Comptroller of the Treasury of Md. v. American Can Co., 17

• Decision Date: 07 November 1955
• Docket Number: No. 17,17
• Citation: 208 Md. 203,117 A.2d 559
• Parties: COMPTROLLER OF THE TREASURY OF MARYLAND v. AMERICAN CAN CO.
• Court: Maryland Court of Appeals

Page 203

208 Md. 203

117 A.2d 559

COMPTROLLER OF THE TREASURY OF MARYLAND v. AMERICAN CAN CO.

No. 17.

Court of Appeals of Maryland.

Nov. 7, 1955.

Rehearing Denied Dec. 7, 1955.

Ambrose T. Hartman, Asst. Atty. Gen. (C. Ferdinand Sybert, Atty. Gen., and Edward F. Engelbert, Staff Atty., Baltimore, on the brief), for appellant.

Norwood B. Orrick and Andre W. Brewster, Baltimore (Venable, Baetjer & Howard, Baltimore, on the brief), for appellee.

Before BRUNE, C. J., and DELAPLAINE, COLLINS, HENDERSON and HAMMOND, JJ.

HENDERSON, Judge.

This appeal under Code 1951, art. 81, § 348 is from an order of the Baltimore City Court reversing the Comptroller's denial of the refund of a tax paid under protest. The question presented is whether the Maryland Use Tax can properly be imposed upon raw materials, purchased in another state by a manufacturer and there transformed into machinery and replacement parts, when such machinery and replacement parts are subsequently imported into Maryland for use in manufacturing operations of the same manufacturer in its plants in this State. The facts are stipulated and may be briefly stated.

The appellee, a New Jersey corporation qualified to do business in Maryland, engages in two types of manufacturing, the first being the manufacture of specialized machinery and replacement parts to make food containers, and the second being the manufacture of such containers. The company has no plants in Maryland of the first type, but some of the machinery and parts manufactured outside the State are leased or sold to other manufacturers in the canning and packing industries in Maryland and elsewhere, who make their own containers. the taxability of such transactions is not here involved or contested. It also operates plans of the second type, at least two of which are located in Maryland, and supplies them with the necessary machinery and parts for making containers which are sold to the trade. During the period here in question certain replacement parts manufactured by the Company in another state were delivered to its Maryland can-making plants upon requisition. It is not contended that this constituted a sale, and it is conceded that the parts were not readily obtainable, or obtainable at all, in Maryland, since the Company has exclusive ownership of the special jigs, patterns, dies and designs through which the parts are made, and the various processes and products are protected by patents owned and used exclusively by it. On the other hand, it is conceded that the Company purchases, in other states, rought metal castings, which are made by foundries from the Company's patterns, and bar metal. These materials are machined into the finished product and assembled into complete machines or retained as repair or replacement parts, but none of these manufacturing processes are performed in Maryland. The Comptroller contends that the metal constituting the raw materials, purchased outside the State, is taxable when delivered for use in Maryland in the finished form of replacement parts, in an amount representing the cost of the raw materials. It is conceded that such raw materials are deadily obtainable in Maryland.

Code 1951, art. 81, § 369, provides: '(Imposition of tax). An excise tax is hereby levied and imposed on the use, storage or consumption in this State of tangible personal property purchased from a vendor within or without this State on or after the effective date of this Act, for use, storage or consumption within this State. The tax imposed by this section shall be paid by the purchaser * * *.' Section 370 provides: '(Exemptions.) The use, storage or consumption in this State of the following tangible personal property is hereby specifically exempted from the tax imposed by this sub-title: * * * (f) Tangible personal property not readily obtainable in Maryland which is stored, used or consumed in this State by a person engaged in * * * manufacturing * * *, if such tangible personal property enters into the processing of or becomes an ingredient or component part of the product * * * which is manufactured * * *.' (Section 370(f) was repealed by Ch. 332, Acts of 1955, but was in effect when the transactions in the instant case took place.) Rule 62 of the Comptroller interprets or expands this qualifying clause by declaring that 'property will be considered as entering into the processing of the product * * * which is manufactured * * * if the property is employed either directly or indirectly in the manufacturing * * * of property for sale * * *.' Section 379 provides that to prevent evasion of the tax it shall be presumed 'that the tangible personal property sold by any person for delivery in this State, however made or...