Comptroller of the Treasury v. James Julian, Inc., 135

• Decision Date: 23 January 1958
• Docket Number: No. 135,135
• Citation: 137 A.2d 674,215 Md. 406
• Parties: COMPTROLLER OF THE TREASURY of the State of Maryland. v. JAMES JULIAN, Inc., et al., etc.
• Court: Maryland Court of Appeals

Page 406

215 Md. 406

137 A.2d 674

COMPTROLLER OF THE TREASURY of the State of Maryland. v. JAMES JULIAN, Inc., et al., etc.

No. 135.

Court of Appeals of Maryland.

Jan. 23, 1958.

Theodore C. Waters, Jr., Asst. Atty. Gen. and E. F. Engelbert, Staff Atty., Baltimore, for Retail Sales Tax Div. (C. Ferdinand Sybert, Atty. Gen., on the brief), for appellant.

E. Dale Adkins, Jr., Salisbury (Adkins, Potts & Laws, Salisbury, and John Van Brunt, Jr., and Killoran & Van Brunt, Wilmington, Del., on the brief), for appellees.

Before BRUNE, C. J., and HENDERSON, HAMMOND, PRESCOTT and HORNEY, JJ.

HORNEY, Judge.

This is an appeal by the Comptroller of the Treasury (the Comptroller), from an order of the Circuit Court for Wicomico County (Taylor, J.) abating a use tax assessment on certain construction machinery and equipment owned by James Julian, Inc., and James Julian, individually (Julian). ¹

The original determination of tax liability by the Comptroller was appealed by Julian to the Circuit Court for Wicomico County, but before the court acted on the appeal, the record was remanded to the Comptroller for the purpose of taking further testimony, on the motion of Julian and over the objection of the Comptroller. At the second hearing before the Comptroller, Julian introduced additional testimony, but the Comptroller again made a determination to tax liability on January 31, 1957. Again Julian appealed to the circuit court, and Judge Taylor declared that the use tax assessment was erroneous and ordered the assessment abated.

In his brief, the Comptroller contended that the evidence taken at the second hearing before him should not have been considered by the circuit court because that court was without power to remand the case for the taking of further testimony. However, the Comptroller abandoned that point in his argument in this Court and conceded, for the purpose of this case only, that the lower court had the power to remand. The Comptroller preferred not to concede the point for all purposes, and we permitted him to abandon it without prejudice. Julian did not object. Thus, the only question we must decide in this case is whether the evidence taken at both hearings before the Comptroller was sufficient to support the determination of tax liability and the resultant use tax assessment.

Julian, a contractor, is engaged primarily in the construction of state highways. He entered the State of Maryland for the first time in September of 1948 for the purpose of performing a contract with the State Roads Commission to build a road at Starr, near Centreville, in Queen Anne's County. When that project was completed in April of 1949, he removed his equipment from the State. There is no dispute regarding the exempt status of machinery and equipment acquired by Julian prior to its being brought into Maryland for use on the Starr job, it being conceded that Julian was, at that time, a nonresident using the property while temporarily in this State within the meaning of the exemption clause in the statute [Code (1951), Art. 81, sec. 370(e) (Exemptions)], and the regulation interpretative thereof [Rule 76 of the Comptroller of the Treasury (Equipment of Non-Resident Contractors)].

Between April of 1949 and October of 1952, Julian neither resided in this State nor performed any work here, but during that period he submitted nine unsuccessful bids for other highway projects for the State Roads Commission. There were four bids in 1949, two in 1950, one in 1951 and two in 1952. The bonds furnished with each bid were conditioned on the execution of a contract for the performance of the work did on if Julian was the successful bidder, not on the performance of the work thereunder if he were awarded the contract. There was also an unsuccessful bid for the construction of a sewage system for the town of St. Michaels in Talbot County. Each year during the 1949-1952 period Julian continued to qualify for road construction work by furnishing the information required for determining his capacity to submit bids.

Finally, in October of 1952, Julian was awarded a contract to construct the approaches to the Chesapeake Bay Bridge. From time to time thereafter as needed he moved the machinery and equipment he then owned into this State for the purpose of performing the bridge approaches contract. Since then he has been regularly engaged in construction work in Maryland. It is conceded that Julian has paid the use tax on all machinery and equipment purchased outside of and brought into Maryland subsequent to October of 1952.

The assessment in dispute--aggregating $13,995.02, including interest and penalties--involves only the machinery and equipment purchased prior to October of 1952 and brought into Maryland subsequent to that time. One of the exhibits--the one we are principally concerned with in this case--introduced at the second hearing before the Comptroller listed the machinery and equipment the Comptroller claims is subject to the use tax. The exhibit specifically identifies forty-seven items purchased between the years 1948 and 1952, both inclusive, at a total cost of $556,830.65, which had been depreciated to the extent of $241,004.66, leaving a value, after depreciation, of $315,825.99. At that time most of the machinery and equipment had an estimated remaining life of five years. In addition to the dates when most of the items listed were brought into this State--almost all of them in 1953 and 1954 ²--the exhibit also showed the place to which the 'equipment was originally delivered and intended for use', as well as 'where [it] was used prior to entry into the State of Maryland'. In every instance, with one exception, all items were delivered to places and used on jobs outside of this State, principally in Delaware, but also in Pennsylvania on several private projects, but mostly on state highway jobs. ³ The Comptroller conceded at the argument that the first item--a roller, which cost $1,815--should be excluded from the list. Previously, at the second hearing before the Comptroller, Julian had admitted that another item--a turnadozer, which cost $24,900, purchased in Pennsylvania on May 1, 1953, and subsequently delivered in Maryland for immediate use--was taxable. ⁴

Julian also admitted that his gross dollar business in 1955 amounted to approximately two and one-half million on Delaware projects, and about one and one-half million in other states, including Maryland. Before depreciation, his inventory was $1,600,000. After depreciation, it was approximately $700,000. Since 1948 Julian has done approximately $4,542,000 worth of business in Maryland. More important it was Julian's policy to place orders for equipment only after he had obtained a job, at which time he would buy those items necessary to perform the contract. He never purchased equipment for 'inventory' purposes unless it was needed for a job.

Specifically, the Comptroller contends that the assessment was lawful because the only inference which may be drawn from Julian's expanding business and continuous bidding on jobs in Maryland, aided by the applicable statutory presumptions, is that Julian purchased the machinery and equipment assessed to him with a general intent to use it in this State. On the other hand Julian contends that the assessment of the tax was properly abated because the Comptroller failed to show that Julian had a specific intent to use the property in Maryland, at or about the time of the purchased thereof, as was required to make the property assessed taxable under the provisions of Code (1951), Art. 81, sec. 369, as it stood at the time of the assessment. Chapter 332 of the Acts of 1955 amended Section 369, supra, by eliminating the words 'for use, storage or consumption within the State' appearing at the end of the first sentence in the first paragraph thereof. See Code (Cum.Supp.1957), Art. 81, sec. 369. No question is before us in this case as to the effect of that amendment. Julian did not stress the point suggested in his brief to the effect that the use tax assessed in this case, based as it was on 'original costs' instead of the 'after depreciation value' of the property when it was brought into this State, might render the assessment confiscatory and therefore unconstitutional, but he did not concede that the tax assessed was lawful even if it were found that he is subject to the imposition of a use tax.

Judge Taylor, relying on our decision in Comptroller of Treasury v. Thompson Trailer Corp., 1956, 209 Md. 490, 121 A.2d 850, and his belief that the evidence failed to show an intention by Julian to use the assessed property in Maryland at or near the time of purchase, reached the conclusion that he should abate the assessment. We agree.

There is no doubt, under the statute before it was amended in 1955, that the imposition of the use tax requires a purchase of property outside of Maryland with an intent to use such property in Maryland. Comptroller of Treasury v. Thompson Trailer Co., supra; Comptroller of Treasury of Maryland v. American Can Co., 1955, 208 Md. 203, 117 A.2d 559. Since it is not disputed that Julian purchased the machinery and equipment, which has been assessed with the use tax, outside of this State, we are concerned here only with the question of intent to use such property in Maryland.

The Comptroller insists that his determination of tax liability and computation of the tax claimed to be due is prima facie correct under the provisions of Code (1951), Art. 81, sec. 341(3), a sales tax provision, which, by the terms of Section 394 of the same Article of the Code, were made applicable to...