Comptroller v. Clise Coal

• Citation: 920 A.2d 561,173 Md. App. 689
• Decision Date: 05 April 2007
• Docket Number: No. 654, September Term, 2006.,654, September Term, 2006.
• Parties: COMPTROLLER OF THE TREASURY v. CLISE COAL, INC.
• Court: Court of Special Appeals of Maryland

920 A.2d 561

173 Md. App. 689

COMPTROLLER OF THE TREASURY v. CLISE COAL, INC.

No. 654, September Term, 2006.

Court of Special Appeals of Maryland.

April 5, 2007.

John K. Barry (Gerald Langbaum, J. Joseph Curran, Jr., Attorney General, on the brief), Annapolis, MD, for Appellant.

James E. Walsh, Cumberland, MD, for Appellee.

PANEL: DAVIS, EYLER, JAMES R. WOODWARD, JJ.

EYLER, JAMES R., J.

The Comptroller of the Treasury, appellant/cross-appellee ("appellant"), appeals from an order of the Circuit Court for Allegany County, reducing a motor fuel tax assessment against Clise Coal Co., Inc., appellee/cross-appellant ("appellee"), from $9,036.28 to $5,491.90. The circuit court reasoned that a portion of the assessment, affirmed by the Maryland Tax Court, was not supported by substantial evidence.

On appeal, appellant contends that it was not required to introduce affirmative evidence in support of its assessment because it could rely on a presumption of correctness. In response, appellee contends that the circuit court's partial reversal of appellant's assessment was correct.

On cross appeal, appellee contends that appellant was not authorized to base any portion of its assessment upon a methodology that disregarded appellee's records; and the Tax Court abused its discretion by denying appellee's request for a jury trial. We reverse in part and affirm in part the circuit court's order, thereby affirming the Tax Court's decision in its entirety.

Factual Background

Appellee owns a coal mining and trucking business, which operates in Maryland, West Virginia, and Pennsylvania. Pursuant to Title 9, subtitle 3 of the Maryland Code, Tax General Article, the State imposes a motor fuel tax on motor fuel sold in the State. Appellee holds a "special fuel user license" that allows it to purchase fuel in bulk without having to pay motor fuel tax to its seller. Each month, appellee must file a return in appellant's office setting forth the amount of taxable fuel used and pay the tax on that fuel. The tax is payable on fuel used in Maryland but not fuel used in other states.

Appellant has a statutory right to audit a license holder's monthly fuel tax returns for accuracy. Appellee has been the subject of such audits.

Appellee's vehicles operate on two different types of diesel fuel, also called "special fuel." On-road vehicles must use low-sulphur "clear fuel," which is subject to the motor fuel tax. High sulphur diesel fuel is permitted only for use in off-road equipment such as bulldozers and earth movers. This off-road fuel is not subject to the motor fuel tax. High sulphur fuel ("dyed fuel") is injected with dye that changes its color so that an inspection officer can tell whether a vehicle is using dyed fuel simply by performing a visual inspection. Appellee stored both low and high sulphur fuel at its facilities.

In February 2003, two of appellee's vehicles were stopped by an inspection officer who withdrew fuel and found that the vehicles were using dyed fuel in on-road vehicles. The officer issued citations for each truck, and appellee paid two $1,000 fines.

As a result, appellant audited appellee's records. By statute, appellant is authorized to audit appellee for four years from the date of the audit. Accordingly, appellant audited appellee for the period from March 1999 to March 2003. Some of this time period had been the subject of prior audits.

As described by the Tax Court, the audit resulted in the following findings:

1) The fleet miles per gallon reported by [appellee] was higher than that determined by [appellant];

2) [Appellee] reported receipts, inventories and usage from fuel stored in out-of-state tanks on its Maryland return;

3) [Appellee] reported fuel usage by odometer miles rather than the actual fueling amounts;

4) [Appellee] maintained inadequate receipts of fuel purchased;

5) [Appellee] maintained inadequate documentation to backup [sic] its summary sheet of off-road usage;

6) Additional diesel powered vehicles were fueled from [appellee's] bulk storage tanks, which fuel was not reported on [appellee's] Maryland returns;

7) [Appellee's] inventory records inaccurately calculated inventory levels by erroneously using readings for tanks [sic] sizes which were not the actual tanks maintained by [appellee].

Accordingly, appellant determined that appellee's records were inadequate and computed fuel usage based upon a miles per gallon formula. Appellant determined the mileage that each of appellee's vehicles had been driven during the audit period from odometer readings. Appellant then calculated the average miles per gallon for the fleet. Appellant divided the number of miles driven by the fleet by the estimated miles per gallon to determine the amount of fuel used. Appellant used this calculation to develop the initial assessment.

Appellee pursued the administrative review process within appellant's office. At the hearing, the hearing officer determined, based upon evidence submitted by appellee, that the actual miles per gallon that its vehicles achieved was higher than that originally estimated by appellant, which would result in a lower amount of fuel used.

Appellant reassessed, using a new miles per gallon figure, but it also added additional vehicles to its calculation. The initial assessment had included only appellee's vehicles regulated by the International Fuel Tax Agreement ("IFTA").¹ In the reassessment, appellant also included non-IFTA vehicles. The addition of these non-IFTA vehicles increased the gallons of fuel used by approximately 14,000 gallons. Appellant then issued a reassessment in the amount of $15,401.90 plus interest and penalty.

Appellee then appealed to the Tax Court. Appellee requested a jury trial, which the Tax Court denied without explanation. The Tax Court conducted a hearing at which both sides presented evidence. The Tax Court issued findings of fact and conclusions of law, thereby affirming the assessment and interest, but waiving the penalty.

Appellee then filed a petition for judicial review in circuit court. In circuit court, appellant acknowledged an error in calculation and agreed to reduce the assessment to $9,036.28. The circuit court reversed the Tax Court's decision with respect to the non-IFTA portion of the assessment on the ground that it was not supported by substantial evidence and affirmed the remainder of the decision. The circuit court's decision resulted in an assessment in the amount of $5,491.90.

This appeal followed.

Discussion

Substantial Evidence Requirement

Appellant argues that the "substantial evidence requirement within the standard of review does not require [appellant] to introduce affirmative evidence to support an assessment."

I. The Motor Fuel Tax

Appellee is permitted to buy diesel fuel tax free as a "special user," pursuant to a license issued by the State. Maryland Code (2004 Repl.Vol.) § 9-318 of the Tax-General Article ("T.G."). Those who obtain such a license are subject to certain obligations, which include keeping records, for four years, of the motor fuel that the licensee buys, receives, sells, delivers, or uses in Maryland, including bills of lading, invoices, and any other pertinent records required to be maintained by the Comptroller. See T.G. § 9-309. Further, special users must make such records available for inspection by the Comptroller at any time during business hours. Id.

T.G. § 13-406, entitled "Motor fuel tax assessment when records not kept," states that "[i]f a person fails to keep the records required under § 9-309 . . . the Comptroller may: (1) compute the motor fuel tax due by using the best information in the possession of the Comptroller, and (2) assess the tax due." Such an assessment is prima facie correct. T.G. § 13-411.

If the taxpayer wishes to challenge the Comptroller's initial assessment, it can do so through an application to the Comptroller to revise the assessment. T.G. § 13-508(a)(1).

If the taxpayer is still dissatisfied with the revised assessment, it can appeal to the Tax Court. T.G. § 13-510. "An appeal before the Tax Court shall be heard de novo and conducted in a manner similar to a proceeding in a court of general jurisdiction sitting without a jury." T.G. § 13-523. The burden is upon the taxpayer to show error in the assessment. Fairchild Hiller Corp. v. Supervisor of Assessments for Washington County, 267 Md. 519, 523, 298 A.2d 148 (1973) (citing State Tax Comm'n v. C. & P. Tel. Co., 193 Md. 222, 66 A.2d 477 (1949)). "Absent affirmative evidence in support of the relief being sought or an error apparent on the face of the proceeding from which the appeal is taken, the decision, determination, or order from which the appeal is taken shall be affirmed." T.G. § 13-528(b).

II. Standard of Review

A final order of the Tax Court is subject to judicial review as provided in sections 10-222 and 10-223 of the State Government Article ("S.G."). T.G. § 13-532(a)(1). "Any party to the Tax Court proceeding, including a governmental unit, may appeal a final order of the Tax Court to the circuit court." T.G. § 13-532(a)(2). The inquiry in this Court on appeal is not whether the circuit court erred, but rather whether the administrative agency erred. Consumer Prot. Div. v. Morgan, 387 Md. 125, 160, 874 A.2d 919 (2005). In reviewing the agency's decision, we apply the same standard applicable to the circuit court.

"[J]udicial review of decisions of the Maryland Tax Court is severely limited." Comptroller of the Treasury, Income Tax Div. v. Diebold, Inc., 279 Md. 401, 407, 369 A.2d 77 (1977). The court may:

(1) remand the case for further proceedings;

(2) affirm the decision of the agency; or

(3) reverse or modify the decision if any substantial right of the petitioner may have been prejudiced because a finding, conclusion, or decision of the agency:

(i) is unconstitutional;

(ii) exceeds the statutory authority or jurisdiction of the final decision maker;

(iii)...