IN THE COMMONWEALTH COURT OF PENNSYLVANIA


East Coast Vapor, LLC,                           :
                              Petitioner         :
                                                 :
                       v.                        :    No. 48 M.D. 2017
                                                 :    Argued: April 11, 2018
Pennsylvania Department of Revenue,              :
Eileen H. McNulty, Secretary of                  :
Revenue in her official and individual           :
capacity,                                        :
                          Respondents            :


BEFORE:        HONORABLE MARY HANNAH LEAVITT, President Judge
               HONORABLE RENÉE COHN JUBELIRER, Judge
               HONORABLE ROBERT SIMPSON, Judge
               HONORABLE PATRICIA A. McCULLOUGH, Judge
               HONORABLE MICHAEL H. WOJCIK, Judge
               HONORABLE CHRISTINE FIZZANO CANNON, Judge
               HONORABLE ELLEN CEISLER, Judge


OPINION NOT REPORTED

MEMORANDUM OPINION BY
JUDGE COHN JUBELIRER                                 FILED: June 22, 2018


       Before this Court is the Application of East Coast Vapor, LLC (Petitioner) for
Summary Relief1 (Application) on its Petition for Review (Petition), filed in this
Court’s original jurisdiction, seeking a declaratory judgment. Petitioner asserts that
the Pennsylvania Department of Revenue’s (DOR) interpretation of the Tobacco

       1
         The Application included a request for special relief in the form of preliminary injunctive
relief, which, after an evidentiary hearing, this Court granted in part and denied in part by an
Opinion and Order dated January 31, 2018. East Coast Vapor, LLC v. Pa. Dep’t of Revenue (Pa.
Cmwlth., Nos. 48 M.D. 2017, 515 M.D. 2017, filed Jan. 31, 2018) (Cohn Jubelirer, J., single judge
op.) (East Coast Vapor I).
Products Tax Act2 (TPTA) to tax separately packaged component parts of the
“electronic cigarette” (e-cigarette) device that DOR considers “integral” to the
device is unsupported by the TPTA’s plain language. In the alternative, Petitioner
asserts that DOR’s interpretation violates the Uniformity Clause of the Pennsylvania
Constitution. DOR counters that Petitioner has prematurely invoked this Court’s
jurisdiction and should have first exhausted its available administrative remedies by
presenting its claims to the Board of Finance and Revenue (Board). DOR contends
that Petitioner may not bypass the Board because it has not raised a substantial
constitutional challenge to the TPTA and the Board’s review is an available and
adequate remedy.        We concluded in East Coast Vapor, LLC v. Pennsylvania
Department of Revenue, __ A.3d __, __ (Pa. Cmwlth., No. 515 M.D. 2017, filed
June 22, 2018) (en banc) (East Coast Vapor II), slip op. at 25, that the “integral”
component parts of an e-cigarette are not taxable under the TPTA. Based on East
Coast Vapor II, we must reach the same result here. Therefore, we will grant the
Application in part and declare that the separately packaged component parts of an
e-cigarette that DOR considers “integral” to the e-cigarette are not taxable under the
TPTA.


I.     Factual and Procedural Background3
       Petitioner, as relevant here, is a retailer of vaping products. Under the TPTA,
a retailer is subject to a 40 percent tax on “tobacco products,” which include


       2
          Act of March 4, 1971, P.L. 6, added by Section 18 of the Act of July 13, 2016, P.L. 526,
72 P.S. §§ 8201-A–8234-A.
        3
          We briefly set forth the relevant provisions of the TPTA and the factual and procedural
background of this matter. A more detailed background discussion can be found in East Coast
Vapor I and II.



                                                2
“electronic cigarettes.” Sections 1201-A, 1202-A of the TPTA, 72 P.S. §§ 8201-A,
8202-A.4 The TPTA defines “electronic cigarettes” as follows:

       (1)       An electronic oral device, such as one composed of a heating
                 element and battery or electronic circuit, or both, which
                 provides a vapor of nicotine or any other substance and the use
                 or inhalation of which simulates smoking.

       (2)       The term includes:

                 (i)    A device as described in paragraph (1), notwithstanding
                 whether the device is manufactured, distributed, marketed or sold
                 as an e-cigarette, e-cigar and e-pipe or under any other product,
                 name or description.

                 (ii) A liquid or substance placed in or sold for use in an
                 electronic cigarette.



       4
           Section 1201-A of the TPTA defines “tobacco products” as follows:

       (1) Electronic cigarettes.

       (2) Roll-your-own tobacco.

       (3) Periques, granulated, plug cut, crimp cut, ready rubbed and other smoking
           tobacco, snuff, dry snuff, snuff flour, cavendish, plug and twist tobacco, fine-
           cut and other chewing tobaccos, shorts, refuse scraps, clippings, cuttings and
           sweepings of tobacco and other kinds and forms of tobacco, prepared in such
           manner as to be suitable for chewing or ingesting or for smoking in a pipe or
           otherwise, or any combination of chewing, ingesting or smoking.

       (4) The term does not include:

            (i) Any item subject to the tax under section 1206.

            (ii) Cigars.

72 P.S. § 8201-A (emphasis added).



                                                 3
72 P.S. § 8201-A (emphasis added). The TPTA requires the wholesaler to collect
the 40 percent tax at the time “the electronic cigarette is first sold to a retailer in this
Commonwealth.” Section 1202-A(a.1) of the TPTA, 72 P.S. § 8202-A(a.1).5 If the
wholesaler does not collect the tax from the retailer, the same tax is imposed on the
retailer, which the retailer must then remit to DOR. 72 P.S. § 8202-A(b). The TPTA
also imposes a one-time Floor Tax on the retailer, requiring it to pay the 40 percent
tax on any “tobacco products” in its possession as of October 1, 2016. Section 1203-
A of the TPTA, 72 P.S. § 8203-A.
       DOR has interpreted the TPTA to include as taxable under the definition of
“electronic cigarettes” the “integral”6 component parts of an e-cigarette, which DOR
defines as those parts that can only be used in an e-cigarette, such as replacement
coils, regulated mods, and tanks.7 (Hr’g Tr., Jan. 10, 2018, at 141-43); Kingdom

       5
           Section 1202-A(a.1) provides,

       (a.1) Imposition of tax on electronic cigarettes.--A tobacco products tax is
       imposed on the dealer or manufacturer at the time the electronic cigarette is first
       sold to a retailer in this Commonwealth at the rate of 40% on the purchase price
       charged to the retailer for the purchase of electronic cigarettes. The tax shall be
       collected for the retailer by whomever sells the electronic cigarette to the retailer
       and remitted to the department. Any person required to collect this tax shall
       separately state the amount of tax on an invoice or other sales document.

72 P.S. § 8202-A(a.1).
        6
          Previously, DOR had used a more expansive definition of component parts.
        7
          We recounted in East Coast Vapor II that the parties have defined replacement coils,
regulated mods, and tanks as follows:

       Replacement Coils: These are made from resistance wire and are used in a tank.

       Regulated Mod: A power supply for an attached tank or atomizer. The device has
       a digital display allowing the user to adjust various settings. Without a
       tank/atomizer this cannot be used as an e-cigarette.




                                                4
Vapor v. Pa. Dep’t of Revenue (Pa. Cmwlth., No. 697 M.D. 2016, filed Jan. 31,
2018) (Cohn Jubelirer, J., single judge op.), slip op. at 17 (Kingdom Vapor I).
Previously, DOR conducted an inventory of Petitioner’s shops and concluded that
Petitioner owes a Floor Tax of $30,691.58 before any penalties are assessed.
Petitioner claims it owes a Floor Tax of only $2491. East Coast Vapor, LLC v. Pa.
Dep’t of Revenue (Pa. Cmwlth., Nos. 48 M.D. 2017, 515 M.D. 2017, filed Jan. 31,
2018) (Cohn Jubelirer, J., single judge op.), slip op. at 8 (East Coast Vapor I).
       As a result of that disparity, Petitioner filed the Petition in this Court’s original
jurisdiction and then the Application, claiming entitlement to summary relief on its
claim for a judgment declaring that “integral” component parts of an e-cigarette are
not taxable under the TPTA and that DOR’s interpretation of the TPTA is
unconstitutional. Petitioner’s arguments, as relevant here, are as follows. Noting
that a taxing statute must be strictly construed, Petitioner argues that DOR has
rewritten the TPTA by taxing separately packaged component parts of an e-cigarette
that DOR considers “integral.” Petitioner points out that the TPTA does not contain
the words “integral” or “components” and argues that the definition of “electronic
cigarette” is limited to the “entire electronic cigarette device” and the liquid or
substance placed in the e-cigarette, not its individual component parts. (Petitioner’s
Brief (Br.) at 24.) The General Assembly, Petitioner argues, could have easily
defined an e-cigarette to include “integral” component parts if the General Assembly
had wanted those items taxed when packaged separately, but it did not do so.
Petitioner asserts that DOR has, therefore, rewritten the TPTA, which it may not do.

       Tanks: A part that holds a certain volume of e-liquid and contains a coil/heating
       element. Used in the PA Medical Marijuana industry and are tax exempt when
       used for that purpose.

East Coast Vapor II, __ A.3d at __, slip op. at 21-22 n.22.


                                                5
While DOR attempts to justify its interpretation on the basis that an e-cigarette could
be sold disassembled in order to evade the tax, that issue is for the General Assembly
to resolve, Petitioner argues. Moreover, Petitioner argues, DOR’s interpretation of
the TPTA violates the Uniformity Clause of the Pennsylvania Constitution.8
Although DOR has acknowledged that it cannot tax items sold by vaping companies
without taxing those same items when sold by non-vaping companies, DOR’s use of
the word “integral” is less than a model of clarity and is arbitrary.
       DOR contends that its interpretation of the TPTA’s definition of “electronic
cigarettes” to include their separately packaged “integral” component parts is correct
because otherwise vaping companies would simply disassemble the e-cigarette
device, sell its parts separately, and have the purchaser reassemble the e-cigarette in
order to evade the tax. The General Assembly, DOR argues, did not intend such an
absurd result.
       In addition, DOR argues that the Petition should be dismissed because
Petitioner has not exhausted its administrative remedies. DOR notes that Petitioner
claims that it is aggrieved by the unlawful collection of taxes, which, DOR argues,
Petitioner may contest by petitioning the Board pursuant to Section 503(e) of the
Fiscal Code, 72 P.S. § 503(e).9 DOR claims “a cursory review of the Petition” shows
that Petitioner has not raised a substantial constitutional challenge, so it may not
bypass the administrative review process. (DOR’s Br. at 8.) Instead, Petitioner
merely alleges unconstitutionality and challenges DOR’s interpretation of the


       8
            The Uniformity Clause of the Pennsylvania Constitution provides: “All taxes shall be
uniform, upon the same class of subjects, within the territorial limits of the authority levying the
tax, and shall be levied and collected under general laws.” Pa. Const. art. VIII, § 1.
          9
            Act of April 9, 1929, P.L. 343, as amended, 72 P.S. § 503(e). Section 503(e) of the Fiscal
Code provides for a right of appeal to this Court by a party “aggrieved by the decision of the Board
. . . on a petition for refund.” Id.


                                                  6
TPTA. Petitioner has not shown, DOR argues, it has suffered any harm because
Petitioner has paid little in taxes. DOR further argues that “‘all that [Petitioner] is
complaining about is money[,]’” that is, the amount of tax Petitioner is required to
pay based on what items are covered by the TPTA, which, if Petitioner’s
interpretation of the TPTA is correct, can be refunded to it through the administrative
process. (Id. at 10 (quoting Sands Bethworks Gaming, LLC v. Pa. Dep’t of Revenue,
958 A.2d 125, 131 (Pa. Cmwlth. 2008)).)
       In response, Petitioner argues that it is not required to exhaust its
administrative remedies by going before the Board. Petitioner asserts that this is
because it has brought a declaratory judgment action challenging the validity of the
TPTA. Where, as here, there is a facial constitutional challenge to a statute, the
administrative agency is not competent to rule on the merits and, thus, the agency
cannot provide complete and adequate relief. In addition, review before the Board
with different entities involved in vaping having to seek a refund would result in
piecemeal litigation, which, again, suggests that review before the Board is
inadequate. Also, Petitioner argues, the Board would not be able to adjudicate
Petitioner’s federal claims, which are currently stayed.10 Further, as in Bayada
Nurses, Inc. v. Department of Labor and Industry, 8 A.3d 866 (Pa. 2010), and
Arsenal Coal Company v. Department of Environmental Resources, 477 A.2d 1333
(Pa. 1984), Petitioner here, were it to proceed through administrative review, would

       10
           On March 13, 2017, DOR removed this proceeding to the United States District Court
for the Middle District of Pennsylvania. DOR then moved to dismiss the Petition for failure to
state a claim. Petitioner, by motion, asked the federal court to abstain and remand the proceeding
to this Court. In a memorandum and order dated July 20, 2017, the District Court granted
Petitioner’s motion to abstain from ruling on its state claims. East Coast Vapor, LLC v. Pa. Dep’t
of Revenue (M.D. Pa., No. 1:17-CV-0452, filed July 20, 2017), slip op. at 22. The District Court,
however, retained jurisdiction over Petitioner’s federal constitutional claims and stayed the matter
until this Court adjudicates Petitioner’s state claims. Id. at 22 n.8.


                                                 7
have to suffer through ongoing uncertainty and expend substantial sums of money,
all while Petitioner’s day-to-day business would be adversely impacted, both
immediately and directly, because of DOR’s evolving interpretation of the TPTA in
this new statutory scheme.


II.   Discussion
      Ordinarily, we would deny the Application because Petitioner has not
exhausted its administrative remedies. As DOR correctly contends, Petitioner has
not brought a facial constitutional challenge to the TPTA. Rather, Petitioner’s
challenges are to DOR’s construction of the TPTA and its alleged unconstitutional
application of the TPTA to Petitioner. Such challenges are insufficient to permit a
party to bypass the administrative review process. Keystone ReLeaf LLC v. Pa.
Dep’t of Health, __ A.3d __, __ (Pa. Cmwlth., No. 399 M.D. 2017, filed Apr. 20,
2018), slip op. at 15; Smolow v. Dep’t of Revenue, 547 A.2d 478, 481 (Pa. Cmwlth.
1988), aff’d per curiam, 557 A.2d 1063 (Pa. 1989). Further, Petitioner has not
shown that it meets the Arsenal Coal exception to the exhaustion doctrine. Bayada,
8 A.3d at 875; Arsenal Coal, 477 A.2d at 1339-40.
      However, we have already adjudicated the merits of Petitioner’s challenge to
DOR’s construction of the TPTA in East Coast Vapor II. In East Coast Vapor II,
the petitioner raised a substantial question as to the constitutionality of the TPTA.
East Coast Vapor II, __ A.3d at __, slip op. at 11. We therefore also addressed the
issue raised here, holding in East Coast Vapor II that the TPTA’s definition of
“electronic cigarettes” does not include the separately packaged component parts of
an e-cigarette that DOR considers “integral” to the e-cigarette device. Id. at __, slip
op. at 23-25. We reasoned that “[a]n electronic oral device” “refers to a singular,



                                          8
integrated device that contains both a heating element and a power source, which,
working together, provides a vapor.” Id. at __, slip op. at 24 (emphasis in original).
The definition of “[a]n electronic oral device,” we noted, “does not include the term
‘integral’ or ‘component parts.’”      Id.    Therefore, we concluded, “‘integral’
component parts of an e-cigarette do not fit within the definition of ‘electronic
cigarette.’” Id. We were not persuaded by DOR’s argument that interpreting the
TPTA in this fashion would lead to absurd results. Highlighting “rational reasons”
the General Assembly might have had for choosing “to tax only the ‘electronic oral
device’ and not its component parts,” we concluded that “a plain language
interpretation of the TPTA does not lead to absurd results merely because some
vaping companies may attempt to evade the tax.” Id.
      Our en banc decision in East Coast Vapor II is binding precedent. Feudale v.
Aqua Pa., Inc., 122 A.3d 462, 468 n.8 (Pa. Cmwlth. 2015). It would serve no useful
purpose to dismiss the Petition for Petitioner to exhaust its administrative remedies
when the issue has been decided. Therefore, we will grant the Application in part
and declare “that DOR’s interpretation of the TPTA to include as taxable separately
packaged component parts of an e-cigarette that DOR




                                          9
considers ‘integral’ is unsupported by the plain language of the TPTA.” East Coast
Vapor II, __ A.3d at __, slip op. at 25.11




                                              _____________________________________
                                              RENÉE COHN JUBELIRER, Judge




       11
           In light of our determination, we need not address the remaining arguments for summary
relief on the bases that DOR’s interpretation of the TPTA violates the Uniformity Clause of the
Pennsylvania Constitution, Pa. Const. art. VIII, § 1, or the separation of powers doctrine. See
Johnson v. Dep’t of Transp., Bureau of Driver Licensing, 805 A.2d 644, 648 n.5 (Pa. Cmwlth.
2002) (stating that “when a case raises both constitutional and non-constitutional issues, the court
should not reach the constitutional issues if the case may properly be decided on non-constitutional
grounds”).


                                                10
        IN THE COMMONWEALTH COURT OF PENNSYLVANIA


East Coast Vapor, LLC,                     :
                         Petitioner        :
                                           :
                   v.                      :   No. 48 M.D. 2017
                                           :
Pennsylvania Department of Revenue,        :
Eileen H. McNulty, Secretary of            :
Revenue in her official and individual     :
capacity,                                  :
                          Respondents      :


                                      ORDER


      NOW, June 22, 2018, the Application of East Coast Vapor, LLC (Petitioner),
for Summary Relief on its Petition for Review is GRANTED to the extent it requests
declaratory relief regarding the interpretation of the Pennsylvania Department of
Revenue (DOR) to include as taxable under the Tobacco Products Tax Act (TPTA),
Act of March 4, 1971, P.L. 6, added by Section 18 of the Act of July 13, 2016, P.L.
526, 72 P.S. §§ 8201-A–8234-A, the separately packaged component parts of an
electronic cigarette (e-cigarette) that DOR considers “integral” to the e-cigarette.
The Court hereby DECLARES that such “integral” component parts of an e-
cigarette are not taxable under the TPTA. Petitioner’s Application is otherwise
DENIED.




                                         _____________________________________
                                         RENÉE COHN JUBELIRER, Judge