Comptroller of Md. v. Atwood
| Decision Date | 28 July 2021 |
| Docket Number | No. 163, Sept. Term, 2020,163, Sept. Term, 2020 |
| Citation | 256 A.3d 321,251 Md.App. 661 |
| Court | Court of Special Appeals of Maryland |
| Parties | COMPTROLLER OF MARYLAND v. William ATWOOD |
Argued by: Benjamin M. Grossman (Brian E. Frosh, Atty. Gen., on the brief), Baltimore, MD, for Appellant.
Argued by: Robert D. Schulte (Schulte Booth, PC, on the brief), Easton, MD, for Appellee.
Panel: Kehoe, Shaw Geter, Zic, JJ.*
The Comptroller of Maryland ("Comptroller"), appellant, appeals the order of the Circuit Court for Anne Arundel County affirming the ruling of the Maryland Tax Court ("Tax Court"), which found that William Atwood, appellee, is not required to pay a sales and use tax on a "1958 Beechcraft Travelair airplane" ("Aircraft") he purchased because his use of the Aircraft fell under the exemption for use in interstate commerce pursuant to § 11-208(c)(1) of the Maryland Code, Tax – General Article ("Tax Code"). During the first year of ownership, Mr. Atwood used the Aircraft to fly across state lines to give his son flight lessons and to commute to his place of employment in New York.
The Tax Court held, and the circuit court affirmed, that Mr. Atwood used the Aircraft "principally in interstate or foreign commerce." Md. Code Ann., Tax-Gen. § 11-208(c)(1). We shall reverse the judgment of the circuit court and remand this case to it so that the court can remand the case to the Tax Court with instructions to affirm the Comptroller's assessment. We explain.
The Comptroller presents one question for appellate review, which we have rephrased as follows:
Did Mr. Atwood's use of his Aircraft during the audit period, which was principally to provide his son with flight lessons and to commute to his place of employment in New York, fall under the definition of interstate commerce, thus rendering the purchase of the Aircraft exempt from the Maryland sales and use tax pursuant to § 11-208(c)(1) of the Maryland Tax Code?1
We answer the question in the negative and shall reverse the judgment of the Tax Court. We explain.
Mr. Atwood purchased the Aircraft in Ohio and stored it in Maryland,2 his place of residence. Mr. Atwood purchased the Aircraft for $34,000 on February 8, 2017. He did not pay a sales and use tax for the Aircraft in Ohio or in Maryland. The applicable audit period is the first year of ownership of the Aircraft, from February 8, 2017 through February 7, 2018. During the audit period, the Aircraft was flown 126 times; 92 of the flights crossed state lines. Mr. Atwood used the Aircraft primarily to give his son flight lessons and to commute to his place of employment at John F. Kennedy International Airport in New York.
The parties agreed to multiple stipulated facts; the following are of particular importance:
(emphasis added).
Mr. Atwood's son subsequently became certified as a commercial multi-engine pilot, and the flight lessons that Mr. Atwood provided to his son have an estimated value in excess of $100,000. During the flights, Mr. Atwood carried personal property and would often purchase fuel and personal items during stops at various airports. For over 70% of the flights, Mr. Atwood crossed state lines.
On January 4, 2018, the Comptroller assessed Mr. Atwood a sales and use tax for the Aircraft for a total of $2,554.37.3 In May 2018, the Comptroller issued a Notice of Final Determination after Mr. Atwood filed an application to revise the assessment of the sales and use tax. At the hearing, Mr. Atwood argued to the Comptroller that his use of the Aircraft qualified for an exemption from the sales and use tax pursuant to § 11-208(c)(1) of the Tax Code because the Aircraft was used in interstate commerce. The Comptroller affirmed the assessment, concluding that Mr. Atwood's use of the Aircraft to provide his son flight lessons and to commute to and from work was not interstate commerce and thus did not qualify for an exemption under § 11-208(c)(1). Mr. Atwood then filed a Petition of Appeal of the Comptroller's Notice of Final Determination with the Tax Court, arguing that the Aircraft was used principally in interstate commerce during the first year of ownership and was thus exempt pursuant to § 11-208(c)(1).
The Tax Court held a hearing on August 27, 2019. The Tax Court found that "[t]he statute is clear that it applies to the sale of airplanes that are used principally to cross state lines in interstate or foreign commerce." Finding that Mr. Atwood flew the majority of the flights across state lines and that the flight lessons Mr. Atwood provided to his son were a commercial activity, the Tax Court held that the Aircraft qualified for the exemption pursuant to § 11-208(c)(1). The court reasoned that In an order dated September 13, 2019, the Tax Court reversed the Comptroller's assessment of the sales and use tax.
On October 3, 2019, the Comptroller filed a Petition for Judicial Review of the Tax Court's decision with the Circuit Court for Anne Arundel County. The circuit court held a hearing on March 9, 2020. It found that "the Tax Court made the correct determination, that [it] did not make an error in law, [and] there was substantial evidence to support [its] finding." The circuit court affirmed the holding of the Tax Court reversing the Comptroller's assessment of the sales and use tax. This appeal followed.
The decisions of the Tax Court are "subject to the same standards of judicial review as adjudicatory decisions of other administrative agencies." Carbond, Inc. v. Comptroller of the Treasury , 247 Md. App. 79, 84, 233 A.3d 221 (2020) (quoting NIHC, Inc. v. Comptroller of the Treasury , 439 Md. 668, 682, 97 A.3d 1092 (2014) ). Therefore, "on appellate review ‘[w]e review the decision of the Tax Court, not the ruling of the circuit court.’ " Carbond , 247 Md. App. at 84, 233 A.3d 221 (alteration in original) (quoting Comptroller of the Treasury v. Johns Hopkins Univ. , 186 Md. App. 169, 181, 973 A.2d 256 (2009) ). "We give ‘great weight to the Tax Court's interpretation of the tax laws, but review[ ] its application of case law without special deference.’ " Carbond , 247 Md. App. at 84-85, 233 A.3d 221 (alteration in original) (quoting NIHC , 439 Md. at 683, 97 A.3d 1092 ).
"A court's role in reviewing an administrative agency adjudicatory decision is narrow; it is limited to determining if there is substantial evidence in the record as a whole to support the agency's findings and conclusions, and to determine if the administrative decision is premised upon an erroneous conclusion of law." Comptroller of the Treasury v. Taylor , 465 Md. 76, 86, 213 A.3d 629 (2019) (quoting Comptroller of the Treasury v. Taylor , 238 Md. App. 139, 145, 189 A.3d 799 (2018), rev'd , 465 Md. 76, 213 A.3d 629 (2019) ). "We are also required to construe exemptions narrowly and in instances where there is any doubt, rule ‘in favor of the taxing authority.’ " Comptroller of the Treasury v. Martin G. Imbach, Inc. , 101 Md. App. 138, 151, 643 A.2d 513 (1994) (quoting Chesapeake & Potomac Tel. Co. of Md. v. Comptroller of the Treasury , 317 Md. 3, 11, 561 A.2d 1034 (1989) ).
The statute at issue, § 11-208(c)(1) of the Tax Code, states "[t]he sales and use tax does not apply to a sale of an aircraft, motor vehicle, railroad rolling stock, or vessel that is used principally to cross State lines in interstate or foreign commerce ." Tax-Gen. § 11-208(c)(1) (1992, 2016 Repl.) (emphasis added). This exemption to the sales and use tax is further explained in Code of Maryland Regulations ("COMAR") 03.06.01.26.B.4 The language used in COMAR 03.06.01.26.B indicates that aircraft must be involved in the pickup or delivery of items or passengers to qualify for the interstate commerce exemption. See COMAR 03.06.01.26.B(1)–(3) (2021).
The exemption to the sales and use tax for aircraft used principally in interstate commerce has a long history.5 The 1947 version of the sales and use tax statute stated in part that the tax does not apply to "[s]ales which are not within the taxing power of [Maryland] under the Constitution of the United States." Md. Code Ann., Art. 81 § 261(f) (Supp. 1947). In former Comptroller Rule 64, the Comptroller interpreted the language of Article 81 to exempt two categories of sales: "(a) Sales or transactions which occur beyond the territorial limits of the State of Maryland" and "(b) Sales upon which the tax imposes an unreasonable or discriminatory burden on interstate commerce ." Comptroller of the Treasury, Retail Sales Tax Div., Rule 64 (1947) (emphasis added). Former Comptroller Rule 64 further defined the exemption for aircraft engaged in interstate commerce, noting that the exemption applied regardless of whether goods were transported into the State or out of the State. Id. When interpreting former Comptroller Rule 64 and the...
To continue reading
Request your trial