Furnitureland v. Comptroller

• Citation: 771 A.2d 1061,364 Md. 126
• Decision Date: 09 May 2001
• Docket Number: No. 6,6
• Parties: FURNITURELAND SOUTH, INC. et al., v. COMPTROLLER OF THE TREASURY OF THE STATE of Maryland.
• Court: Court of Appeals of Maryland

771 A.2d 1061

364 Md. 126

FURNITURELAND SOUTH, INC. et al., v. COMPTROLLER OF THE TREASURY OF THE STATE of Maryland.

No. 6, Sept. Term, 2000.

Court of Appeals of Maryland.

May 9, 2001.

Motion for Reconsideration Denied June 1, 2001.

H. Bryan Ives, III (Lee R. Rimler and John A. Stoker of Alston & Bird, L.L.P., Charlotte, NC; Andrew H. Levine, Gerard R. Vetter of Goldman & Vetter, P.A., Baltimore) all on brief, and Kim D. Mann (Shawn Mann, L.L.P., on brief), Washington, DC, for appellants.

Deborah B. Bacharach, Assistant Attorney General (J. Joseph Curran, Jr., Attorney General of Maryland, and Kathleen A. Morse, Assistant Attorney General, on brief), Baltimore, for appellee.

Paull Mines, General Counsel, Sheldon H. Laskin, Director, National Nexus Program, Washington, DC, brief of the Multistate Tax Commission filed on behalf of the appellee, amicus curiae.

Argued before BELL, C.J., and ELDRIDGE, RODOWSKY,¹ RAKER, WILNER, CATHELL and HARRELL, JJ.

ELDRIDGE, Judge.

The instant case is a declaratory judgment action brought by the Comptroller of Maryland seeking a judicial determination that the defendants, two North Carolina corporations, are vendors within the meaning of Title 11 of the Tax-General Article of the Maryland Code and are, therefore, required to collect state sales and use taxes from their Maryland customers. Because the Comptroller failed to invoke and exhaust the prescribed statutory administrative and judicial review remedies for resolution of this tax issue, we shall be unable to reach the merits of the case.

I.

Maryland Code (1988, 1997 Repl.Vol.), § 11-102(a) of the Tax-General Article imposes a tax upon a sale in the State, or a use in the State, of tangible personal property or a taxable service. A vendor of the property or service is responsible for the collection of the sales and use tax from the buyer at the time that the sale is made or at the time the use becomes taxable. § 11-403(a). The vendor then remits the tax with a return that covers the period in which the vendor makes that sale. § 11-601(b)(1).

A vendor for purposes of the sales and use tax includes a person who "engages in the business of an out-of-state vendor." § 11-101(m)(1)(i). Section 11-701(b) further provides that engaging in the business of an out-of-state vendor means "to sell or deliver tangible personal property or a taxable service for use in the State" and includes:

"(i) permanently or temporarily maintaining, occupying, or using any office, sales or sample room, or distribution, storage, warehouse, or other place for the sale of tangible personal property or a taxable service directly or indirectly through an agent or subsidiary;

(ii) having an agent, canvasser, representative, salesman, or solicitor operating in the State for the purpose of delivering, selling, or taking orders for tangible personal property or a taxable service; or

(iii) entering the State on a regular basis to provide service or repair for tangible personal property."

A "salesman, representative, peddler, or canvasser" who acts as an agent of a vendor subject to the sales and use tax may, in the discretion of the Comptroller, be held jointly responsible for the payment of the tax. § 11-101(m)(2).

Under Article VI, § 2, of the Maryland Constitution, the Comptroller is charged with the duty to "superintend and enforce the prompt collection of all taxes and revenue; adjust and settle, on terms prescribed by law, with delinquent collectors and receivers of taxes and State revenue...." The Comptroller is responsible for administering the laws that relate to the Maryland sales and use tax. § 2-102(9) of the Tax-General Article.

Furnitureland South, Inc. is a nationwide furniture retailer with three locations in the area of Jamestown and High Point, North Carolina. Furnitureland has no showrooms or other facilities outside of North Carolina. It does not own or rent any real property, or store furniture or other personal property, in Maryland. Furnitureland does not send unsolicited promotional materials to Maryland residents or otherwise initiate direct contact with Maryland customers.

Prior to 1991, Furnitureland had its own fleet of trucks and drivers to make furniture deliveries in North Carolina and throughout the other eastern states. Furnitureland's president, Darrell Harris, decided to separate the interstate delivery portion of the business from the retail operation. The decision was made, at least in part, to avoid collecting sales and use taxes for other states. Harris was advised by his attorney that, as long as Furnitureland delivered only by common carrier and had no other contacts with the taxing state, it would not be obligated to collect other states' sales and use taxes.

Royal Transport, Inc. was established in 1991 as a long distance trucking company. Furnitureland provided Royal with initial financing and technical assistance. The two companies have never shared employees, officers, directors, or shareholders. Royal does not maintain offices, facilities, or equipment in Maryland, and it does not own or lease any real property in Maryland. Furnitureland has employed Royal as its primary furniture delivery carrier since Royal's inception. Prior to 1998, Furnitureland was Royal's only customer. When it makes a delivery of Furnitureland's products in Maryland, Royal does not collect the sales and use taxes from Furnitureland's customers.

Following the refusal of Furnitureland and Royal to submit to a sales and use tax audit, the Comptroller filed in the Circuit Court for Anne Arundel County a complaint for declaratory and injunctive relief against Furnitureland and Royal. The Comptroller sought a declaration that Furnitureland and Royal are "vendors within the meaning of Title 11 of the ... Tax-General Article, and are therefore required to collect Maryland sales and use tax from Furnitureland's Maryland customers and remit the same to the plaintiff." The Comptroller also sought "an injunction enjoining defendants, jointly and severally, from failing to collect and remit Maryland sales and use tax from Furnitureland's Maryland customers."

In the Circuit Court, the Comptroller asserted that Furnitureland is a vendor within the meaning of § 11-101(m)(1)(i) and § 11-701(b)(2)(ii) because it sells furniture for use in Maryland and has the furniture delivered, assembled, and set up in Maryland by Royal, acting as its agent or representative. Royal, the Comptroller alleged, acts as a private or contract carrier, and not a common carrier, when it delivers furniture to Furnitureland's Maryland customers. Therefore, according to the Comptroller, Royal is also a vendor within the meaning of § 11-101(m)(2). The Comptroller contended that the use of the furniture sold to Furnitureland's Maryland customers becomes taxable upon its delivery to those customers and that Royal is jointly responsible with Furnitureland for the collection of the sales and use tax from Furnitureland's customers.

Furnitureland and Royal defended on the ground that they are not out-of-state vendors within the meaning of the Maryland sales and use tax. The defendants further asserted that the Commerce Clause of the United States Constitution, Article I, § 8, cl. 3, prohibits the application of the Maryland sales and use tax statutes to them because they do not have a substantial nexus with the State. The defendant Royal also argued that the Interstate Commerce Act, 49 U.S.C. §§ 10101 et seq., which regulates interstate motor carriers, preempts the State from imposing sales and use tax collection duties on Royal.

The trial consisted of a joint stipulation of facts, additional evidence, and argument. Thereafter, the Circuit Court declared that Furnitureland and Royal, acting as Furnitureland's agent, were out-of-state vendors within the meaning of Maryland's sales and use tax statutes and were, therefore, obligated to register as vendors and collect and remit sales and use taxes to the Comptroller. The court further concluded that the Maryland sales and use tax statutes, as applied to the defendants, satisfied constitutional requirements because a substantial nexus existed between the State and the defendants. The court held, therefore, that Furnitureland and Royal are jointly responsible for the collection of Maryland sales and use tax on all goods that Furnitureland sells and Royal delivers to customers in Maryland. The court also issued an order pursuant to the Comptroller's request for injunctive relief.

Both Furnitureland and Royal timely noted appeals to the Court of Special Appeals. This Court issued a writ of certiorari on its own motion before argument in the intermediate appellate court. Furnitureland v. Comptroller, 358 Md. 381, 749 A.2d 171 (2000). As previously mentioned, we shall not reach the substantive tax and constitutional issues raised by the parties and decided by the Circuit Court. Instead, we shall vacate the judgment below on the ground that Maryland law required the Comptroller to invoke and exhaust the administrative and judicial review remedies provided in the Tax-General Article for the resolution of tax disputes.

II.

Although no party has raised any question regarding the invocation and exhaustion of administrative remedies, and the propriety of a declaratory judgment action, these are issues which this Court will address sua sponte. See Utilities v. WSSC, 362 Md. 37, 44, 763 A.2d 129, 132-133 (2000)

(propriety of a declaratory judgment action); Montgomery County v. Broadcast Equities, 360 Md. 438, 450-451 n. 7, 452, 758 A.2d 995, 1002 n. 7, 1003 (2000) (need to invoke and exhaust administrative remedies).

The Maryland Declaratory Judgment Act, Code (1974, 1998 Repl. Vol.), § 3-409(b) of the Courts and Judicial Proceedings Article, limits the use of declaratory judgments, stating:

"(b) Special form of remedy provided by the statute.—If a statute provides a special form of remedy for a specific type of case, that

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