Commonwealth of Pennsylvania Rules on Sale of Air

State and Local Tax

By Jennifer Koehler

The Commonwealth Court of Pennsylvania (“Court”) ruled (Air-Serv Group, LLC v. Commonwealth of Pennsylvania, No. 459 F.R. 2008, April 14, 2011) that air dispensed through an air vending machine is not tangible personal property subject to the Pennsylvania sales tax. Additionally, the Court ruled that the process of using a vending machine to pump air is not a taxable service and is not subject to the Pennsylvania sales tax.

Air-Serv Group, LLC (“ASG”) owns, installs, maintains and services coin-operated air vending machines that are located at convenience stores and gas stations. ASG charges a fee for the right to use the air vending machine for a specific number of minutes, normally three minutes for 75 cents. The charge relates to the time the air vending machine is available and not to the amount of air that is pumped or the time during which the pump is operated.

The case states that the vending machines do not sell a product that has been changed, altered or bottled but “rather draw air freely from the atmosphere via a compressor.” Only the pressure of the air is changed. Additionally, the vendor stipulated that they charge a fee for the right to use the machine for a fixed number of minutes and are not charging customers for the air itself.

Of note is the dissenting opinion of Judge Leadbetter, who feels that the transactions at issue are taxable. She states that the decision in this case was based upon the characterization of the transactions as involving the sale of air. She believes that the transactions would be better classified as the rental of or license to use air pumps, which are indisputable tangible personal property. “The stipulated facts in this case make it clear that the activity at issue is not the sale of air, but rather the payment for the use of the equipment that can be used to pump air….” Judge Leadbetter further asserts that “(i)f ASG were selling air, one would expect the amount charged to vary with the amount of air sold. However, that is not the case, as ASG is not selling air, it is selling the right to use equipment which can be used to pump air into a tire or tires. The fee is flat because it pays for the use of the equipment for a set period of time.”

For further information, please contact Jennifer Koehler.

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