Comptroller of the Treasury v. Glenn L. Martin Co.

• Decision Date: 31 March 1958
• Docket Number: No. 128,128
• Citation: 140 A.2d 288,216 Md. 235
• Parties: COMPTROLLER OF THE TREASURY of the State of Maryland, v. The GLENN L. MARTIN COMPANY, now known as The Martin Company.
• Court: Maryland Court of Appeals

Page 235

216 Md. 235

140 A.2d 288

COMPTROLLER OF THE TREASURY of the State of Maryland, v. The GLENN L. MARTIN COMPANY, now known as The Martin Company.

No. 128.

Court of Appeals of Maryland.

March 31, 1958.

Charles B. Reeves, Jr., Asst. Atty. Gen. and Edward F. Engelbert, Baltimore Cousel Retail Sales Tax Div. (C. Ferdinand Sybert, Atty. Gen. on the brief) for appellant.

William L. Marbury, Baltimore (Piper & Marbury, Charles C. G. Evans, Frederic S. Cross and John Martin Jones, Jr., Baltimore, on the brief) for appellee.

Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson and H. Eugene Heine, Jr., Attys. Dept. of Justice, Washington, D. C., Leon H. A. Pierson, J. Jefferson Miller U. S. Attys., Baltimore, amici curiae.

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

BRUNE, Chief Judge.

This case arises out of a claim by The Glenn L. Martin Company (now known as 'The Martin Company' and referred to below simply as 'Martin') for the refund of Maryland sales and use taxes paid by Martin to the Comptroller on purchases of tangible personal property made by Martin through April 30, 1954, pursuant to three during the period from March 1, 1951, so-called facilities contracts between Martin and departments of the United States Government. The Comptroller denied Martin's claim for refund, Martin appealed to the Circuit Court for Baltimore County and that Court, by its order, reversed the action of the Comptroller and entered judgment for Martin in the amount of $311,539.28. The Comptroller appeals from that order. The amount of the judgment was stipulated by both parties to be correct, if Martin should be held entitled to a refund under paragraph I of its claim, and the decision of the Circuit Court was based upon contentions made in that paragraph.

The essential facts of this case are very similar to those pertaining to the Army contract involved in Comptroller of Treasury v. Aerial Products, Inc., 210 Md. 627, 124 A.2d 805. Martin is a manufacturer of airplanes and parts and of missiles or special weapons for military use. As a result of the Korean War the United States wanted such articles in greater quantity than Martin's existing facilities could produce, and Martin did not have the capital resources to expand its productive capacity to meet the Government's needs. Martin and the Government accordingly entered into three contracts, in two of which the Navy was the interested Department and in the other the Air Force, in order to supply Martin with the tools and equipment needed to produce the articles wanted by the Government. Under these contracts (referred to below as the 'facilities contracts') the Government was to furnish to Martin such available tools and equipment as it had in reserve, Martin was not to procure facilities known to be so available, Martin was to purchase other facilities that might be needed, title thereto was to pass to the Government upon delivery thereof to Martin, the Government was to reimburse Martin for the cost of facilities purchased pursuant to the contract and Martin was to be permitted to use the facilities free of charge or rent in order to manufacture munitions for the Government. All articles purchased by Martin were to be tagged so as to indicate Government ownership and they were so tagged. The Government had the right at any time to remove any property to which it acquired title pursuent to the contract and in one instance, involving a milling machine valued at $200,000, it exercised this power. The Navy contracts further provided that the Government should have the right to inspect and (at least under some circumstances) to reject property purchased by Martin before payment was completed, but generally all items that were within the scope of the contracts had to be accepted, subject to provisions relating to the correction of defects, if any should exist. Provisional payments were to be made by the Government to Martin, and the Government was to have a lien for advance payments on articles contracted for or acquired under any of the facilities contracts 'except to the extent that the Government, by virtue of any other provisions of this contract shall have valid title to such articles, things, materials or other property as against other creditors of the contractor.' The Navy facilities contracts also contained provisions under which the Government would reimburse Martin for any sales and use taxes imposed by any state or local taxing authorities if Martin paid the same under protest and took appropriate steps to preserve any claims for refund. The Air Force contract contained a somewhat similar provision for reimbursement of 'all taxes * * * properly and legally taxed, assessed or imposed upon the Contractor's interest made or created pursuant to the provisions of this contract with respect to part or all of the facilities provided hereunder or the use thereof.'

None of the facilities contracts used the words 'for resale to the Government' which are found at two or more points in the Army contract involved in the Aerial Products case where the facilities to be acquired or purchased thereunder are spoken of as being so acquired or purchased. None of them permits Martin to make a profit on the resale of any of the facilities to the Government.

The first of the two principal questions presented in this case is whether or not the purchases of facilities made by Martin between 1951 and 1954 under the facilities contracts were subject to sales or use taxes under the provisions of Article 81 of the Code relating to such taxes as they read at the times when the purchases in question were made.

The second, which arises only if the answer to the first question is 'no', is whether or not such purchases may constitutionally be subjected to sales and use taxes by amendments to Article 81 of the Code effected by Chapter 3 of the Acts of 1957, which that Act undertook to make retroactive to July 1, 1947, which was the effective date of the Sales and Use Tax Acts adopted in that year.

Taxability Prior to January, 1957.

The Comptroller contends that the dominant purpose of Martin in making the purchases in question was to build up its own production facilities and that no purpose of the purchaser to resell the property was shown. This contention is rested heavily on the absence from the facilities contracts of the words 'for resale to the Government,' on the absence of any profit to Martin on sales of the facilities to the Government and on the claim that Martin could, for at least a 'taxable moment,' use the facilities before title passed to the Government.

The Sales Tax and Use Tax Acts are included as sub-titles in Article 81 of the Code (1951), and references below to pertinent portions of those Acts as in force during the years 1951-1954, inclusive, will be made simply by section numbers.

Section 320(d), a part of the Sales Tax Act, defines 'sale' as including 'any transaction whereby title or possession, or both, of tangible personal property is * * * transferred * * * for a consideration by a vendor to a purchaser * * *.' Section 320(f) defines a 'retail sale' or a 'sale at retail' as including 'the sale in any quantity or quantities of any tangible personal property' and states that '[S]aid term shall mean all sales of tangible personal property to any person for any purpose other than those in which the purpose of the purchaser is to resell the property so transferred in the form in which the same is, or is to be received by him, * * *.'

The Use Tax Act is complementary to the Sales Tax Act (Comptroller of Treasury v. Crofton Co., 198 Md. 398, 84 A.2d 86, 30 A.L.R.2d 1434; Comptroller of Treasury v. Thompson Trailer Corp., 209 Md. 490, 121 A.2d 850). Judge Raine, in his comprehensive opinion in the Circuit Court, said in part: 'The language of the Use Tax sections differs from the Sales Tax provisions, but there is nothing in the record before this Court to indicate what, if any, portion of the taxes paid are 'Use' Taxes and not 'Sales' Taxes. * * * The Comptroller concedes, and it is well established by administrative interpretation that the taxes are complementary and that the Use Tax only applies to those transactions subject to a Sales Tax, but on which no tax has been paid. Consequently, if the transactions are not subject to the Sales Tax, they are not subject to the Use Tax.' To this we add the following passage from Judge Collins' opinion in the Aerial Products case, 210 Md. 631-632, 124 A.2d 807: 'At the argument in this Court the appellant [Comptroller] admitted that there was no evidence under which the Maryland Use Tax could be collected. The question here, therefore, involves only the Maryland Retail Sales Act.'

In the present case both sales taxes and use taxes are involved, but they have been dealt with throughout the proceedings on the basis that the exclusion stated in Section 320(f) was as applicable to use taxes as to sales taxes. This is shown by the absence of any breakdown between the two types of taxes, by the stipulation above mentioned as to the amount, if any, which Martin would be entitled to recover, by the Opinion of the Comptroller (signed by the Hearing Officer), in which it is said that '[e]xactly this same test [whether Martin purchased the property for resale or for manufacturing its own products] should be used in determining whether or not the facilities purchased outside the State of Maryland were subject to the use tax', by the concession in the trial court above referred to, and by the absence of any argument for separate treatment in the appellant's brief. ¹ On this state of the record we think that no question as to possibly different treatment for the two taxes is before us for decision. Rules 831, subd. c, pars. 2 and 4 (relating to Contents of Briefs) and Rule 885 (relating to Scope of Review) of the Maryland Rules; Comptroller of Treasury v. Aerial Products, Inc., supra, and cases...