Comptroller of Treasury, Income Tax Division v. Diebold, Inc.

• Decision Date: 09 February 1977
• Docket Number: No. 112,112
• Citation: 369 A.2d 77,279 Md. 401
• Parties: COMPTROLLER OF the TREASURY, INCOME TAX DIVISION v. DIEBOLD, INCORPORATED.
• Court: Maryland Court of Appeals

Page 401

279 Md. 401

369 A.2d 77

COMPTROLLER OF the TREASURY, INCOME TAX DIVISION v. DIEBOLD, INCORPORATED.

No. 112.

Court of Appeals of Maryland.

Feb. 9, 1977.

Gerald Langbaum, Asst. Atty. Gen., Baltimore (Francis B. Burch, Atty. Gen. and Jon F. Oster, Deputy Atty. Gen., Baltimore, on the brief), for appellant.

E. Stephen Derby, Baltimore (Victor R. Marsh, Jr., Canton, Ohio, on the brief), for appellee.

Argued before SINGLEY, SMITH, DIGGES, LEVINE, ELDRIDGE and ORTH, JJ., and ROBERT F. SWEENEY, Special Judge.

SINGLEY, Judge.

In this appeal, Comptroller of the Treasury, Income Tax Division (the Comptroller) urges us to reverse an order of the Circuit Court for Baltimore County which had in turn affirmed an order of the Maryland Tax Count. The appellee, Diebold, Incorporated (Diebold), has filed a cross appeal contending that both the Tax Court and the circuit court erred in holding that a portion of its claimed tax refund was barred by limitations. The Comptroller has moved to dismiss the cross appeal on the ground the no appeal will lie from an order of the Comptroller dismissing, as barred by limitations, a claim for a refund of taxes.

The controversy is pivoted upon the proper interpretation and application of Maryland Code (1957, 1957 Repl.Vol.) Art. 81, § 316 which deals with the allocation of corporate income:

'The net income of a corporation (domestic or foreign) shall be allocated in the following manner:

'(a) Income from real estate or tangible personal proerty.-Income from ground rents, rents and royalties and other income from real estate or tangible personal property permanently located in this State (less related expenses) shall be allocated to this State; and such income from real estate or tangible personal property permanently located outside this State (less related expenses), shall be allocated outside this State.

'(b) Capital gains and losses.-1. Capital gains and losses from sales of real property located in this State are allocable to this State. 2. Capital gains and losses from sales of tangible personal property are allocable to this State if: (A) the property had a situs in the State at the time of the sale; or, (B) the taxpayer's commercial domicile is in this State and the taxpayer is not taxable in the state in which the property had a situs. 3. Capital gains and losses from sales of intangible personal property are allocable to this State if the taxpayer's commercial domicile is in this State.

'(c) Business income.-The remaining net income, hereinafter referred to as business income, shall be allocated to this State of the trade or business of the corporation is carried on wholly within this State, but if the trade or business of the corporation is carried on party within and partly without this State so much of the business income of the corporation as is derived from or reasonably attributable to the trade or business of the corporation carried on within this State, shall be allocated to this State and any balance of the business income shall be allocated outside this State. The portion of the business income derived from or reasonably attributable to the trade or business carried on within this State may be determined by separate accounting where practicable, but never in the case of a unitary business; however, where separate accounting is neither allowable nor practicable the portion of the business income of the corporation allowable to this State shall be determined in accordance with a three-factor formula of property, payroll and sales, in which each factor shall be given equal weight and in which the property factor shall include rented as well as owned property and tangible personal property having a permanent situs within this State and used in the trade or business shall be included as well as real property. The Comptroller of the Treasury shall have the right, in those cases where circumstances warrant, to alter any of the above rules as to the use of the separate accounting method or the formula method, the weight to be given the various factors in the formula, the manner of valuation of rented property included in the property factor and the determination of the extent to which tangible personal property is permanently located within the State. ¹

Diebold incorporated in Ohio in 1876, is engaged in the manufacture and sale of bank and office equipment, primarily vault doors, burglar alarms and automated files. It does business in all 50 states. During the years 1966-1969, both inclusive, Diebold owned and operated Young & Selden as one of its four divisions. Young & Selden was not separately incorporated. Its principal business activity was the printing of checks and other business forms in Maryland. It did business in approximately 20 states.

Diebold's Maryland corporate income tax returns for 1966 and 1967 were due to be filed on or before 15 March 1967 and 15 March 1968, respectively, but Diebold requested and the Comptroller granted extensions to 15 July 1967 and 15 July 1968, respectively. Diebold made timely filing of a single return, in its own name for each of these years within the period of the extensions.

For the year 1969, for the first time, Diebold filed two returns, one in the name 'Diebold, Incorporated, except Young & Selden Division'; the other in the name 'Young & Selden Division, Diebold, Incorporated,' and claimed a refund of $16,860.48. Because Diebold had determined that the filing of two returns in this fashion generated a lesser amount of tax, on 14 July 1970, two similar amended returns were filed for the year 1966 and a refund of $6,286.31 was claimed. On 7 May 1971, two amended returns were filed for the year 1967, and a refund of $5,296.27 was claimed. On 14 July 1970, two amended returns for the year 1968 were filed, and a retund of $15,196.85 was claimed. Thus, the total of the refunds claimed was $43,639.91.

The amended returns for the years 1966, 1967 and 1968 and the returns as originally filed for the years 1969 utilized the threefactor formula permitted by Code, Art. 81, § 316(c), and the tax liability was derived from separate income and expense accounts maintained for Diebold and Young & Selden to which the formula was spplied in separate schedules filed with the returns.

The Comptroller took the position that because Young & Selden was not a separately incorporated subsidiary, Diebold conducted a unitary business and that its Maryland income tax must be computed by the application of the three-factor formula to its aggregate property, payroll and sales, and not by the application of the formula to separate accounts for Diebold and Young & Selden. As a consequence, the claims for refunds were denied. Additionally, the Comptroller found that the refunds claimed for the years 1966 and 1967 were barred by limitations.

Diebold appealed to the Maryland Tax Court, which concluded that the refunds claimed for the years 1966 and 1967 were barred by limitations, but that the separate filings made for the years 1968 and 1969 were proper, and allowed the refunds claimed.

The Comptroller entered an appeal and Diebold filed a cross appeal in this Court from the order of the Tax Court which was transferred by this Court to the Circuit Court for Baltimore County. See Shell Oil Co. v. Supervisor, 276 Md. 36, 343 A.2d 521 (1975). The circuit court affirmed the Tax Court order in all respects, and an appeal and a cross appeal to the Court of Special Appeals followed. We granted certiorari before the case came on for hearing in that court.

The Comptroller's Appeal

The Comptroller's argument is essentially this: Article 81, § 316(c) is similar to the statutes of other states providing for the...