer is a public utility engaged in providing intrastate, interstate and international passenger and freight airline service as a common carrier. In the course of providing transportation services, Taxpayer regularly serves food, non-alcoholic beverages and related non-food supplies1 to passengers and crew while in flight. Taxpayer designates certain flights as “meal flights” on the basis of three factors: 1) the proximity of the flight to what Taxpayer considers to be a “meal hour”; 2) the length of the flight; and 3) the activities of Taxpayer’s competitors on comparable flights.2 The manner in which the food is prepared and served, the type of dishes and packaging used and the accompanying non-food supplies are designed solely for Taxpayer’s use during flight.

Taxpayer provides transportation services and related products, such as food and non-food supplies, to passengers for an all inclusive price. Passengers are not separately charged for any meal or snack.

By letter dated December 30, 1985, the Pennsylvania Department of Revenue (Department) advised Taxpayer that effective February 1, 1986, “[m]eals and related food purchases from caterers or other suppliers for use on flights originating in Pennsylvania will be taxable on their total cost to the airline.”3 This prospective change was not based on either a *306change in the Tax Reform Code of 1971 (Code) 4 or upon any ruling or regulation. Since the inception of sales and use tax in Pennsylvania (March 6, 1956) until January 31, 1986, all airline purchases of food and beverages were excluded from tax.

During the period February 1, 1986 through December 31, 1987, Taxpayer purchased food and beverages from various suppliers for consumption by passengers and crew while in flight. Taxpayer also purchased related non-food supplies. In accordance with the Department’s letter, Taxpayer remitted, with its Sales and Use Tax Returns for this period, $2,167,817.76 in use tax on its estimated purchases of these items.

Taxpayer subsequently filed a Petition for Refund with the Board requesting a refund of use tax in the amount of $2,167,817.76, plus statutory interest. Following a hearing, the Board denied the refund in its entirety. Taxpayer appealed to the BFR which sustained the Board’s decision. Specifically, the BFR held that Taxpayer’s “purchases of passenger and crew meals[,] non-food supplies as well as alcoholic and non-alcoholic beverages are not directly used in the rendition of public utility service or held for resale.” BFR’s Order of July 26, 1989.

On appeal to this court, the primary issue presented5 is whether food, non-alcoholic beverages and related non-food supplies furnished by Taxpayer to passengers and crew members during flight are directly used in the rendition of a public utility service, thereby qualifying for the exclusion from use tax provided in Section 201 (o) of the Code, 72 P.S. § 7201(o ).6

*307Pursuant to Section 202(b) of the Code, a tax of six percent is imposed upon the “use” of tangible personal property within the Commonwealth. 72 P.S. § 7202(b). The Department and Taxpayer agree that Section 201 (o) excludes from this tax tangible personal property used directly in the rendition of a public utility service. Specifically, this statute,7 in its definition of “use”, incorporates the “public utility” exclusion, in pertinent part, as follows:

(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____

72 P.S. § 7201(o )(4)(B)(iii) (emphasis added).8

As a preliminary matter, we note that although “public utility service” is not expressly defined by the Code, this term has been deemed to have the same meaning for sales and use tax purposes as that developed in the area of public utility law. See Commonwealth v. Equitable Gas Company, 415 Pa. 113, 202 A.2d 11 (1964) (the absence of a definition of “public utility service” in the Selective Sales and Use Tax Act, a predecessor to the Code, indicates that the legislature did not wish to *308disturb the categorization of “service” which had already been established by other statutory enactments, the Public Utility Commission and decisional authorities). Section 102 of the Public Utility Code (Utility Code) provides that the term “service”:

[u]sed in its broadest and most inclusive sense, includes any and all acts done, rendered, or performed, and any and all things furnished or supplied ... by public utilities ... in the performance of their duties ... to their patrons, employees, other public utilities, and the public____

66 Pa.C.S. § 102 (emphasis added).

Pursuant to Section 1501 of the Utility Code, a public utility, in the performance of its duties, is required to “furnish and maintain adequate, efficient, safe, and reasonable service and facilities ... as shall be necessary or proper for the accommodation, convenience, and safety of its patrons, employees, and the public.” 66 Pa.C.S. § 1501 (emphasis added). This section also mandates that a public utility provide service which is “reasonably continuous and without unreasonable interruptions or delays.” Id.

Relying upon the statutory provisions of both codes, Taxpayer asserts that its furnishing of food, beverages and related non-food supplies during flight constitutes an element of its public utility service. We agree.

First, we note that a public utility service includes “any and all things furnished or supplied” by Taxpayer in the performance of its duties. In the “broadest and most inclusive sense,” “any and all things” certainly includes the food, beverages and related supplies furnished by Taxpayer during flight.

We find these items to be necessary and proper not only for the “accommodation” of both passengers and crew but for their “convenience” as well. Taxpayer designates certain flights as “meal flights” depending upon the proximity of the flight to a meal hour and the total duration of the flight. In this manner, Taxpayer accommodates the most basic need of its passengers and crew, and as a result, these individuals are *309not inconvenienced by the prospect of missing a meal or of seeking alternative eating arrangements.

Moreover, by designating certain flights as “meal flights”, Taxpayer is better able to provide its customers with air transportation service which is “reasonably continuous and without unreasonable interruptions or delays.” See Mitchell v. Sherry Corine Corp., 264 F.2d 831, 834 (4th Cir.), cert. denied, 360 U.S. 934, 79 S.Ct. 1453, 3 L.Ed.2d 1546 (1959) (the service of in-flight meals “facilitates the interstate operations of the airlines by obviating the delays incident to the service of meals at the airport”).

Last, we find support in the Department’s regulations which further define the scope of the public utility exclusion. In determining whether a particular structure or article is used directly in rendering a public utility service, the regulations provide that consideration is to be given to (1) the physical proximity of the items while in use and the proximity of time of their use to the rendition of the public utility service; (2) the causal relationship between the use of the item and the rendition of the public utility service; and (3) the character of the item as to whether it is in the nature of a general improvement to the premises which would serve various users or is particularly designed or constructed for public utility use. 61 Pa.Code § 32.34(a)(1).9

When applying these elements to the instant case, we find that all of them have been satisfied. Because the food, beverages and supplies furnished by Taxpayer are consumed by passengers and crew while on board the aircraft and during flight, these items are proximate in both physical location and time of use to Taxpayer’s rendering of its public utility service. A causal relationship exists between Taxpayer’s use of these items and its rendition of a public utility service because, as previously noted, common carriers are statutorily mandated to *310furnish service “as shall be necessary or proper for the accommodation [and] convenience” of its patrons and staff. Finally, the stipulated facts indicate that these items are particularly designed for Taxpayer’s use during flight.

Therefore, based upon the foregoing analysis, we conclude that the food, non-alcoholic beverages and related non-food items furnished by Taxpayer to passengers and crew members during flight are directly used in Taxpayer’s rendition of a public utility service. Accordingly, the order of the BFR is reversed and judgment is entered in favor of Taxpayer in the amount of $2,167,817.76 for use tax, plus statutory interest as provided by applicable law. Further, the Department is directed to issue a refund to Taxpayer.

ORDER

AND NOW, July 23, 1993, the order of the Board of Finance and Revenue is reversed and the Prothonotary shall enter judgment in favor of USAir, Inc. in the amount of $2,167,817.76 for use tax, plus statutory interest as provided by applicable law, unless exceptions are filed within thirty (30) days of the date of this order.

It is further ordered that the Department of Revenue issue a refund to USAir, Inc. in the amount of $2,167,817.76, plus statutory interest.

. Non-food supplies include cups, napkins, plasticware, straws, cardboard boxes for snacks and similar food-related items.

. During the period at issue, it was the custom and practice of the airline industry to provide meals to passengers based primarily on these factors.

. The letter also provided that "[s]oft drinks, liquor and malt beverages purchased for sale or use on flights originating in Pennsylvania will be taxable on an amount resulting from the application to such purchases of the ratio between total Pennsylvania passenger miles to total domestic passenger miles by the airline during the previous calendar year.”

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

. Although Taxpayer asserts that its purchases of food, non-alcoholic beverages and related non-food supplies also are excluded from use tax under other provisions of the Code, our resolution of this issue makes unnecessary consideration of the other potentially applicable exclusions.

. Review of a determination of the Board of Finance and Revenue shall be heard by this court on the record. Pa.R.A.P. 1551(a) and 1571(h).

. Reference is made to Section 201 as it was in effect during the period at issue. This section was subsequently amended.

. The rules of construction are clear that exclusions in tax statutes are to be strictly construed against the taxing body and in favor of the taxpayer to the extent that there is any reasonable doubt regarding the meaning of the statutory language. Union Paving Company v. Commonwealth, 148 Pa.Commonwealth Ct. 358, 611 A.2d 360 (1992).

. This regulation also explains that the fact that particular property may be considered essential to the rendering of a public utility service because its use is required either by law or practical necessity does not, of itself, mean that the property is used directly by a public utility. 61 Pa.Code § 32.34(a)(l)(iii).