Gilberti v. City of Pittsburgh

Opinion by Judge Doyle, This is an appeal by Louis P. Gilberti from a decision and order of the Court of Common Pleas of Allegheny County dismissing Mr. Gilberti’s appeal of a deficiency assessment by the City of Pittsburgh (City) for the City’s Business Privilege Tax (Tax). Specifically, Mr. Gilberti appeals a deficiency of $2,-103.55 for the tax years 1977 through 1980. The City has enacted the Tax pursuant to the statutory authority set forth in Section 2 of The Local [543] Tax Enabling Act, Act of December 31, 1965, P.L. 1257, as amended, 53 P.S. §6902 (Enabling Act). The pertinent portion of the Enabling Act permits political subdivisions such as the City to: . . . levy, assess and collect or provide for the levying, assessment and collection of such taxes as they shall determine on persons, transactions, occupations, privileges, subjects and personal property within the limits of such political subdivisions. . .. (Emphasis added.) Section 243.02 of the Pittsburgh Code (Code) establishes the Tax by providing that “[elvery person engaging in any business in the City shall pay an annual tax at the rate of six mills on each dollar of volume of the gross annual receipts thereof.” “Business” is defined in Section 243.01(a)(1) of the Code as: Carrying on or exercising whether for gain or profit or otherwise within the City any trade, business, including but not limited to financial business as herein defined, profession, vocation, service, construction, communication or commercial activity, or rendering services from or attributable to a bona fide City office or place of business. (Emphasis added.) Section 243.01(e)(3) of the Code, however, provides an exclusion for: [receipts or that portion thereof attributable to interstate or foreign commerce or to a bona fide office or place of business regularly maintained by the taxpayer, outside the City limits, and not for the purpose of evading tax payment, and those receipts which the City is prohibited. from taxing by law. Such receipts shall be segregated so that only that part of the receipts which is properly attributable and alio [544] cable to tbe doing of business in the City shall be taxed hereunder. (Emphasis added.) The facts as found indicate that Mr. Gilberti, an architect, had a bona fide office in the City, but no such office outside of the City. In determining the amount he owed for the Tax, he excluded from his calculation of gross receipts a portion of income which he maintained was attributable to onsite supervision of a construction project outside the City limits. The City deemed the exclusion to be improper. Thus, the question to be considered here is whether the City may impose its Tax upon the entire gross receipts associated with services rendered in part outside the City, when the taxpayer’s sole place of business is located within the City. Mr. Gilberti asserts that the City, by taxing activities outside of its boundaries, has exceeded its authority under the Enabling Act, which Act restricts the City’s taxing authority to “within the limits of the political subdivision. ’ ’ Thus, he maintains that to the extent the Tax is imposed on out-of-city activities it is prohibited by. law and, therefore, constitutes an exclusion under Section 243.01(e)(3) of the Code. The City argues that if there is a “nexus” between the City and the activity taxed there is authority under the Enabling Act to tax the out-of-city receipts. The trial court, in dictum, indicated that it believed the City had exceeded its authority and expressed its desire to “remand the matter back to the City for a hearing to determine what income was generated from services actually performed outside the City and to exclude such income from the taxpayer’s gross income and not to make the determination on whether or not the income was generated through a bona fide office outside the limits of the City.” It refused to do so, however, believing itself to be bound by Katselas v. [545] City of Pittsburgh, 127 P.L.J. 111 (1978), aff’d per curiam No. 2512 C.D. 1977, filed December 19, 1978.1 Katselas dealt with whether a taxpayer had established a bona fide out-of-city office and enumerated criteria to be considered in making such a determination. But, a close reading of Katselas indicates that the legality of taxing out-of-city receipts was never challenged. Instead, the parties assumed such a taxing provision was proper and merely challenged the legal sufficiency of the evidence which established that no bona fide out-of-city office existed. Thus, the trial court’s reliance on Katselas as controlling on the issue of whether the City exceeded its authority is misplaced. What is controlling is Borough of Brookhaven v. Century 21, 57 Pa. Commonwealth Ct. 211, 425 A.2d 466 (1981). Brookhaven involved a business privilege tax and accompanying regulation. The regulation provided that: [i]f a person engaged in a profession or vocation or in rendering personal services maintains a place of business only in the Borough of Brookhaven, the entire receipts from personal services must be included in the measure of the tax whether or not the services are performed in the Borough of Brookhaven. Receipts will be deemed attributable to the Borough of Brookhaven if they result from the efforts of employees who work in, or from, or [546] are attached to taxpayer’s Borough of Brook-haven place of business. (Emphasis added by the Court.) Id. at 213, 425 A.2d at 467. This Court in examining the Brookhaven regulation, and upholding the trial court’s determination that it was invalid, noted that “taxing statutes are strictly construed; in cases of doubt the construction should be against the government.” Id. at 214, 425 A.2d at 467. We further stated that to the extent an ordinance conflicts with its enabling legislation the ordinance is void. Id. We held that the Brookhaven regulation “which taxes all receipts from services ‘whether or not the services are performed in the Borough’ ... is clearly an invalid extension of Brookhaven’s power under the enabling Act.” Id. (Emphasis added by the Court.) We added, “to the extent that Brookhaven is taxing services performed outside its limits, [its] intention [to do so] is futile.” Id. at 215, 425 A.2d at 468. Although Brookhaven was not concerned with the question of whether a bona fide out-of-city office existed, it was concerned with whether the Borough had the power to impose a business privilege tax on activities going on without its borders. We found it had no such power under the same enabling act that controls here. Thus, under Brookhaven, the City lacks the power to impose a business privilege tax on gross receipts arising from services performed outside the City.2 Accordingly, under the rationale in Brook-haven we declare the words “or rendering services [547] from or attributable to a bona fide City office or place of business” appearing in Section 243.01(a)(1) of the Code to be invalid. The City’s argument that the tax has already been declared constitutional in F.J. Busse Co. v. City of Pittsburgh, 443 Pa. 349, 279 A.2d 14 (1971), is not determinative of the outcome here because that case held only that the City had the power to enact a business privilege tax. Busse did not consider the constitutionality of the tax as applied to out-of-city activities. Finding Brookhaven to be controlling, we reverse and remand for recomputation of the Tax. Order Now, May 29, 1985, the portion of Section 243.01 (a)(1) of the Code which reads “rendering services from or attributable to a bona fide City office or place of business” is declared invalid. The decision and order of the trial court No. SA 669 of 1982, dated November 24, 1982 is reversed aud the case is remanded for recomputation of the Tax owed based only upon gross receipts attributable to activities taking place within the City. Jurisdiction relinquished. Footnotes [1] Katselas was an unpublished order of this Court. The parties disagree as to whether it was correctly relied on as precedent by the trial court. Our internal rules now provide that “[a]n unreported opinion of this Court may not be cited as precedent or for any other purpose in any brief, argument or subsequent opinion.” 210 Pa. Code §67.15. We had no such rule at the time the trial court issued its opinion in November 1982. [2] We recognize the inherent difficulty with the application of such a principle. For instance, while a fee paid for attending a meeting outside the confines of the municipality would be clearly exempt, income attributable to a work product which was generated both by gathering information at such an “outside” meeting and fashioning- or processing that information into a final work product in an office within the confines of the municipality, would be very [547] difficult to bifurcate into taxable and nontaxable income. Nevertheless, difficulty with the proof of facts and burden of proof has to be distinguished from the principle of law at issue.