(See appropriate section of the ordinance.)12
A. Generally.
(1) "Gross consideration" means gross receipts received in, or by reason of, any sale made, or services rendered or commercial or business transaction occurring in or attributable to the City of Reading including cash, credits, and property of any kind or nature, without deduction on account of the cost of materials, labor, services or other costs, interest or discount paid, or any other expenses whatsoever.
(2) In general, the word "sale" as used in the definition of the term "gross receipts" includes but is not limited to any transfer of title for a consideration. It includes exchange, barter, and bailments.
B. Real estate brokers.
(1) Generally, real estate brokers and agents are required to report as taxable receipts, the commissions and fees received for services rendered as agent in promoting the purchase and sale of real property for others. Brokers and agents not having an office in the City shall report as taxable receipts commissions received on the sale of properties within the City. Such amount does not include the gross selling price of the property, except as set forth in Subsection B(3).
(2) Deduction of shared fee. A real estate broker or agent may exclude from his tax base, any commissions paid by him to another broker, or agent, on account of a contract of purchase or sale initiated, executed, or cleared in conjunction with the broker, salesman or agent to whom the commission or part of the commission is paid.
(3) Commissions paid to a salesman by a broker or agent when the salesman is affiliated with the broker or agent are not excludable from the broker's or agent's tax base.
Broker's sale of owned property. If a person is in the business of taking title to real property and selling the property, he is required to include the gross selling price of the property taxable receipts. The same person may be taxed both as broker and as seller, depending on the nature of the transactions. If he acts as broker, salesman or agent, his tax is based on commissions. If he buys or sells real estate either in his own name or in the name of a straw party, he is taxed on the gross selling price of the real estate.
C. Traveling expenses. Reimbursement of traveling expenses excluded from gross receipts only if the taxpayer incurred such expenses as agent for another from whom the taxpayer receives reimbursement for such expenses.
D. Trade discounts.
(1) Deductions allowed. Trade discounts allowed to customers may be deducted from the gross amount charged in ascertaining the amount to be reported as receipts from sales. Trade discounts include:
(a) Discounts deducted from the face amount of the bill as a method of adjusting the list price.
(b) Discounts unconditionally deducted by customers at settlement of their bills and allowed as a matter of established custom of the trade without regard to the due date of such bills or the form or terms in which such discounts are described or stated on bills.
E. Other discounts.
(1) Deductions allowed. Discounts allowed to customers as cash discounts for prompt payment of their bills may be deducted from gross receipts.
F. Freight delivery, or other transportation charges.
(1) If seller contracts to deliver. If the seller contracts to deliver the property sold to some designated place, or is obligated under the terms of the contract to pay transportation charges to some designated place, the transportation services are rendered to the seller and the freight, delivery or other transportation charges so incurred by the seller may not be deducted from the receipts.
(2) If buyer deducts cost of delivery from payment. If property is sold on terms requiring the seller to deliver such property to a designated place but the purchaser pays the amount of freight, delivery or other transportation charges in the first instance, and deducts such charges from the invoice price in making remittance to the seller, no deduction from gross receipts may be taken by the seller.
(3) If seller advances charges. Where the seller advances the freight, delivery or other transportation charges for the account of the purchaser in accordance with the terms of the contract of sale, such charges may be excluded from gross receipts of the seller, provided:
(a) That such charges are the actual charges incurred and are billed as such to the purchaser; and
(b) That the books and records of the taxpayer clearly indicate such facts.
G. Principal and agent.
(1) General. Receipts from sales made, or services rendered, by an agent for the account of his principal are to be reported by the principal. It is immaterial in such cases whether the customer or the client remits directly to the principal, or to the agent for transmittal to the principal. The agent is required to report as gross receipts only the commission withheld by him as compensations for his services before remitting to his principal and any commissions paid to him after remitting to his principal. No deduction from gross receipts may be taken by the principal for commission paid to or withheld by the agent. A manufacturer's representative is taxable on his gross commissions unless his relationship to the principal is that of employer and employee. This relationship of employer and employee exists if the principal pays social security and unemployment compensation taxes on behalf of the person claiming exemption and if, in the event of an accident in the course of employment, the manufacturer's representative might become entitled to workmen's compensation.
(2) Undisclosed principal. A person selling property, including real property, or rendering services for an unknown or undisclosed principal, is subject to tax as a principal unless there is disclosed in the agent's return the identity of the principal and the amount of the sale made on his behalf.
(3) Condition as to recognition of agency. A person will be regarded as acting as agent or broker in promoting or soliciting sales or rendering services for the account of a principal when it appears:
(a) That the contract or agreement between such persons clearly establishes the relationship of principal and agent.
(b) That the books and records of the agent or broker show the name of the actual owner of the property on whose behalf the sale is made.
(c) That the books and records of the agent or broker show the amount of gross sales and the amounts of commission due thereon.
(4) Collection by agent. Money or property received by a taxpayer, as agent, for transmittal to a third party is not to be reported by such taxpayer as gross receipts, but any commission received by him for his services as agent must be included in gross receipts.
H. Conditional and installment sales.
(1) Reported as cash sales. A person making conditional sales or other installment sales of property is required to report the total selling price of such sales as gross receipts for the tax year in which the contracts of sale are entered into, without regard to the fact that the seller may arrange to receive payment from the purchaser on an installment basis or that such contracts may be discounted or pledged with, or sold to, a finance company.
(2) Property repossessed. Where tangible personal property, sold under a conditional or other installment sales contract, is repossessed by the seller, and the repossessed property is subsequently sold, the receipts from such sales are to be included in the measure of the tax only to the extent that the amount of the sale exceeds the balance due on the original sale at the time of repossession. No deduction shall be allowed upon resale, if the resale price is less than the unpaid balance.
Example: "A" sells personal property to "B" for $10,000 under a conditional agreement of sale. "B" makes several installment payments to "A" totaling $6,000. "B" subsequently defaults and the property is repossessed by "A." "A" is required to report $10,000. He may not deduct from gross receipts the unpaid balance of $4,000 due from "B" at the time of repossession. If the property repossessed by "A" is subsequently sold, the receipts from the sale thereof are to be reported only to the extent which the amount of the sale exceeds the unpaid balance of $4,000. Thus, if the repossessed property sold for $5,000, "A" is required to report only $1,000 as additional receipts; if the property is sold for $3,000, "A" is not required to report any portion of such receipts and is entitled to $1,000 deduction from his current year's gross receipts.
I. Exchanges between dealers in similar lines. Where dealers engaged in similar lines of business exchange articles of tangible personal property and one of them makes payment to the other in addition to the property exchanged by him, the transactions constitute sales to each other. The receipt of each dealer is measured by the gross value of the consideration received by him. Where a dealer transfers property, such as an automobile, to another dealer with the understanding that property of identical description will be returned at a subsequent date, such transaction does not constitute a sale and the value of the property exchanged need not be included in the gross receipts of either dealer. Receipts by dealers from sales to other dealers in the same line where the dealer transfers title or possession at the same price for which he acquired the merchandise may be excluded from gross receipts.
J. Consignment transactions. The status of a person accounting for receipts from consignment transactions will depend on the terms and conditions expressly set forth in the contract between the consignor and the consignee. In all cases, the substance rather than the form of the relationship between the parties shall be the determining factor. Where the contract does not clearly set forth the status of the parties thereto, the following principles shall apply:
(1) City of Reading consignor. If the person located in the City of Reading ships goods on consignment to a person located outside the City of Reading for subsequent sale by such consignee, the consignor is not deemed to be doing business at the location of the consignee, nor will such location be recognized as a branch of the consignor. When the consignee makes a sale of the consignor's goods, the consignee will be deemed to have purchase of the goods from the consignor at such time for resale to his (the consignee's) customer. Such transactions are deemed to result in either wholly taxable or wholly exempt receipts to the consignor at the time the consignee consummates the sale with his (the consignee's) customer. If the consignee is located within Pennsylvania, the receipts will be considered wholly taxable receipts. If the consignee is located outside of Pennsylvania the receipts will be considered either wholly taxable or exempt according to § 549-506 as if the consignee is considered the buyer.
(2) Out-of-City of Reading consignor. If a person located outside City of Reading ships goods on consignment to a person located in City of Reading for subsequent sale by such consignee, the consignor will be deemed to have sold the goods to the consignee at the time the consignee sells the goods to his (the consignee's) customer. Such transactions are deemed to result in either wholly taxable or exempt receipts to the consignor, depending upon the location of such consignor. If the consignor is located within Pennsylvania, the receipts will be considered wholly taxable receipts; if the consignor is located outside Pennsylvania, the receipts will be considered exempt receipts.
K. Leased departments.
(1) Return by lessor. Where a person leases a department of his business to another, such person may include in his return the gross receipts from business done and sales made by lessee. When the business of such leased department is included in the return made by the lessor, a schedule must be attached to the return containing the name of the lessee, a description of the department operated, and a statement to the effect that the lessor assumes liability for reporting the gross receipts and paying the tax accruing against the lessee of such department. The lessee, however, is not relieved from his liability for business privilege taxes if the lessor fails to make a proper return or fails to pay the tax due. Should a change occur in the ownership or status of any leased department, the lessor shall notify the Business Administrator promptly.
(2) Return by lessee. If the lessee wishes to file returns independently, such lessee is required to include in his return the entire gross receipts of said lessee whether collected by the lessor, or the lessee without deducting any expenses or commissions charged to him by the lessor. To expedite the examination and audit of returns filed by such lessee, the Business Manager may require the lessor to furnish a statement of the entire gross receipts collected on behalf of the lessee.
L. Persons erecting buildings or otherwise altering, repairing, or improving real property.
(1) General. A contractor or subcontractor, resident or nonresident, engaged in City of Reading in the business of erecting buildings or otherwise altering, repairing or improving real property, is required to report as gross receipts all receipts derived from the performance of such contract. The amount of receipts to be included in the tax base shall be the full contract price, that is, the total amount received or receivable by way of a fixed or determinable amount under the terms of the contract. The contract price will be considered to include all charges made by a contractor, or subcontractor for materials, labor, or other obligations for which the contractor becomes liable in the performance of the contract. In the case of a contractor, no deduction may be made with respect to amounts paid to subcontractors and materialmen.
(2) Cost-plus contracts. A general contractor performing contracts on the basis of "cost- plus-a-fixed-fee" or "cost-plus-a-percentage" is required to report as gross receipts the full contract price as explained above; unless he has no connection whatsoever with the purchase of materials and/or the hiring of labor. In cases where the owner of the property buys the materials and hires all labor in his own name and pays the general contractor a fixed fee, or a percentage of the total cost to supervise and direct the construction project, the general contractor will be required to report only the gross amount of the fee or percentage received. Where the owner authorizes the general contractor to make for him such purchases of tangible personal property, or hire such labor or engage such subcontractors as are necessary for the performance of the contract and: pledges his credit and is liable in the first instance to the materialmen, suppliers, laborers or subcontractors, as distinguished from merely guaranteeing payment to them or undertaking to reimburse the general contractor for the cost of such materials, services or subcontractors; and agrees to make payment directly to the materialmen, suppliers, laborers or subcontractors, such sales or services will be regarded as made directly to the owner, and the general contractor will not be required to include such items in his gross receipts.
(3) Government contracts. Receipts from the performance of contracts entered into with the City of Reading or the Commonwealth of Pennsylvania, or the United States of America or any subdivision of such governments are to be included in the measure of the tax.
M. Contractors who repair, alter, and improve tangible personal property. Persons engaged in business in the City of Reading as contractors who repair, alter and improve tangible personal property for the account of others are subject to tax under the provisions of the Business Privilege Tax Ordinance [Part 4]. When contractors perform labor or services on articles of tangible personal property furnished by the other party to the contract, such contractors are required to report only the amount due them for labor or services rendered.
N. Buildings, hotels, motels, apartment houses, boarding houses, nursing homes, etc.
(1) Generally, persons operating hotels, motels, apartment houses, boarding houses, nursing homes, rooming houses and all other such establishments are taxable on receipts from renting of rooms, furnishing of meals and any other service rendered.
(2) Depreciation, maintenance, etc. Any person carrying on the business of renting buildings, offices, space, stores, dwelling houses, etc. shall include gross rentals received in the tax base. No deductions may be made for depreciation, cost of maintenance, repairs, etc.
(3) Nonprofit corporations and associations. Persons operating private hospitals, nursing homes, and sanitariums are subject to the tax. The law exempts such institutions only when they are operated by a nonprofit corporation or association organized for religious, charitable or educational purposes as set forth in § 549-510.
(4) Pennsylvania room occupancy tax (see § 549-515E).
O. Insurance companies.
(1) Tax base. Insurance companies, whether mutual or stock companies, domestic or foreign, are subject to the tax for the privilege of carrying on business in the City of Reading. The tax for the privilege of writing insurance is based on premiums received from risks in the City of Reading without any deductions therefrom for any costs or expenses whatsoever.
(2) Reinsurance. Reinsurance assumed shall not be included in the tax base; reinsurance is not deductible from gross receipts.
(3) Return premiums and dividends. Receipts from premiums include gross direct premiums, less return premiums thereon. Dividends credited to policyholders may be deducted if such dividends are in the nature of an adjustment of the premium charged.
(4) Other receipts. Receipts from servicing mortgages, operating hotels, etc., are to be included in the tax base.
(5) Exemptions. (See § 549-511)
P. Insurance agents, brokers, and underwriters.
(1) General agents. General agents for insurance companies are required to report as gross receipts the entire commissions received as compensation for their own efforts on policies sold by them directly and the overriding commissions received by them upon business produced by brokers or subagents.
(2) Brokers or subagents. Brokers or subagents are required to report as gross receipts the commissions received as compensation for their service.
(3) Employee of single company. A person who represents a single insurance company is subject to tax hereunto unless he:
(a) Devotes his entire time to the company;
(b) Is considered by the company to be its employee, and the company pays Social Security and unemployment compensation taxes on behalf of the person claiming the exemption and in the event of an accident in the course of employment, said person is entitled to workmen's compensation; and
(c) Does not employ solicitors, subagents, or other persons to whom he pays salaries, commissions or other compensation in connection with insurance business solicited.
Q. Undertakers, morticians and funeral directors. Persons engaged in business as undertakers, morticians or funeral directors are required to report as gross receipts the total charges made to clients without deducting therefrom any costs or expenses whatsoever. Both the sale of tangible personal property and a charge for rendering service must be included in the tax base.
R. Sale of capital assets.
(1) Generally. The profits (not gross proceeds) resulting from the sale of capital assets, such as plant machinery and equipment, furniture, fixtures, delivery equipment, etc. are to be included in the tax base. If a loss is sustained on such sales, it may not be offset against gross receipts from other sources. In computing the profits to be included in the tax base, the costs of the asset, less allowable depreciation, is to be deducted from the gross proceeds of the sale.
(2) Asset located outside City of Reading. Where the capital asset sold was located at an established place of business of the taxpayer outside City of Reading, the profit realized on the sale thereof may be excluded from the tax base.
(3) Bulk sale or exchange, merger. Where a corporation realizes a gain as the result of a sale or exchange of substantially all of its assets, or as the result of a merger or consolidation with another corporation, the amount of such a gain must be included in the tax base.
S. Deposit on container. A person making a sale of products in a container on which there is a deposit to insure the return of the container is require to report only the gross selling price of the product in the container.
T. Vending machines. The entire gross receipts of vending machines and other mechanical devices which dispense goods, wares, and merchandise are to be included in the gross volume of business of the owner or lessor thereof. No deductions may be made therefrom for splits, rentals, commissions or other remuneration to persons in charge of the machines and/or to the lessees of the premises upon which the machines are located.
U. Intercompany transactions. Receipts from transactions between affiliated companies other than those of a purely accommodation nature, are subject to inclusion in "gross volume of business."
V. Property traded in. In the case of trade-in transactions in which goods, wares and merchandise are sold and allowances made for other property which is traded in and is accepted by the vendor or dealer in part payment of the property sold, the allowance made for the property traded in shall not be deducted from the selling price of the property sold in computing the gross receipts upon which the tax is based. The vendor or dealer must include in his gross volume of business the full selling price of the property sold without any deduction therefrom for any allowance made or property traded in. Where the property traded is subsequently sold by the vendor or dealer, the latter must include in his gross receipts only the amount by which the sale of the article exceeds the trade-in allowance.
W. Refunds, credits or allowances. Refunds, credits or allowances given by the seller to a purchaser on account of defects in goods sold or merchandise returned may be deducted from gross receipts in ascertaining the amount to be reported as taxable.
X. Commissions paid by brokers. Any broker, agent or salesman who splits or otherwise divides a commission with another broker, agent or salesman in the same type of business by reason of the fact that the second broker initiated, executed, cleared or completed a portion of the transaction for which the fee is paid shall be permitted to exclude from his gross receipts that portion of the fee paid to the other broker, agent or salesman. This section does not exempt so-called finders' fees, kickbacks, commissions or other remuneration paid by a broker, agent or salesman to another individual not in the same type of business as the broker, agent or salesman. Nor does this section exempt from the gross receipts of a broker or agent a commission paid by said broker or agent to a salesman affiliated with him.
Y. Bad debts. (See appropriate section of the ordinance.
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Z. Taxes collected as agent for the United States of America, Commonwealth of Pennsylvania, or the City of Reading. Taxes collected as agent for the United States of America, Commonwealth of Pennsylvania, or the City of Reading are excludable from taxable receipts.
12. Editor's Note: See § 549-403.
13. Editor's Note: See § 549-403.