Disclosure Information Group v. Comptroller of the Treasury

• Decision Date: 03 September 1987
• Docket Number: No. 1486,1486
• Citation: 530 A.2d 8,72 Md.App. 381
• Parties: , 80 A.L.R.4th 1117 DISCLOSURE INFORMATION GROUP, et al. v. COMPTROLLER OF THE TREASURY. Sept. Term 1986.
• Court: Court of Special Appeals of Maryland

Page 381

72 Md.App. 381

530 A.2d 8, 80 A.L.R.4th 1117

DISCLOSURE INFORMATION GROUP, et al. v. COMPTROLLER OF THE TREASURY.

No. 1486 Sept. Term 1986.

Court of Special Appeals of Maryland.

Sept. 3, 1987.

Alan S. Kaden (Fried, Frank, Harris, Shriver & Jacobson, Washington, D.C., Daniel R. Kimball and Lerch, Early, Roseman & Frankel, Bethesda, on brief), for appellants.

Deborah B. Bacharach, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., Linda Koerber Boyd and Gaylin Soponis, Asst. Attys. Gen., on brief), Baltimore, for appellee.

Argued before ALPERT, KARWACKI and POLLITT, JJ.

KARWACKI, Judge.

Between 1980 and 1983, appellants Disclosure, Inc. (DI) and National Standards Association (NSA), and Disclosure Partners (DP), the predecessor to appellant Disclosure Information Group, purchased all or substantially all of the assets of four businesses. The Retail Sales Tax Division of the Comptroller of the Treasury levied sales tax assessments against the appellants in connection with those transactions as follows:

DP: $26,119.98 in tax plus interest and penalty for the period April 20, 1982 through September 14, 1983;

DI: $22,803.79 in tax plus interest and penalty for the period January 1, 1980 through December 31, 1983;

NSA: $109,393.59 in tax plus interest and penalty for the period January 1, 1980 through December 31, 1983.

The appellants requested a hearing on the assessments. In an opinion dated January 7, 1985, a hearing officer for the Retail Sales Tax Division affirmed the major portion of each assessment, and the appellants sought review of that decision by the Maryland Tax Court.

A hearing was held before the Tax Court on August 29, 1985. At that hearing the appellants contested the assessment of a sales tax on their purchases of "subscription lists," containing names, addresses and other customer information, which had been the primary asset of each of the businesses purchased. On March 26, 1986, the Tax Court issued an Order and Memorandum of Grounds for Decision affirming the assessments levied by the Comptroller. It determined that the subscription lists at issue were tangible personal property subject to sales tax under the Maryland Retail Sales Tax Act, Md. Code (1980 Repl. Vol., 1986 Supp.), Art. 81, §§ 324 through 371, ¹ rejecting the appellants' argument that the intangible information contained in the transferred materials was the actual subject of the sales.

The appellants subsequently appealed to the Circuit Court for Montgomery County. In an oral opinion issued from the bench at a hearing on October 3, 1986, Judge Richard B. Latham affirmed the Tax Court's decision. Still refusing to accept defeat, the appellants have pursued the matter to this Court, where they present the following issues:

1. Did the Circuit Court for Montgomery County err in applying a standard of review appropriate to factual determinations to the purely legal determination of the Maryland Tax Court?

2. Whether the intangible element (i.e., the names and addresses) of the purchased subscription lists is severed from the tangible carrier (e.g., the paper on which the names are typed) when used by the Appellants, thus exempting the acquisitions of these lists from sales tax?

As these two issues are interrelated, we shall discuss them together.

The standard to be applied by a circuit court in reviewing a decision of the Maryland Tax Court is set forth in § 229(o):

Decision of circuit court.--In any case, the circuit court for the county shall determine the matter upon the record made in the Maryland Tax Court. The circuit court shall affirm the Tax Court order if it is not erroneous as a matter of law and if it is supported by substantial evidence appearing in the record. In other cases, the circuit court may affirm, reverse, remand, or modify the order appealed from.

Relying on principles enunciated in Ramsay, Scarlett & Co. v. Comptroller, 302 Md. 825, 490 A.2d 1296 (1985), we recently outlined a three-step analysis for applying this standard of review:

1. First, the reviewing court must determine whether the agency recognized and applied the correct principles of law governing the case. The reviewing court is not constrained to affirm the agency where its order "is premised solely upon an erroneous conclusion of law." 302 Md. at 834, 490 A.2d 1296.

2. Once it is determined that the agency did not err in its determination or interpretation of the applicable law, the reviewing court next examines the agency's factual findings to determine if they are supported by substantial evidence, i.e., by such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. Id. At this juncture, the Ramsay, Scarlett court reminds us that "It is the agency's province to resolve conflicting evidence, and, where inconsistent inferences can be drawn from the same evidence, it is for the agency to draw the inference." Id. at 835, 490 A.2d 1296.

3. Finally, the reviewing court must examine how the agency applied the law to the facts. This, of course, is a judgmental process involving a mixed question of law and fact, and great deference must be accorded to the agency. The test of appellate review of this function is "whether, ... a reasoning mind could reasonably have reached the conclusion reached by the [agency], consistent with a proper application of the [controlling legal principles]." Id. at 838, 490 A.2d 1296.

Comptroller v. World Book Childcraft International, Inc., 67 Md.App. 424, 438-39, 508 A.2d 148, cert. denied, 307 Md. 260, 513 A.2d 314 (1986), applied in Pinder v. Dean, 70 Md.App. 252, 520 A.2d 1119, cert. granted, 309 Md. 706, 526 A.2d 610 (1987); United Parcel Service v. Comptroller, 69 Md.App. 458, 518 A.2d 164 (1986); Matthew Bender & Co. v. Comptroller, 67 Md.App. 693, 509 A.2d 702 (1986).

The appellants contend that the circuit court failed to distinguish between the Tax Court's factual findings and its legal conclusions and that its failure to make this distinction resulted in an overly deferential review of the Tax Court's decision. The appellants, however, improperly characterize the Tax Court's decision in this case as purely a legal conclusion, when that decision actually involved a mixed question of law and fact. See Comptroller v. World Book Childcraft International, Inc., supra, 67 Md.App. at 440, 508 A.2d 148 ("most decisions of an agency represent neither a singularly factual or legal determination; rather, they involve an application of the law to the facts ..."). Thus, assuming that the Tax Court "recognized and applied the correct principles of law governing the case" and that its factual findings were "supported by substantial evidence," its decision applying the law to the facts should be accorded great deference.

At the outset, we note that there was no factual dispute in this case. The only issue to be resolved by the Tax Court was whether the appellants' acquisitions of subscription lists constituted purchases of "tangible personal property" within the meaning of § 324(e), which defines that term as "corporeal personal property of any nature." Prior to the hearing before the Tax Court, the parties jointly prepared and submitted a stipulation containing the pertinent facts. They agreed that a "subscription list" is "a list of a company's customers that subscribe to a particular product. The list generally includes each subscription customer's name, address, the product it subscribes to, and also may include billing information." Given the agreed statement of facts presented to the Tax Court, from which there were no conflicting inferences to be drawn, the only conclusions to be reviewed by the circuit court were the Tax Court's legal conclusions and mixed conclusions of law and fact. See Pinder v. Dean, supra, 70 Md.App. at 257, 520 A.2d 1119.

The principles governing this case are found in the case law interpreting § 324(e). Of particular significance are Comptroller v. Equitable Trust Co., 296 Md. 459, 464 A.2d 248 (1983), and Comptroller v. Washington Nat'l Arena Limited Partnership, 66 Md.App. 416, 504 A.2d 666, cert. denied, 306 Md. 289, 508 A.2d 489 (1986). In Equitable Trust the Court of Appeals held that a copy of a computer program contained on a magnetic tape was tangible personal property subject to sales tax under the Retail Sales Tax Act. In Washington Nat'l Arena we found "substantial evidence" to support the Tax Court's view that the purchase of a ticket to an entertainment or sports event does not involve a sale of tangible personal property because such tickets are merely physical symbols of an abstract right. Judge Adkins, speaking for this Court, stated:

In Comptroller v. Equitable Trust Co., 296 Md. 459, 464 A.2d 248, 249 (1983), the court held that canned computer programs, tangible magnetic tapes enhanced in value by the intangible information encoded onto them, were tangible personal property. The object of the purchase of a canned program was to use information contained in an ordered sequence of magnetic impulses. As "[a] meaningful sequence of magnetic impulses cannot float in space," Equitable, 296 Md. at 484, 464 A.2d 248, the sequence does not become physically severed from the magnetic tape when used by the consumer. By contrast, the object of the purchase of an amusement ticket is to view an amusement. The physical act of viewing is accomplished independently from holding onto a ticket, although it is symbolized by one. We are not persuaded that Equitable provides us with relevant law.

66 Md.App. at 423-24, 504 A.2d 666.

The Tax Court in the case sub judice relied on Equitable Trust in rejecting the appellants' argument that the transfers at issue involved intangible information rather than tangible personal property. Because we decided Washington Nat'l Arena after the hearing before the Tax Court, it could not have been cited by the parties at that stage in the proceedings. Moreover, although the Tax Court...