Att v. Comptroller

• Decision Date: 13 September 2007
• Docket Number: No. 1883, September Term, 2005.,1883, September Term, 2005.
• Citation: 932 A.2d 748,176 Md. App. 22
• Parties: AT&T COMMUNICATIONS OF MARYLAND, INC. v. COMPTROLLER OF THE TREASURY.
• Court: Court of Special Appeals of Maryland

932 A.2d 748

176 Md. App. 22

AT&T COMMUNICATIONS OF MARYLAND, INC. v. COMPTROLLER OF THE TREASURY.

No. 1883, September Term, 2005.

Court of Special Appeals of Maryland.

September 13, 2007.

Paul Walter (William C. Sammons, Toyja E. Kelley, on brief), Baltimore, for appellant.

John K. Barry (J. Joseph Curran, Jr., Gerald Langbaum, on brief), Annapolis, for appellee.

Panel: SALMON, DEBORAH S. EYLER, and MEREDITH, JJ.

MEREDITH, J.

AT&T Communications of Maryland, Inc., appeals the decision of the Circuit Court for Baltimore City that affirmed a decision of the Maryland Tax Court. The tax court, in turn, had affirmed a decision of the Comptroller of the Treasury, appellee, to assess AT&T $5,160,899.45, plus interest, for unpaid sales tax based upon sales of "900 telecommunication services." The tax court held that AT&T is liable for the tax because AT&T failed to collect the tax from the consumers and remit it to the State.¹ We hold that AT&T is liable for the sales tax because AT&T was (a) not merely a "common carrier" of the 900 service, and (b) was a jointly-responsible agent of the out-of-state vendors.

Accordingly, we affirm the decision of the circuit court.

Facts and Procedural History

The Maryland sales tax is an excise tax imposed on a retail sale or "a use, in the state, of . . . a taxable service." Maryland Code (2002, 2004 Repl.Vol.), Tax-General Article ("TG"), § 11-102. In 1992, the Maryland General Assembly amended the sales and use tax statute, TG §§ 11-101-11-712, to impose a sales tax on several "telecommunication services." The definition of "taxable services" was amended to include "`900'; `976'; `915' and other `900'-type telecommunication services. . . ." TG § 11-101(m)(5).

The area code "900" is assigned by the Federal Communications Commission, and reflects the type of call being made (one to purchase information or services), rather than the geographic location of the recipient of the call. Telephone calls made to numbers with the area code 900 allow consumers to purchase information or services over the telephone for a fee. To complete a 900 number transaction, the caller dials the ten-digit telephone number beginning with "900" and is connected to an information or content provider who then provides the desired information, such as psychic readings, sports scores, weather information, "date lines," etc.

There are four main participants in a 900 number transaction: (1) the information or content provider, (2) the local exchange carrier, (3) the long-distance carrier, and (4) the purchasing caller. The content provider develops the information or services and determines the amount to charge the caller. The content provider then contracts with either a long-distance carrier (e.g., AT&T) or a local exchange carrier (e.g., Verizon) for the telecommunication services needed to provide the 900 number service. AT&T is a long-distance telephone carrier licensed to transmit 900 number and long distance telephone calls.

AT&T entered into contracts with various content providers who were AT&T's customers located outside Maryland. The contracts stated: "acting as Customer's agent AT&T will perform the following services. . . ." Pursuant to such contracts, AT&T: (a) assigned 900 numbers to the content providers; (b) reviewed the content providers' advertisements and preambles that the callers would receive over the phone, as well as message content; (c) transported the message over part of its network; (d) provided dispute resolution services; and (e) provided billing and collection services for a majority of the content providers. Some of the above functions performed by AT&T were required by federal statutes and regulations, some were required by the local exchange carriers, and some were required by AT&T's own policies.

The 900 number calls that were alleged to be taxable here originated in Maryland, and the calls were charged to a service address in Maryland. On May 17, 2001, the Maryland Comptroller of the Treasury completed an audit, and assessed AT&T with sales and use tax in the amount of $5,160,899.45, plus interest, for "900 telecommunication services" conducted over AT&T's network from January 1, 1992, through February 28, 2001 (the audit period). AT&T applied for a revision of the assessment, arguing that it was not a "vendor" responsible for collecting and remitting the tax under the statute, and that the out-of-state information providers were the responsible vendors.

On July 12, 2001, a hearing was held before the Comptroller. The Comptroller denied AT&T's application for revision, and affirmed the assessment, determining that AT&T was a "co-vendor of 900 telecommunication services along with the information providers, and, therefore, liable for remitting sales tax." AT&T appealed the Comptroller's decision to the Maryland Tax Court.

On March 17 and 18, 2004, a hearing was held before the tax court. On January 3, 2005, the tax court issued an order affirming the assessment and finding AT&T liable for the tax on the 900 service. AT&T petitioned for judicial review of that decision in the Circuit Court for Baltimore City. On September 30, 2005, the circuit court filed a memorandum opinion and order affirming the tax court. On October 19, 2005, AT&T noted an appeal from the circuit court's order.

Standard of Review

Despite its name, the Maryland Tax Court is an administrative agency and not a judicial body. Hanford County v. Saks Fifth Avenue Distribution Co., 399 Md. 73, 88 n. 4, 923 A.2d 1 (2007). Accordingly, a decision of the tax court is accorded great deference. Bennett v. State Dept. of Assessments And Taxation, 171 Md. App. 197, 204, 908 A.2d 759 (2006). We review the tax court's decision in a light most favorable to the agency, and will affirm the decision if it "is not erroneous as a matter of law and is supported by substantial evidence appearing in the record." Id. (citations omitted). See Comptroller of the Treasury v. Blanton, 390 Md. 528, 535, 890 A.2d 279 (2006) ("Unless the Tax Court's decision was erroneous as a matter of law, or its conclusion was not supported by substantial evidence, we must affirm the decision.").

An administrative agency's factual findings are binding upon a reviewing court, so long as they are supported by "substantial evidence" in the record. United Parcel Serv., Inc. v. People's Counsel, 336 Md. 569, 577, 650 A.2d 226 (1994). A reviewing court may not engage in judicial fact-finding. Marsheck v. Board of Trustees of Fire & Police Employees' Retirement System of City of Baltimore, 358 Md. 393, 402, 749 A.2d 774 (2000); Motor Vehicle Administration v. Karwacki, 340 Md. 271, 283, 666 A.2d 511 (1995); Anderson v. Dep't of Public Safety, 330 Md. 187, 212, 623 A.2d 198 (1993). In this context, substantial evidence has been defined as "`such relevant evidence as a reasonable mind might accept as adequate to support a conclusion[.]'" Bulluck v. Pelham Wood Apts., 283 Md. 505, 512, 390 A.2d 1119 (1978) (quoting Snowden v. Mayor of Baltimore, 224 Md. 443, 448, 168 A.2d 390 (1961)).

Although we do not yield to the agency's legal conclusions, "a degree of deference" is nevertheless accorded to the expertise of administrative agencies, even with regard to some legal issues. Maryland Aviation Administration v. Noland, 386 Md. 556, 571-72, 873 A.2d 1145 (2005). In Noland, the Court of Appeals stated that the reviewing court must review the agency's decision in the light most favorable to it and that the agency's decision is prima facie correct and presumed valid. Id. at 571, 873 A.2d 1145; see also Catonsville Nursing v. Loveman, 349 Md. 560, 569, 709 A.2d 749 (1998); CBS v. Comptroller, 319 Md. 687, 698, 575 A.2d 324 (1990); Ramsay, Scarlett & Co., v. Comptroller, 302 Md. 825, 834-835, 490 A.2d 1296 (1985).

Discussion

I. AT&T is not merely a common carrier for the 900 service

AT&T argues that it merely acted as a "common carrier" for the 900 number service because it only provided "transport services" for the out-of-state content providers, and it did not sell any information or services to Maryland consumers. AT&T maintains that, as such a common carrier, it does not have the necessary ties to Maryland to be taxed for providing the 900 service. We agree, however, with the tax court's determination that AT&T is jointly liable with the out-of-state vendors for the sales tax, because, in this case, AT&T's function exceeded that of a common carrier with regard to the 900 service.²

The sales and use tax statute provides that a "vendor" is obligated to collect the tax from the buyer, and the buyer is obligated either to pay the tax to the vendor, or directly to the Comptroller. TG § 11-401(a). See Comptroller of Treasury v. American Cyanamid Co., 240 Md. 491, 494, 214 A.2d 596 (1965) (the sales tax is intended to be paid by the ultimate consumer, and collected from the consumer by the vendor). A vendor is defined in the statute as a person who:

(1)(i) engages in the business of an out-of-state vendor, as defined in § 11-701 [(b)³] of this title;

(ii) engages in the business of a retail vendor, as defined in § 11-701 [(c)⁴] of this title; or

(iii) holds a special license issued under § 11-707 of this title.

(2) "Vendor" includes, for an out-of-state vendor, a salesman, representative, peddler, or canvasser whom the Comptroller, for the efficient administration of this title, elects to treat as an agent jointly responsible with the dealer, distributor, employer, or supervisor:

(i) under whom the agent operates; or

(ii) from whom the agent obtains the tangible personal property or taxable service for sale.

TG § 11-101(o)(1) and (2) (emphasis added).

AT&T itself cannot be an "out-of-state vendor" of the 900 service because AT&T has locations in and does business in Maryland. The Comptroller argues, however, that, pursuant to TG § 11-101(o)(2), AT&T is jointly responsible with the out-of-state vendors for collecting and remitting the...