Comptroller of Treasury v. John C. Louis Co., Inc., 93

• Decision Date: 24 July 1979
• Docket Number: No. 93,93
• Citation: 285 Md. 527,404 A.2d 1045
• Parties: COMPTROLLER OF the TREASURY v. JOHN C. LOUIS COMPANY, INC. et al.
• Court: Maryland Court of Appeals

Page 527

285 Md. 527

404 A.2d 1045

COMPTROLLER OF the TREASURY v. JOHN C. LOUIS COMPANY, INC. et al.

No. 93.

Court of Appeals of Maryland.

July 24, 1979.

Paul S. Sugar, Asst. Atty. Gen., Baltimore (Francis B. Burch, Atty. Gen., Baltimore, on the brief), for appellant.

Paul E. Burke, Jr., Baltimore (McKenney, Thomsen & Burke, Baltimore, on the brief), for John C. Louis Co., Inc. et al.

Donald F. Burke, Baltimore (Cable, McDaniel, Bowie & Bond, Baltimore, on the brief), for McClung-Logan Equipment Co., Inc.

Argued before MURPHY, C. J., and SMITH, DIGGES, ELDRIDGE, COLE and DAVIDSON, JJ.

DAVIDSON, Judge.

The Maryland Retail Sales Tax Act (Act), Md.Ann.Code art. 81, § 324(i) (1957, 1975 Repl.Vol.), provides in pertinent part:

" 'Price' means the aggregate value in money of any thing or things Paid or delivered, or promised to be paid or delivered By a purchaser to a vendor in the consummation and complete performance of a retail sale without any deduction therefrom on account of the cost of the property sold, cost of materials used, labor or service cost, or any other expense whatsoever. 'Price' shall not include the following:

"(4) The amount paid by any purchaser on account of any bona fide freight, delivery and other transportation charges in connection with any sale of tangible personal property if said freight, delivery or other transportation charges are stated or shown as a separate item from the price of the tangible personal property transferred in the retail sale." (Emphasis added.) ¹

The question here is whether a retail seller of tangible personal property, subject to a sales tax under the Act, can exclude from the price upon which that tax is computed ("price") a charge for delivering the property from the supplier or manufacturer (supplier) to the retail seller, if that charge is separately stated. In other words, the question is whether the retail seller is required to collect and the buyer is required to pay a tax upon such a charge. We here hold that under certain circumstances the retail seller may exclude such a charge from "price," and need not collect a tax on the amount of such a charge.

The appellees, John C. Louis Company, Inc., Chesapeake Supply & Equipment Co., Chesapeake Supply & Equipment Corp., I-R Equipment Corporation, General Supply and Equipment Co., Inc., Lutherville Supply and Equipment Co., Inc., and McClung-Logan Equipment Co., Inc. (retail sellers), are each, insofar as here relevant, retail sellers of heavy construction equipment such as cranes, earthmovers, bulldozers, loaders, and graders. During 1973 and 1974, for the first time since the enactment of the Act in 1947, the appellant, Comptroller of the Treasury (Comptroller), levied assessments against these retail sellers for uncollected and unpaid sales taxes on charges for delivery from the supplier to the retail seller. A hearing examiner, Bernard Moan, denied claims for a refund. The retail sellers appealed to the Maryland Tax Court (tax court).

In the tax court, these retail sellers presented detailed evidence to show the customs, usage, and practices prevailing within their industry. Ordinarily, such retail sellers do not keep large pieces of equipment in inventory. Those few items bought to be carried in inventory are, of course, delivered by the supplier to the retail seller before the sale. The retail seller, in turn, delivers the equipment to the buyer after the sale.

The bulk of the equipment sold by such retail sellers, however, is specially ordered for a particular buyer in accordance with that buyer's specifications. Such specially ordered equipment is sometimes delivered from the supplier directly to the buyer's job site. On other occasions, such as when the equipment needs cleaning and servicing before delivery, or arrives in the area at a time when the buyer's job site is shut down, it is delivered to the retail seller, who, often on the very next morning, delivers it to the buyer.

Before 1973, such retail sellers customarily had stated the charge for delivery of such equipment from the supplier separately from the "price" and had not collected sales tax on the amount of such charges. This had been the accepted, customary practice whether the equipment was bought for inventory or specially ordered for a particular buyer and whether the equipment was delivered from the supplier to the retail seller, who in turn delivered it to the buyer, or was delivered from the supplier directly to the buyer.

Various practices were followed in stating the amount of the delivery charge. General Supply and Equipment Co., Inc., Chesapeake Supply & Equipment Co., and Chesapeake Supply & Equipment Corp. stated as the amount of the delivery charge the amount of the delivery cost actually incurred. John C. Louis Company, Inc. stated the amount of the delivery charge which appeared in the contract made at the time of the sale. In approximately 10 per cent of its sales, the delivery cost actually incurred differed from the amount of the delivery charge stated in the contract. When the contract amount exceeded the delivery cost actually incurred, the buyer would pay the contract amount and the retail seller would pay the excess. When the contract amount was less than the delivery cost actually incurred, the amount paid by the buyer would be reduced. McClung-Logan Equipment Co., Inc. stated an amount for "freight and delivery" in the contract made at the time of sale. "Freight and delivery" included a charge for delivery incurred for delivery from the supplier to the retail seller and a charge for delivery incurred for delivery from the retail seller to the buyer. The buyer would pay the contract amount whether it exceeded or was less than the amount of the delivery cost actually incurred. Lutherville Supply and Equipment Co., Inc. stated an amount for "freight and handling" which was approximately two times the amount of the delivery cost actually incurred. The record contains no evidence to show the practice followed by I-R Equipment Corporation in stating the amount of delivery charges.

The appellees are also retail sellers of small pieces of equipment and replacement parts for large pieces of equipment. Ordinarily, these items are sold from inventory. Each of these items, however, bears a different serial number and a record of the delivery cost actually incurred is kept for each. Before 1973, the retail sellers customarily stated the charge for delivery of these items from the supplier to them separately from the "price," and did not collect tax on the amount of such charges. The amount separately stated as the delivery charge was the delivery cost actually incurred.

The Comptroller presented evidence to show that as a matter of administrative interpretation, charges for delivery from a supplier to a retail seller, even if stated separately, were considered to be a part of the "price" to the buyer and to be taxable. The Assistant Director of the Retail Sales Tax Division, who had been employed by that division for approximately 24 years, said:

"We have always felt that inbound freight (the charge for delivery from the supplier to the retail seller) was not one in connection with the retail sales. Retail sales is one between a vendor and his customer. . . . We have always felt that inbound freight transactions between the manufacturer or supplier and the vendor, we feel that a retail sale or the exclusion in 324(i) (4) is for a retail sale between the vendor and his customer."

He conceded that the Comptroller had never promulgated any formal regulation nor publicized this interpretation in any way. Moreover, he testified that he was unaware of any audits, previous to the ones here in question, which resulted in a deficiency assessment for a charge for delivery from a supplier to a retail seller. Indeed, the only audit he could remember relating to such a charge occurred approximately 15 to 18 years earlier. It involved a "catalogue order store chain" which added to the price quoted in the catalog a separately stated charge for delivery from the supplier to the catalog order store and collected from the buyer a tax on the total amount. He maintained that catalog order store chains, such as "Sears, Montgomery Ward, Speigels, (and) J. C. Penney," have "always followed the policy" although he did not "have any idea how they became informed of the policy." He stated that on a number of occasions customers of such stores had called him to protest the tax and that he had always informed the protesting customers that the tax was in accord with administrative policy.

The tax court found that the meaning of section 324(i)(4) was plain and unambiguous. That court pointed out that article 81, sections 324(d) ² and 324(f) ³ provide "separate and distinct definitions of 'sale' and 'retail sale' " and that the terms "sale" and "retail sale" both appear in section 324(i)(4). It held that "(t)he plain meaning of this statute requires us to conclude that freight and delivery charges from a (supplier) to a retailer are not included in the price of the article transferred in the retail sale where such charges are separately stated."

The Circuit Court for Baltimore County (circuit court) affirmed. We issued a writ of certiorari to the Court of Special Appeals before consideration by that Court. With respect to some of the parties, we reach the same result as did the tax court, although for somewhat different reasons, and as to these parties we shall affirm. As to the remaining parties, we shall vacate without affirmance or reversal and remand for further proceedings in the tax court.

The Comptroller initially contends that the tax court and the circuit court erred when they concluded that the meaning of section 324(i)(4) is plain and unambiguous and that the term "sale" as used in that section means "sale" and does not mean "retail sale." He agrees that the meaning of that section is plain and unambiguous, but...