Kuharchik Construction Gets a Greenlight from Commonwealth Court on Traffic Signal Equipment
The en banc Commonwealth Court of Pennsylvania affirmed a Pennsylvania law affecting all electrical contractors installing traffic signals for state and local projects in the Commonwealth. The Court’s opinion in Kuharchik Construction, Inc. v. Commonwealth of Pennsylvania confirmed that poles, mast arms, and pedestal bases installed in connection with traffic signal heads are included in the definition of “traffic signals” in the Tax Reform Code, affirming the July 2020 finding of a three-judge panel that “more than merely the traffic signal head constitutes the ‘traffic signal.’” Poles, mast arms, and pedestal bases installed with traffic signal heads are therefore exempt from state use tax in Pennsylvania.
Construction contractors in Pennsylvania who purchase materials required by their contracts with Commonwealth entities or municipalities typically must pay a “use tax” on those purchases unless the particular materials are exempted by the Pennsylvania Tax Reform Code as “building machinery and equipment” or “BME.” BME includes a laundry list of items that are exempt from tax, including switchgear, speakers, motion detectors, and traffic signals.
The Commonwealth’s Department of Revenue has for the past decade interpreted the term “traffic signals” to include only the traffic signal head (the green, yellow, and red light fixture) and not any of the other associated materials contractors need to purchase and install, like poles, mast arms, and pedestal bases that support the signal head and connect it to the larger traffic control system. As a result, the Commonwealth has been taxing those purchases and charging penalties and interest for contractors who do not pay the tax.
Today’s decision, which reviewed the Commonwealth’s exceptions to the July 2020 decision of a three-judge panel of the Commonwealth Court, confirms that poles, mast arms, and pedestal bases installed with traffic signal heads in fact qualify as BME and are exempt from use tax. For heavy highway electrical contractors performing work for Pennsylvania state and local government entities, these particular purchases are not subject to the Commonwealth’s use tax, and contractors need not pay the use tax for these items or include it in their bids for public work. Furthermore, Kuharchik builds on the recent trend of the Commonwealth Court allowing for more expansive tax exemptions for construction materials that are not clearly and specifically excluded from the exemption.
